Today, I’m talking to Jim Rowan, the CEO of Volvo Cars. Now, Jim’s only been at Volvo for a short time. He took over in 2022 after a decades-long career in the consumer electronics industry.
Before Volvo, his two longest stints were at BlackBerry, whose QNX software is used in tons of cars, and then at Dyson, which once tried and failed to make an electric car. Jim and I talked a lot about how that unique experience has influenced how he thinks about the transformational changes happening in the world of cars.
For Volvo, the stakes are high. The company has pledged to be all-electric by the end of the decade, and Jim is also making some very different bets on software and revenue than the rest of the car industry. Jim’s view is that automakers are undergoing three major shifts all at once: electrification, autonomy, and direct-to-consumer sales.
Most carmakers are reacting to these shifts by aggressively integrating their hardware and software and trying to treat their cars like, well, smartphones. That doesn’t just mean putting a big screen in a car. It means treating those screens and the apps that they run like platforms and trying to monetize those platforms with advertising, commerce, and subscription features, just like Apple and Google monetize iOS and Android.
This shift is changing everything about cars: how they’re designed and manufactured; how they’re marketed and sold; and how they’re supported and monetized for years after you buy one. Most carmakers are trying to take those screens back from things like Apple CarPlay and create new recurring revenue lines. GM doesn’t even support CarPlay anymore. And BMW has been the most aggressive about market testing subscriptions for things like heated seats, a test that did not go over very well.
What’s interesting is that Jim doesn’t buy any of this. You’ll hear him say Volvo is not interested in monetizing the experiences inside the car. He just doesn’t think that any carmaker’s infotainment system will be able to actually compete with our smartphones. Instead, he’s focused on building recurring revenue outside the car with things like maintenance and insurance. It’s a strikingly different approach to the rest of the auto industry, and honestly, it’s kind of refreshing.
Of course, it’s Decoder, so we talked about Volvo’s admittedly complex structure and how it works with sister company Polestar and Chinese parent company Geely, and I really wanted to know how he feels about the big picture in EV sales, as prices fall and supply begins to outstrip demand. I also pushed on Volvo’s big decision to use the Tesla charging plug like the rest of the industry, but it didn’t seem like Jim wanted to talk about that very much. I did my best, though.
One note before we start: Jim and I had a very confusing exchange about the operating systems inside Volvo vehicles. Briefly, Volvo is headed toward having its own operating system for the whole car called Volvo OS, but its infotainment system will run Android. That doesn’t make it less confusing, and I will explain more when we get there. It’s a ride.
Okay, Jim Rowan, CEO of Volvo Cars.
This transcript has been lightly edited for length and clarity.
Jim Rowan, you are the CEO of Volvo Cars. Welcome to Decoder.
There is quite a lot going on in the car business right now, so I’m going to try to get it all in, but there’s a lot going on in the car industry right now. It seems like a moment of intense change.
Yeah, for sure. Lots of things [are] going on at the same time. On one side, you have this huge transformation in terms of the technical transformation, but at the same time, you have a massive transformation on the commercial side. And then all of that is underpinned by this quest and this desire and the need to move toward a more sustainable future. So you get this almost triple-headed change agent that sits right in front of us, and it’s just super interesting.
What’s particularly interesting about that is you are a relatively new car CEO — a little over 18 months as the CEO of Volvo Cars. Before that, you were at BlackBerry, at Dyson, and you were the interim CEO at Ember, the mug company. How did you come to Volvo?
You know, the attraction for me, I’m an engineer, and the amount of technology that’s been poured into the industry simultaneously, it just makes for a really appealing place to be right now, just simply as an engineer alone. So, because you’ve got this massive transformation on electrical propulsion from internal combustion, that’s one side, and although the industry talks a lot about electrification, it’s really the easy part. That’s the tip of the iceberg.
The much more profound change that’s happening in the industry is this move to core compute, and the move to core compute technology brings with it silicon and really being able to understand high-computational silicon, software — of course, in all its various strands of software, be that embedded software or mission-critical software or the application layer to your iPhone. Then you’ve got connectivity inside the car. Then you’ve got 5G externally. You’ve got cloud architecture. You’ve got connectivity to the phone and the iOS strand, or Android for that matter.
And then you’ve got data, and by data, I don’t mean data capture. I mean data analytics, which, of course, is now going to be augmented by AI and machine learning. And that technological transformation — all those different strands — are coming in at the same time, and it means that you don’t have a choice. You don’t say, “Oh, I’m just going to become really good at software or silicon.” You have to do all of this at the same time as well as electrical propulsion, and that’s what makes it both challenging, hugely interesting, and at the same time, profoundly demanding on the industry in general. That’s really what made me saddle up, if you like, and get back on the horse to get involved with Volvo.
We’ve had a few of your peers — CEOs of other car companies — on the show. Broadly, what you’re describing is that car companies, especially traditional auto manufacturers like Volvo, had millions of suppliers. The suppliers would put whatever processors into their components. The car companies would assemble all those components. There would be some sort of CAN bus system or something like it depending on the car manufacturer, but it was very basic. And then you had a car, and you’re off to the races.
What you’re describing is one big computer in the car or maybe two and that’s going to run everything, and we’ve got to redesign the entire car around that kind of architecture, which some carmakers have done, right? The new carmakers like Rivian or Tesla, they’re way down this road. They’ve designed their companies around that idea. Where are you in the transition with Volvo? Because that seems like a much more challenging transition than anyone expected.
You’re absolutely right. It used to be that you would buy in these MCUs or ECUs, whatever you wish to call them, and they would be distributed: 140, 150 of these small control units dotted around the car. You would buy those from Tier 1 manufacturers. You had no choice what silicon they used. You had no relationship with those silicon manufacturers. You never knew whether it was a TI part or an Infineon part or a Renesas part, and to make changes to that silicon, you had to then go through that Tier 1. The choice came when you could go to a system-on-chip and you had that computational power, you could go to a core compute architecture. And as you mentioned, some companies went there faster than others. And now, some of the, let’s call them, heritage companies are moving in that direction.
