Volvo Cars Looks for BEVs’ Low Margins to Improve

Volvo Cars’ second-quarter financial results show a slump in its battery-electric-vehicle profitability. But the automaker nevertheless reiterates faith in its EX30 entry-level BEV in its drive toward being an exclusively electric brand by the end of the decade.

CEO Jim Rowan highlights the automaker’s Q2 overall revenue increase, from SEK 71.3 billion ($6.9 billion) in the second quarter of 2022 to SEK 102.2 billion ($9.97 billion) this year. This also saw a 39% increase in operating profits, excluding joint ventures and associates, to SEK 6.4 billion ($624 million) and a corresponding EBIT margin of 6.3% for the second quarter of 2023.

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One area of concern is the fall in profit margins of BEVs versus Volvo’s ICE-powered vehicles: down to just 3% compared to 21% for the ICE cars and also down on the 8% margins recorded for BEVs for the full-year 2022. Volvo’s chief financial officer Johan Ekdahl says this was due to a temporary increase in lithium costs for batteries purchased when prices peaked in 2022, and this will see a marked reduction later this year.

During the quarter, sales of BEVs increased 178% year-on-year and accounted for 16% of the automaker’s total share. Here, Rowan highlights the successful launches of the brand’s first purely BEV-designed vehicles, the Volvo EX90 and EX30. He feels the SUV models, when in full production, will be more profitable than the existing XC40 Recharge and C40 Recharge BEVs that were built on hybrid-designed platforms.

Specifically mentioning the EX30, Rowan says: “We’re really excited about this car and will offer it with two different battery types to allow us to bring down the cost base for the customer. We think the difference in options, from what is coming back to us from consumers, suggests that we have got this just right and this will be a high-volume model for us.”

He also believes the EX30 will address Volvo’s low BEV profit margins. The automaker expects gross margins on the car in the range of 15% to 20%. Rowan adds: “Although the car is small, we think it represents a huge opportunity for us. With this car, we will enter a new segment and a new demographic for the company, one that will help us grow rapidly in the coming years.

“We’re delighted to share today that the response to this car has been overwhelmingly positive, and the order intake has exceeded even our ambitious projections. This car will begin its production life in Q3 and the first customers will be sitting behind the wheel before the end of the year.”