VOLVO'S HAKAN SAMUELSSON: Climate neutral by 2040

Volvo Cars CEO Hakan Samuelsson has set ambitious goals for the Swedish automaker. He wants half of Volvo's global sales to come from full-electric cars by 2025 and the other half to be hybrids. He also wants the company to become climate-neutral by 2040, and to get there, it must slash its life cycle carbon footprint by 40 percent per car by the middle of the next decade.

He explained how Volvo aims to achieve these goals in an interview in October with Automotive News Europe Managing Editor Douglas A. Bolduc and Automotive News Staff Reporter Urvaksh Karkaria. Here are edited excerpts.

Q: The U.S. market for EVs seems to be a bit sketchy. Do you have any real confidence in U.S. EV sales?

A: Yes, we do. This is part of the beauty of Volvo. We will not stop making conventional cars. We will have both in parallel. Of course, it would be a bigger bet if you would stop production of conventional cars and rely on a big uptake for EVs. On the other hand, every EV we will sell is an additional car to our overall volume. We are quite confident that EVs will contribute to our U.S. growth.

When will Volvo's U.S. plant start producing a battery-electric vehicle?

In 2022. It will be on the SPA2 architecture.

How long will it take for EVs to account for 10 percent of your global sales?

We should get close to that in about two years, assuming that the market will continue to grow.

What about plug-in hybrids?

We feel the same about our plug-in hybrids, which will now be part of the Recharge line. That's not just an alternative to a conventional car. It's something more, so it should bring us growth. We are quite confident it will. But we have to do a better job marketing it. We have to be better at communicating what the advantages are with plugging in. And that's why we decided to give these cars their own name.

How does Volvo anticipate the XC40 Recharge being used?

We did some customer research and I was surprised to learn that on average, people are out with the cars 15 times a day. This includes picking up and dropping off kids at school and sports, grocery shopping and so on. There is a lot of driving going on in suburbia. So you probably need to offer more than 400 kilometers of range — otherwise you are on the short side. That range is easier to achieve with a smaller car.

Is Volvo on track to sell 700,000 cars this year?

It's absolutely achievable this year, and our ambition is to reach 800,000 next year. We are on the way because we have never had such a strong product offering.

What percentage of your 2020 global sales will be plug-in hybrids?

Next year we want 20 percent of our sales to be plug-in hybrids. If people recharge them 50 percent of the time, that corresponds to 10 percent of our cars essentially being full-electric cars in 2020. It's a big step.

Are your plug-in hybrids already profitable?

Yes.

Can Volvo's electric product strategy succeed without the full participation of the U.S. market? If that leg is missing from your global product stool, will the stool still stand?

Yes, I think so. The conventional car will still be the base. But if we only had that, I would be more skeptical about the growth prospects in America. Both the BEVs and PHEVs will help us grow. And it is not just about sales; it's about building the brand. While there are no guarantees, I am quite sure that by being a bit more progressive with BEVs and PHEVs will improve our brand image. This will be good for all Volvo models.

What additional space do you see in the North American market for crossovers or SUVs? Will Volvo add product on that front?

Globally, SUVs were at 62 percent of our total sales, and in the U.S. it is probably more. But there might still be room for an additional SUV. Let's see. But you should also maybe anticipate that the move toward electrification will probably make people think about air resistance again.

People who are interested in longer range cannot ignore that lower-riding cars are better for this. Electric cars would probably be a bit lower and smaller. I wouldn't be surprised as we move toward electric cars if market forces cause a comeback for smaller sedans, especially if you don't need the size of an SUV. I think this is especially true with younger drivers.

Your new U.S. plant has only recently started production, but is there still greater need to produce here? How much U.S. production capacity does Volvo need, long term?

The simple answer would be that we should produce as many cars in the U.S. as we sell in the U.S. — but not necessarily exactly the same cars.

We can build 150,000 cars at the Charleston factory, and if we can sell 150,000, we would also have a really good balance of trade. Therefore, we would really contribute to the ambitions that the government has right now to import less and build more in the U.S. We sell more than 100,000 cars in the U.S., and maybe produce a third of that in the U.S. But we will add car lines, so we can have it at one to one.

Volvo still sells a lot of diesels in Europe. How will you convince customers to switch?

We need to show them we have an alternative that's as good as the diesel: the mild hybrid. If you have no intention of charging, then a gasoline mild hybrid should match the consumption of a diesel, but without the NOx problems.

Volvo named China's CATL and South Korea's LG Chem as its electric-car battery suppliers. But a Swedish firm, Northvolt, is getting started and has a deal with Volkswagen Group. Will Volvo also do business with Northvolt?

They are a potential supplier. But in the first step, we prefer to work with suppliers that can follow us globally and not just supply us in Europe. We went with LG Chem and CATL because they will build battery factories in Europe, the U.S. and Asia-Pacific.

You have said that Volvo should be at the forefront of the industry's big shifts. How is Volvo doing in this regard?

We are more convinced than ever that being at the forefront of these disruptive movements is crucial. As a small company, making this shift will help us achieve our goal of becoming more premium and being more relevant in the global arena.

If we don't do this then we would be following what others are doing, or have already done. Disruption or change is a huge opportunity for a small company.

What about the move toward offering self-driving cars?

When it comes to that, it is a bit more challenging, technically, than we originally thought. But we are still convinced our next-generation cars should have what we call a Highway Pilot [which takes control of the car on a highway]. We will be very careful to avoid bringing out something that is perceived to be automated when it's not, but the driver overestimates the capabilities. We really want to deliver something that is as safe or even safer than the impression you get. That will come, first for usage on the highway.

Why is Volvo determined to change the vehicle ownership model?

We have traditionally sold cars to customers, but we believe they would like to have mobility in other ways. And it shouldn't be overly complicated. They want the freedom to move.

To get this in the past I had to go to the dealership with a lot of money because I bought a car in cash. Then I could get a loan. Then I could lease it. What will be very attractive in the future is paying a flat subscription rate for the product. You still get the freedom to move, because this car is at your disposal. After three years, if you like it, you keep it for three or four more years. If you want a bigger one, you change to a bigger one. If you don't want it anymore you cancel the contract. That's what you get with Care by Volvo.

Will this business ever be profitable?

There is absolutely no reason why this should not be as profitable as leasing. A capital investment of €50,000 [approximately $55,300] is a lot more than committing €500 [$553] a month. This makes Care by Volvo especially attractive to younger people. Our Care by Volvo customers are 10 years younger than our typical customers. They normally have good jobs and a decent cash flow but they don't have €50,000 to invest in a car.

How are you going to cover the cost of the investments needed to cut your carbon footprint?

One thing we will do is carve out our combustion-engine business and put it together with Geely to fully focus on future powertrains. That's one way that we can afford the investments we are making to become climate neutral — by prioritizing. We have to keep the investment in r&d at around 5 percent or 6 percent of revenue.

Is it fair to say that sustainability has risen to the same level as safety at Volvo?

Yes. It is really important that we treat sustainability the same way we treat safety because that's a very concrete way of expressing what we're trying to achieve.

Safety is part of the mindset at Volvo. We don't need to have task forces or special projects around safety. People just know this is part of our business. Our cars have become more premium and more valuable because of this emphasis on safety.