We are pretty far along the road. The new EX90, which we announced a couple of months ago, moves us much, much closer to a core compute architecture. For the first time then, we’ve had to figure out that whole high-computational silicon, the software stack, the connectivity, and bringing all that back into a core compute architecture. Of course, it’s a challenge, but the benefits are absolutely huge if you can get that early-mover advantage.
You’ve got a bunch of EVs coming out over the next few years. I think Volvo is planning to be fully electric by 2030. There are some reports you’ve got six more coming by 2026. Are you still on the transition? When do you think the transition to that core compute architecture will be done?
The first core compute architecture comes out in the EX90. We’ll start producing that car in the second quarter next year, and from that, we’re off to the races. From there on in, it will just be continuous improvement on that core compute architecture. As the silicon becomes more high computational, we’ll be able to write more software code that allows us to get much more benefit and performance from the car. And the car really starts to improve over time because we can do over-the-air updates with that new software. That’s really the profound change as well.
It used to be when the car left the production center, that was as good as the car was going to be, and now you’re in an era where the car’s going to continually improve over time — provided that you have enough computational power in that car and provided that you have enough software that updates the performance and that you can do that over the air to make it seamless for the customer. It’s a hugely different value proposition.
This brings me to your background, which is largely in consumer electronics. Consumer electronics companies have relationships with their customers, particularly now because every product is essentially a software product with a subscription fee attached to it. BlackBerry was deep into embedded operating systems. Dyson tried to make cars, and it didn’t go so well.
There’s a lot of background there that seems connected to this moment, but the difference for me is that a car just can’t fail, right? I use a lot of consumer electronics products with some very dodgy software updates sometimes. Those ideas seem incompatible to me in some fundamental way. We’re going to change the car all the time. We’re going to have updates. We’re going to add new features at some rate, which makes it seem like, “Okay, sometimes software has bugs.” Particularly for Volvo, which has a massive reputation for safety, how are you balancing the tension between speed and safety and reliability?
There is no tension between them. First and foremost, it’s absolutely essential that any updates that we give, especially if it’s in relation to any of the core attributes of the car, regards safety or performance, then we need to be rock solid that that software is going to work. And that really is the big difference I think between the auto industry and other mission-critical industries like transportation in general, be that aviation or trains. You need to make sure that you understand the embedded software and that you have enough protection in that and enough fail-safe in that, that you simply can’t cause a problem for the customer that’s in any way life-threatening. That’s why this is so difficult. That’s why we spend so much time, so much energy, so much effort on making sure that the code that we write works seamlessly, especially on those safety circuits.
There’s a lot of general desire in the car industry to move toward this model where we think of these as consumer electronic products. I’ve heard an infinite amount of car CEOs tell me that they want their cars to be thought of like iPhones. There is a tension there. You have a big background in consumer electronics. You’ve been on this job for a little over 18 months. What has surprised you the most, and where do you think the biggest tension there is?
When I joined the industry, I was surprised actually by the lack of connection to the end customer. I mean, just think about that for a second. You sell a product which is $40,000, $50,000, $60,000, $70,000 — in often cases, the single-biggest purchase that many people make other than their home, and you, as an OEM, have zero contact with that customer. You don’t talk to the customer before the sale. You don’t talk to the customer during the sale. You don’t talk to the customer after the sale. Everything was done through the dealership network. Now the dealership network plays a huge part in the whole ecosystem, and they play a huge part and add tremendous value to our customers. And some customers want to research online, and then they want to go take a test drive from the dealership. And eventually, they’ll buy the car. They may buy it online. They may buy it directly from the dealer.
I don’t care. I mean, as long as they buy a Volvo, I think that’s the main objective route. And then, of course, they want to use the dealership for upgrades or for servicing. Fantastic. But we, as Volvo, need to be part of that conversation. We need to be involved in the conversation. So now, rather than have a two-way conversation between the customer and the dealership, we now have a much richer conversation, which is between Volvo, the customer, and the dealership. More and more, we do that through the Volvo app. We use technology that’s embedded within smartphones that allows our customers to engage directly with the product, directly with Volvo, directly with the dealership, and it makes it seamless. And that’s really the big change, I think, that’s come into the auto industry.
You were obviously hired as the CEO of Volvo as a change agent. How far along is that change? Are we there yet? Have you had to change the culture of the company? What have you needed to do to make that real?
We’re on a big transition journey technology-wise and also commercially, so direct-to-customer engagement and everything that goes with that technology-wise and electrical propulsion and core compute and everything that goes with that as well. The third one is sustainability. So making sure not just that our cars are sustainable but we are using sustainable materials in terms of recycled aluminum, and all of our factories and our supply base, that they’re complying to our desires to be a more sustainable company. Those are the three big areas.
In terms of culture, I think we already had a fantastic culture in the company. The thing which I think I’ve added, coming from consumer electronics, is some pace, and I’ve added a little bit of clock speed to getting things done, and that’s serving us well right now. In terms of the cultural aspects, we have less meetings. We have less emails. We just get more stuff done. We don’t need to have endless meetings and endless emails on the same topic. Let’s make a decision and make sure that decision is right, and then let’s move to execution. It’s really been the execution—
Can I ask you a question?
What is the difference in your mind between pace and clock speed?
Well, pace is you just run faster. Clock speed is when you’re doing something repetitively, but you’re doing it faster repetitively. There are certain things within our company that we need to do, and we just need to keep doing those things faster — whether that’s cycles in terms of testing software or cycles in terms of developing hardware; that’s the clock speed of getting certain things done that we know always need to get done. We just need to get faster and better at doing those things. And then, you generally have pace.
For me, pace is everything in the company. Because you look at Microsoft, and it sets the meeting calendar for an hour, you can change that. You don’t need to have every meeting that goes for an hour. I can set it to 42 minutes. I can set it to 12 minutes. And you don’t need to have 25 people [copied] on every email just because it’s kind of the polite thing to do.
We’ve really made, I think, a lot of headway now on just saying, “Let’s really add value in the limited time.” It’s not about making people work longer, absolutely not. It’s about making sure that people are adding the best value to the time that they spend within their daily hours at work.
I feel like I should add “how do you design your meetings” to my list of Decoder questions. There’s a chance I’m going to do it after this conversation because I love talking about it so much.
But just think about that meeting, right? Let’s say people work 40 hours a week, and you’re saying, “Hey, guys, we need to be 10 percent more productive.” Everybody can cut out four hours of meetings, easy. That’s 10 percent right there without even thinking about it.
Alright. Jim has challenged the entire Decoder audience. Today, I want you to look at your calendar and cut out four hours of meetings. Tell your boss that Jim said it was okay. They can email him if they need to. Let’s get to those Decoder questions. I think about these a lot.
You have a lot of decisions to make. You’re 18 months into being the CEO of Volvo during a time of immense change. How do you make decisions? What’s your framework?
For me, it’s pretty simple. I live by the mantra of none of us is smarter than all of us. We have a really good team of people here. We have subject matter expertise. Some decisions make themselves. You don’t need to think about them too much. You don’t want to overthink those. But there are certain decisions where you need to bring in the diversity of thought. I mean, you really need to drill in, and you need to become a pretty good listener and say, “Okay, what do you think, and why do you think that?” Then, when you get enough decent content, then you can say, “Okay, I got it. We’re going to go east, we’re going to go west, we’re going to go up, we’re going to go down.” But it really comes from having a core group of people that you trust and who have subject matter expertise.
You’ve come into a company, Volvo. It is a very complicated structure. It’s owned by Geely. There are Volvo cars, which is your part. There are Volvo Trucks. There is Polestar, which is sitting right next to Volvo, which is a public company unto itself. We had Polestar CEO Thomas Ingenlath on the show. This is a quote. He said, “We’re moving out of our parents’ house. We’re growing up.” How is Volvo structured, and how is the relationship to Geely and Polestar?
Yeah. Let me decode that then a little bit for the Decoder audience. So Volvo AB — which includes trucks, construction equipment, Penta, and so on — and Volvo Cars, are now two separate companies. They separated, and they both trade separately on the stock exchange under different ticker codes. That’s an entirely separate company. We share the trademark with Volvo, but other than that, that’s really the engagement.
Polestar, we own 48 percent of Polestar, so that’s a deep engagement for us. They de-SPACed, so they are now a public company trading on Nasdaq in the U.S. I sat on the board of Polestar, and Thomas and I speak frequently. They’re an investment that we’ve made in a company that we’ve now taken public, and they’re getting ready for their next big phase of the journey, which is now they’re going to have the Polestar 3 and the Polestar 4 that they’ll bring into the market in the next six months. Both of those cars I’ve driven. They’re both great cars, so it’s nice to see Polestar, as Thomas says, “moving to the next phase.”
And then, we have Geely. We are a public company, so we trade on the Nasdaq exchange in Sweden. So we are actually a public company in our own right. And then, we have high ownership, as you mentioned, by Geely. That’s a symbiotic relationship in so much as we share platforms and we share some engineering technology, and they build their cars and we build our cars. Predominantly, Geely builds obviously for the Chinese market predominantly; we build as a global carmaker for the global market. There’s a very symbiotic relationship between Polestar, Geely, and Volvo. Each of us has our own markets, each of us has our own cars, and we share technology across the platforms, across all of those different car models, similar to [how] some other big auto companies do across their platforms.
Geely is particularly interesting. They’re a Chinese company; they’re in China. The forefront of EV manufacturing, or at least the forefront of state-subsidized EV manufacturing, is happening in China. Has that been a benefit to Volvo?
Well, from the point that we share platforms with them, then of course there’s a definite cost benefit that we share technology. Of course, there are definite benefits in that as well — but also, the brands are very different. We’re a premium car manufacturer. We play to that premium audience. If you look at, say, Polestar, when they went on the de-SPAC, their three words were “pure, progressive, performance.” That’s the marketplace that they aim for. And we are “safe, sustainable, and family-centric, or customer-centric.” That’s our marketplace. That’s the customers that we aim to attract.
I think there’s room within the industry for people to have different customer bases and attack different demographics, and I think we’ve done that reasonably successfully. I’d say the thing about the Chinese car manufacturers have not quite gone to core compute architecture, so that will be the next phase for them as they develop that core compute architecture for that specific market. Right now, by and large, a lot of that is still done on the MCU or ECU architecture of the past.
When you came into Volvo, you looked at the structure of the company itself, I imagine, as the new CEO. Most CEOs say, “Okay, I’m going to listen to everybody,” and then they go about making some changes. How have you changed the structure of Volvo?
Not that much, to be honest. We have an EMT, so we have an executive management team. We try and make sure that that executive management team is really engaged in the long-term strategy for the business. Where do we need to take this business? It’s a public company, so of course we need to pay attention to the quarterly numbers. Of course we need to get tactical stuff done, but we also need to lift our eyes up a little bit and look out two, three, four, five years in the distance.
The auto industry is kind of unique in so much as that you’re making investments now that need to serve your needs four, five, six years into the future. You’re making investments in technology. To build a car manufacturing plant takes a long time. It’s a big investment. You’re trying to look at the geopolitics and where you should build those factories to try and eliminate trades and trade tariffs. You’re trying to say, “Where should I be building those technologies? Where am I going to sell those cars?” And then you’re making those decisions three or four years before it actually comes to fruition, so there’s a huge amount of strategic thought that goes into the long-term success story.
And then at the same time, you’ve got a lot of tactical requirements that you need to get on with the day to day. You’ve got to keep the trains running on time. You’ve got to make sure you hit your quarterly numbers. You’ve got to take cost out. You’ve got to bring in good talent. You’ve got to make sure that you keep feeding that talent so they stay with you.
From a structural perspective, we have then a GMT, which is the group management team. That brings in the subject matter expertise. Within that room then, you’ve got people from manufacturing, from supply chain, from procurement, from R&D, from software, from electronics. Everywhere is in that room, and we meet on a regular basis. We talk about the tactics, but we also talk about the strategy. So everybody is singing from the same hymn sheet, so to speak, and we do that with regular precision. And then, we just go on with it.
The changes, I think, have been not so much to the people, but certainly the way in which we work has become much more about, “Okay, this is what we need to get done long term. Let’s make sure we’ve got that in our sights. This is what we need to get done short term. Let’s make sure we execute on that this quarter or the next quarter. Let’s keep recycling that.” It’s rinse and repeat, rinse and repeat, rinse and repeat, and make sure we just keep moving the company forward. That goes back to the clock speed and pace piece that I mentioned earlier. We know what we need to get done long term. We know what we need to get done short term, and we need to get it done faster.
You said something earlier that I’ve been thinking about as you gave this answer, which is that the electric propulsion side of this is not the hardest part. People know how to do it. They know how to put electric motors in a car, but Volvo, again, is an old-school [internal combustion engine] manufacturer. You’ve made a lot of engines. You’ve got to wind down one part of your business and one set of expertise and bring up another, even if it’s not the hardest thing you’re doing. How does that play out in the structure? How does that play out in these tactics?
That’s a super question because we were pretty early on, and I need to hand that to my predecessor for having the vision to do that. This was before I joined the company — a year or so before I joined the company — the decision and the strategic decision was made. We don’t think that we can invest and keep going investments in internal combustion and really be serious about investing in EV to the extent that it needs to be invested in. So we took all of our ICE assets, all of our internal combustion assets in the factories, and we moved them into a new company together with Geely. That company is called Aurobay, and then that became an external part to the company, which would then be self-funded. We still had access to that technology because we knew we would need internal combustion engines for a while yet, but we didn’t want to have to invest in that.
That was a very strategic and very clever choice — and a very bold choice to make that early on in the transition race. That allowed us, then, to fully focus on [battery electric vehicle] and electrical propulsion. So then, we used to buy our electric motors. We used to buy our inverters. We brought that in-house. That became a core part of our DNA, and now, we’re doing a deal with Northvolt in terms of batteries, so we’ll have our own battery factory soon. So we really understand batteries and all of the nuances around battery manufacturing and development. And then, we write our own BMS, or battery management software. So you pull that together now into a single propulsion capability: batteries, motors, inverters, and battery software. Then, you’ve got, I think, a building block that you’re going to need if you’re going to win this game in the future or at least be a big player.
That part of the company, that’s new, right? That’s the one you’re focused on that has to pay itself off as the company continues to invest in it.
Absolutely, and that’s where we really want to make those investments. We saw that since we brought in those electric motors, just as an example, since we brought that in-house and applied our own expertise to that, then we can take a motor, we can test it, we can do that 10 times a day. Again, back to that clock speed. If you’re trying to increase the benefit, all these things need to work together. The batteries, the motors, the inverters, and the software obviously has to play to the car to make sure that the car’s getting powered in the way it should be getting powered. When you have all of that technology in-house and you’ve built all of the test rigs, you can cycle that multiple times a day, and you just keep making those improvements. Since we brought that electrical propulsion in-house, we’ve made pretty meaningful improvements to the efficiency of that particular part of the car.
This is such a car nerd question, but you have a different perspective, so I’m very interested in how you’re thinking about this. I’m a car nerd. I grew up reading car magazines. Ford and GM and Ferrari and whoever else, they were great at making engines and making powerful engines with different characteristics and different kinds of transmissions. They were marketed on their specs. They are marketed on numbers of cylinders or displacement or horsepower, the sound.
I have yet to see any companies market their electric motor innovations in the same way. There’s not a direct connection between, “Alright, it’s a gigantic American V8 engine, and we’re going to market the technical capabilities of this engine the way that we used to” with “Volvo is now making its own motors and it has its own inverters and we can market those directly.” Because, to some approximation, every electric car kind of drives the same. They all have an incredible amount of low-end torque, and they’re very quiet. And that is not the part of the experience that matters anymore. You’re a consumer electronics person. Have you thought about, “Okay, we’ve got to market the cars differently now because the drivetrain is no longer so differentiated”?
I think if you look at, say, premiums because we operate in a premium arena, but we all take a slightly different door to come into that premium arena. Some take the door of, as you say, performance. Some take the door of luxury and refinement. Some take the door of technology, and everybody has a little bit of everything. We take the door of safety, sustainability, and human-centric tech. That’s what gets us in.
So that’s not the drivetrain anymore, right? That’s what I mean is—
… the idea that we’re going to talk about how the car moves itself and that will be the thing that gets anyone excited. It seems to be almost over.
Yeah. I think if you used to be someone who differentiated your brand on performance, then I think that’s much more difficult. We always differentiated our brand on safety and sustainability and the human-centricness and the family values of Volvo. For us, the benefits that we see in our battery technology or the benefits that we see in our motors or an inverter technology manifests itself in the specs in a different way. It’s like, “How fast can you charge the car? How long is the range?” Those are the things now that people care more about. Because, as you say, you get torque for free and electrical propulsion, so what else? People really care about range. They care about cost, of course, and the cost of batteries versus ICE, and they care about fast charging speeds and, of course, safety. They want to make sure that the batteries are safe and that it’s not going to cause them any problems — safe and reliable.
That plays well, I think, for us. We are always going to make sure that our battery technology is safe and reliable as well as the whole car itself. But I do get your point in so much as I think it becomes much more difficult for maybe some of the other car manufacturers that have always branded themselves on performance or, as you say, turbocharging or top speeds or whatever.
I think people really care about top speed, but no one ever hits it. It’s that torque that is performance, and electric cars kind of get it for free. This brings me to Tesla. Tesla [is] obviously the poster child for the EV industry. They sell a vision of the future. They sell one personality in particular that has a vision for the future. It feels like the entire EV industry set its targets for sales and electrification based around what had been apparently perfectly elastic demand for Teslas. They were selling every single one they could make. The prices were going up.
That seems to have come to an end, right? They’re lowering prices. I’m seeing other EV makers with cars sitting on their lots. Obviously, interest rates are very high. Do you think that that was a miss, that we misforecasted EV sales based on what was happening with Tesla?
I mean, I can only answer for Volvo. We see that the demand for our cars — and maybe it’s because we are fair and square in the premium sector — but demands for our car has held up incredibly well. It’s been really robust globally as well as across the whole portfolio. I don’t see that. I mean, I understand the question completely because when you see high energy prices and high inflation, you think, at some point, consumer sentiment is going to change, and you would see not necessarily a softening on BEV versus ICE but maybe even a softening in the whole industry because it’s a big purchase. I think if you’re just in the mass market, you’re much more probably susceptible to that than if you’re in the premium market. And we actually don’t see it. I keep an eye on that because it’s something that I do think about, but I don’t see any increased order cancellations. I don’t see order intakes slowing down.
But remember, we are 1 percent of the total car market worldwide, so we don’t play in the volume game that maybe some other people do. And maybe that’s part of the protection as well, having customers that shop in the premium sector that have a little bit more disposable income, that don’t worry as much about inflation, and that really care about the brand attributes like safety and so on. They’re probably never going to compromise on that. I think maybe that gives us a little bit more protection, but I understand the question completely because you would think with those headwinds that you would start to see consumer sentiment drop off. And you’re seeing that maybe in some other industries, but we don’t see it at Volvo, I’m glad to say.
You don’t have the full range of EVs yet? That’s to come.
Is there a lower margin on the EVs you sell now compared to your ICE vehicles?
Yeah, we are the only car company, and to my understanding, we’re the only car company in the world that split out our BEV margins versus our total margins. When we were going electric, we wanted the markets, and we were going public, we wanted the markets to really understand the journey and that it would be lower BEV margins than ICE to start with but that we would start to pull that back. And we wanted to be able to show them from the start: This is the starting point. This is the building blocks to where we’re going to get the ICE-BEV parity in terms of gross margins, and we’re going to take you on that journey, and we’re going to be transparent about it — and we’ve done that.
Now, we signaled the new EX30, so our total margins for the whole company is about 19 percent in the last quarter. And we’ve signaled that, in the new EX30, we’ll have gross margins on that full electric car between 15 and 20 percent. That pretty much takes us into the sphere where there are very, very few companies that are making 15-plus percent gross margin on pure BEV, and that’s because we’ve been able to focus fully on that car and designing that car for the efficiencies that we’ve managed to squeeze out of it.
When do you think you’ll come all the way back up to 30 percent margins?
It’ll be incremental. Even if you look at the US, the US is moving really quickly now [with] East Coast / West Coast electrification. We see that clearly. The interior has taken a little bit longer. As you can imagine, there’s less infrastructure, and there’s longer distances to travel. The Inflation Reduction Act I think has been a great thing because it will electrify America to some extent because there are incentives now to invest in long-range charge infrastructure or fast-charge infrastructure. Hopefully, over time, we’ll see the interior become more electrified as well.
But we’re in a great position because, right now, we’re not a pure player BEV company. We’re heading toward becoming 100 percent BEV, but we have great ICE products and we have great mild hybrid and PHEV products, or plug-in hybrid products. And where that makes sense and people really care about having the safety and the reliability of a Volvo, but they choose because of infrastructure or just personal choice, they want to have a plug-in electric hybrid. That’s fine. We think over time as infrastructure becomes more and fast charging and battery technology develops, more and more people will convert to full BEV, but we are in a great spot because we have all of those different technologies that we can offer our customers.
The CEO of Toyota I think this week or last week said, “Look, it didn’t happen as fast as everyone said it was. Plug-in hybrids are kind of the way to go. We were right.” I mean, it was more or less the gist of the comments during this last earnings cycle. Do you agree with that? Do you see that, that people are going to the plug-in hybrids and that is a sweet spot? A lot of people thought that’s what would happen and that would convert people to battery customers over time, but it seems to be a little bit more binary.
No. We actually see a lot of people moving from ICE to plug-in hybrids and then from plug-in hybrids to BEVs. One other thing that we see a lot of: people who went from, let’s say, an internal combustion engine to a plug-in hybrid, then the next car that they buy — maybe a smaller car and maybe for one of their kids or just maybe a second car for the home — very often that’s a pure BEV. They like the BEV driving experience. That’s going to be the car that they maybe use frequently around town, around the city, but they still want the plug-in electric hybrid for the comfort of mind for those longer drives. We definitely see PHEVs being a stepping stone toward full BEV, at least in our customer base.
You mentioned charging networks. This was the other thing that Tesla really had as a moat for a long time. People knew the Supercharger network was reliable. It was fast. It was everywhere. The other charging networks, especially in the United States, [are] nowhere near as good. That has recently changed. Volvo has signed on to use the Tesla connector here in the United States. What was that deal like? What are the terms of that arrangement?
Yeah. Not so much to get into the terms but just the benefits to our customers—
Well, I want to know the terms. Everyone else did it. Ford went first, and then everyone else followed. What was that conversation for you like? What was that decision like?
I think the decision for us was we wanted to make sure that we could offer our customers the best experience. There was an opportunity to engage with the Tesla charging infrastructure. We thought that was a good thing for our customers. I actually think it’s a good thing for BEV adoption in general. Can’t get into the terms of it, of course, but I think—
Do you feel like it was a fair deal?
There are some commercial terms, one assumes.
Yeah. There are terms. I won’t get dragged into anything further than that because you’ll get me in trouble, but basically—
But you’re the boss. Who’s going to yell at you?
Fair enough. So there are terms. You had to negotiate a contract?
Yeah, of course. There are certain terms and conditions that you need to adhere to, of course, but I think it’s a great thing for us. I think it’s a great thing for the customers.
So, on balance, when you’re saying, “Okay, we’re going to use your connector so we can get access to your charging network,” do you feel that charging networks in the United States will be competitive the way that gas stations are competitive, or do you think we’re all going to sort of converge on Tesla being the infrastructure provider?
Well, I think you want to get to your standard. I think that’s the main thing. I think you want to get to the… If you look at standards across the world now on pretty much everything, you start to veer toward certain standards. It used to be USB. Now everybody’s gone to Type-C, is a good analogy to that. You saw the same thing back in the ’70s or ’80s, whatever the hell it was, which was VHS versus Betamax. Eventually, at some point in time, you pick a standard because nobody wants to be doing two different types of tapes or three different types of tapes, so you veer toward a standard, and you look at the technical benefits of the standards. I think you’ll still have different infrastructures, and you’ll probably have more than one, but I don’t think you have a plethora of different standards. I just don’t think it’s helpful for the customers.
Do you think that over time the use of the Tesla network will help more people adopt EVs?
I think so, yeah. There are a couple of friction factors toward full-scale BEV adoption. One is “Where can I charge, and how fast can I charge that?” Let’s call that range anxiety, if you put a term on that. The other thing is battery cost and “When can I buy a battery vehicle for the same price as an ICE vehicle?” And then, the last thing is just change itself.
People have been driving internal combustion engines for a long time. You alluded to airless. Some people really like that. They like the noise and the vibration stuff, so you’re going to find when people go through that change curve of, “Well, I’m going to have to change technology. I kind of like my ICE car” to, “Where can I charge? How fast can I charge, and can I get price parity?” When all those friction factors are taken away — and remember, the next generation, they’re going to start with an electric car in many cases. For them, those digital natives, as they were the same with smartphones, they’re very, very comfortable with that new technology from the get-go.
As an engineer as well, I look at it and say, “If you take an internal combustion engine, a really good internal combustion engine, you get roughly 35 percent efficiency from that engine, from the fuel that you put into the movement of the wheels that you get out.” You lose a lot on heat. You lose a lot on vibration. You lose a lot on noise. In an electrical propulsion system, you convert 90 to 93 percent in efficiency. There’s much less servicing costs because there’s much less moving parts. You don’t get a blown overhead gasket. You don’t get oil leaks. You don’t get a lot of those parts — especially as motors develop more and more, there’s going to be very high infrequency between servicing.
There’s less servicing cost for the customers, and then there’s zero emissions. So less noise, less vibration, less heat transfer, less servicing cost for the customer, and zero emissions for the planet. Just from an engineering perspective, it becomes a logical solution for the future. I mean, I’m sure if we looked 100 years ago, people were saying, “I really love steam engines. They’re really great.” And then, we went to petrol, and now we’re going to batteries, and I’m sure in another 20, 30, 40 years’ time, there’ll be another fantastic breakthrough technology that’s even more efficient. But right now, I think we’re in the age of battery propulsion for a while.
Do you think your battery production is sustainable right now? Obviously, battery production requires a lot of heavy manufacturing at this point. It can be quite wasteful. Are you on the curve to sustainable battery manufacturing?
Yeah. It’s one of the reasons why we did the deal with Northvolt because Northvolt I think have got… Here in Sweden, we are fortunate in that we have a huge amount of access to hydro[power], so that gives us a lot of green energy. Battery manufacturers, especially CAN and precursor, can be quite heavy on electrical requirement because of the heat, so you really want to have access to affordable green energy. That’s really, I think, what makes a big difference in the long run.
You mentioned young consumers. They’re used to this technology. That’s a little bit in tension with the propulsion is the easy part. The hard part is rearchitecting the car. The hard part is figuring out, “Okay, what happens when you’re inside a car now, especially as the cars become more autonomous?” A lot of companies are choosing to be a little bit more reliant on Tesla for charging infrastructure. A lot of companies are choosing to be reliant on Google for the infotainment experience in the car. Volvo, perhaps more than anyone, right? The car runs Android. That is an Android unit in your infotainment system. Polestar obviously uses the same kind of Android setup. How [does] that relationship with Google work?
Well, it’s not just Android. We have our own base operating system. We have the Volvo operating system. Android sits on top of that. You have the Android Auto, which works well. A lot of customers really enjoy that experience, but we also have Apple CarPlay, and you can use the Volvo OS. So you really got three choices. You can use the base Volvo OS if you want to go and just use that. If you want to use Android Auto, you can use that. If you want to use Apple CarPlay, you can use that. One of the biggest things I think when you’re running a tech company or a company—
But the Volvo OS is Android?
No, Volvo OS is Volvo, and Android sits on top of that.
And Android Auto sits on top of that. I was under the impression that the Volvo OS was produced in partnership with Google and is Android. Or has that significantly changed?
No. Volvo [uses the] Google operating system, Google Auto Services, GAS, as it’s called. And then, we write the base software for the car itself.
Okay. So, you’ve moved from the Volvo center stack that was in the XC40… I drove an XC40 Recharge. It was very much Android in the center stack, and now you’ve moved over to the Google services portion of it?
No, it’s called GAS, but basically that’s the Android stack that sits in Auto. It’s slightly different from the Android stack that sits in your cellphone.
More to the point, there’s a relationship with Google that many, many, many carmakers are taking, beyond just Android Auto or CarPlay, where Google’s services are providing more and more of the infotainment, of the mapping, of all of that.
Yeah. We do that as well, just to be clear. That’s part of that service. That’s part of GAS.
Here’s the question I always think about that’s all the way at the end of the line. Eventually, these cars are going to drive themselves. To have a self-driving car, you need to tell it where to go, and having Google Maps do that and be that layer is different than having you own that layer, right? The point of differentiation collapses to Google. You can get into any car and use Google Maps, and the car will go to that place. Do you worry about losing that point of differentiation?
Not really. I think you’re making customer benefit choices, for me. So when you’ve got such a big tech agenda and you’ve got so many investments to make and there are two parts to that. One is dollars. Where are you going to spend your engineering dollars? And two is speed. Those are the two currencies that you really need to think about.
So I’m constantly making decisions on: what do we build versus what do we buy? In terms of silicon, I’ll use the safety layer as an example: high-computational silicon, you’re going to need more and more and more high-computational silicon that operates with better performance year over year over year over year, and that’s a big investment. Some companies have chosen to invest in that and do their own silicon and SoC. We’ve chosen to partner up with Nvidia and with Qualcomm. Qualcomm does the info stack, and Nvidia does the core compute.
We think both of those companies are fantastic companies that really understand silicon and silicon development and silicon manufacture, so we don’t feel we need to own that. We’re going to buy that in, but we do want to write the software that connects the silicon to the application layer.
To make it easy, let’s just pick the safety layer. On the EX90, we’ve got 16 ultrasonics. We’ve got eight cameras. We’ve got five radar systems and a lidar system. We are writing the software stack that goes from the silicon to the application layer because we want to own that software so that we understand everything that’s happening. In that safety set, all the algorithms, all the sensor fusion software, all the perception software, what the car sees. You’re turning the ones and zeros that the car sees into meaningful information that hopefully makes it a better driving experience and protects the driver and the passengers and even the people outside the car.
So, for us, that was a build decision. We are building that software. We’re buying the silicon. We’re building the software, and we also buy in the sensor set. We buy the cameras. We buy the lidar. We don’t think that’s our game. We think there are other people that can do that better than us. So just within the safety set, buying silicon, building software, buying the application layer, and some people have chosen to do all of that in between. Same goes for the infotainment stack where we are saying we want to have a base level of Volvo OS that we can set on top of, but we also want to offer the choice of Android Auto or Apple CarPlay so that they can then offer all the plethora of choices that they’ve got, whether that’s the different apps that you can download into the car itself that sits on that center stack or just the convenience of having your iPhone or your Android machine connect directly and seamlessly with the car.
I don’t really get off on the fact that I want a customer to say, “Hey, Volvo.” If they say, “Hey, Google” or “Hey, Siri.” There are 7 billion people on the planet that have an iPhone or an Android; you’ve got to figure out where you want to spend your engineering dollars and what benefit that brings to the customer or the shareholders.
I watch a lot of car reviews. I love them. The thing that jumps out to me is cars are turning into rolling screens, and every car reviewer will show you the features of a car. Doug DeMuro, who’s been on the show… the quirks and features of a car. And then, they get to the center stack, this huge real estate in the middle of the car, and they’re like, “And it runs CarPlay and Android Auto,” and they just wave it off.
There’s something very dangerous to me for the car industry in that wave-off. Here’s all of this investment in infotainment systems and center stacks and connectivity, the potential for your own app stores or recurring revenue — anything that you might want. You need control of the interface, and every car reviewer knows that the customer is just going to mirror their iPhone onto that screen or that’s what the customer wants. How do you get people off of CarPlay and Android Auto, or do you even want to at Volvo?
I think you’ve got to pick your battles, right? Most people’s lives these days are wrapped up in their smartphone. Whatever choice they make: Android or Apple. You can either say, “I’m going to provide a car that makes that a pleasurable, easy interface experience for you” or you’re going to have a different operating system in the car than you have in your phone, and the phone is in people’s hands much more often than they sit in the car. The big difference is that you’ve got to be able to offer benefits through the application layer on the Android that’s external to the car.
Let me explain what I mean by that. While you’re sitting in the car, that’s fine, you’re using Android Auto. You’re listening to your music or whatever you’re doing, fine. But what you really want the application layer to do with a smartphone is when you’re not in the car, when I’m sharing my digital key with my friend because he wants to pick up my car from the stadium that I left there last night, or when I’m sharing my digital key with my kids, or when I’m offering insurance services to the customer. Because we have 16 cameras, and we have ultrasonic sensors. We see the car dynamics.
Right now, you buy insurance on the basis of what age you are and what your postcode is and when you had a last crash. That’s how the actuaries figure out what you should pay as a premium. Nothing to do with how safe a driver you are — nothing, other than the fact that you haven’t had a crash for a long time. But we’ll be able to see how good a driver you are, how close you drive to the car in front, how close you are to the cab, whether you really stop at the stop signs or you just slow down a little or all that kind of stuff.
Of course, you can opt out on all of this stuff if you don’t want to, but if you want dynamic insurance, for example, that’s paid for by how safe a driver you are and you want coaching and we can say, “Hey, listen, you’re a 45 percent driver. If you leave another five meters between you and the car in front and you do this and you do that, your insurance premium will come down.” That’s a dynamic insurance premium. You don’t pay it once a year.
Take young people — young people even in the USA but all over the world — it’s hugely expensive for young people to get car insurance. Why? Because they’re young. Not because they’re bad drivers. Because somebody somewhere has decided they’re going to be a bad driver because they’re young and they’re inexperienced. Then you see people at 17 winning Wimbledon or the US Open. You think, “Actually, you know what? It shouldn’t just be about age.” So, for me, that’s a great example where you can have opt-in services on that Volvo app.
In Sweden, for example, you need to change your tires in the winter. I want to be sent a signal that says to me, “Hey, listen, we’re coming up on tire change season. It’s next Thursday. Would you like us to come and change your tires? We see where you parked your car. Do you want us to come to your workplace, whip off the old tires, put on the winter tires, and take those summer tires away and store them for the next season?” You’re like, “Yeah, that seems like a great idea. I’m going to opt in on that.” Would you like to hire a ski box for the ski season? “Yeah, actually, I’m going to opt in on that.”
“Would you like access to fast charge and not just in different chargers, but would you like us to be able to have it so that you don’t need to get out of your car? You just need to plug it in, and we’ve got everything on the VIN number of your car so when it’s raining and it’s 11 o’clock at night, you just drive up. You plug it in and nothing else. You don’t need to download an app or any of that stuff, all in the Volvo app.” That’s where I think there’s a lot more value than us trying to own the center console is to make a platform which is sticky enough to the customer when they say, “Oh, I used to drive a Volvo and I got insurance through that and they changed my tires and I got a ski box and these guys really looked after me — free roadside assistance. Great.”
This is fascinating, right? Because you are describing recurring revenue outside of the car. You’re describing a bunch of services a car owner needs: new tires, accessories, insurance. A lot of your competitors are thinking very hard about recurring revenue inside the car.
I don’t buy it, quite frankly. I think there’s maybe a bit of inside revenue if you want to go to the upper levels of certain performance or you want to release X amount of performance in the car in terms of acceleration.
Well, I’ll just give you the specific example. BMW famously did the test with a subscription fee for heated seats. You’re not doing that?
No, because I update my iPhone the whole time. I would be pretty peeved if every time I update my iPhone, they gave me a bill. So—
Well, just to make the point clear, every time you conduct any transaction on your phone, Apple takes money out of it. That is their recurring revenue.
Yeah, but they don’t take it from me.
Fair enough. But they do, right? I mean, there’s a reason that iCloud storage is still very, very low, right? They’re upselling you into the next tier of storage to make your phone work well, and you have competitors who really want that to happen inside the car. GM took CarPlay out of its cars because they want people to interact with their infotainment system. You think that’s not the right approach?
I don’t think that’s the right approach. No, I absolutely don’t because I don’t think that GM are ever going to have 3.5 billion users that use a product every single day — 200, 300 times a day that they get really used to — and they want their car to basically be a simple, easy connection point to that car. So whether it’s Android or whether it’s Apple or whether it’s iOS, it’s the same experience. Unless all of a sudden they’re going to get into making smartphones that are as competitive as Android and iOS, then I don’t personally think that’s the best strategy. I think the better strategy is how do you add value for your customer. And adding value by saying inside the car, “Hey, Volvo,” rather than, “Hey, Google” or “Hey, Siri,” I don’t think adds value. You can still use the Volvo operating system. You still always have that, but if you want to use Apple or Android, you could use that as well.
There is a report that the next version of, I think it’s the EX90 or the EC90, will have the self-driving hardware built in, and that will be a subscription. Do you think that’s appropriate?
The EX90 will have lidar, so we build our own ADAS [advanced driver-assistance system] stack, so ADAS and all the way up to AD [autonomous driving]. AD is still quite a while off, in my opinion, but the benefits of ADAS will continue to come through as computational power increases and as the software becomes better. Then you’ll be able to go at faster speeds and still do lane changing very safely and so on. We put lidar into our car. We put lidar as a standard in the EX90 because I like the lidar technology. We like the lidar technology. I know there are other companies that say you don’t need it, but quite frankly, there’s nothing else right now that can see 250 meters in pitch blackness. So that’s the safety, and we are a safety-conscious company.
A lot of accidents, unfortunately, a lot of fatal and near-fatal accidents, happen at nighttime, and the reason for that is quite simply, visibility is much less. The roads are actually quieter, so people are not paying as much attention. People are tired, maybe distracted, and those accidents happen when you least expect them because if you’re driving a hundred kilometers an hour and all of a sudden you come across a deer or a fallen tree or something, you really don’t have time to react. That’s what the lidar system does. So we are going to learn a huge amount from having those technologies in the car, the eight camera—
And you think on the EX90, that would be a subscription fee?
Are you going to do any subscription fees for driver assistance or self-driving?
I don’t know. We’re looking at that right now. I’m not relying on that in terms of a revenue stream for us. I think you’ve got to look at the underlying fundamentals of the business and say, “Can we have a profitable business based on this?” There may be some revenue streams that come in the future, but I’m not relying on those revenue streams to build a profitable business.
Where I do think there is much more opportunity is in those external services, but it’s really clear, if you want your car cleaned once a week and you subscribe to a car cleaning service, you’re going to come back and say, “Wow, these guys have done a great job. Whatever it was, that was $20, I’m going to double down on that,” or, “I really like the fact that these guys come and change my tires or I get great insurance coverage or whatever.” Those are tangible benefits that I think people say that adds value to the relationship between us and our customers. If there are software subscription choices that does the same thing, we would of course go in that direction.
Let me pull this all the way out to the end. At some point, the cars will drive themselves. Everyone believes this. When do you think the cars will drive themselves?
For me, that’s going to roll out. It will roll out—
Full self-driving. Full self-drive.
Yeah. Full self-driving will roll out city by city, actually, state by state in the USA, and it’ll roll out even then. In my opinion — this at least is my opinion, so it’s a sample size of one — but it’ll start to roll out on known routes. So, if you imagine downtown San Francisco to SFO on a certain route, full self-drive. You see that kind of pretty much already. Highway driving will be next because it’s much easier to control, and that will happen in some countries much, much quicker than others. It’ll happen in some states much quicker than others. Legislation will govern it state by state, country by country, region by region, but driving in the cities where you’ve got schools and kids and bikes and dogs, that’s going to take much, much longer, in my opinion.
I’m assuming Volvo has a higher threshold for safety.
That’s why we do our own software. We don’t want to rely on other people’s software that is telling us what they think the camera sees. We want to make sure that we understand the software at the base code level so that we can continue to learn from it.
The other thing is you get the data. If you use somebody else’s software for that, for ADAS, you get no data. So we’ll get the data. We’ll have 1 million cars, 2 million cars, 3 million cars sucking in data and saying, “This is how we can make the car even safer or the performance better.”
Also, the societal benefits. When you’ve got a car that’s got eight cameras in the lidar system, we’ll be able to see where there’s a pothole in the road. We’ll be able to see if there’s a broken stop sign. We’ll be able to see if a crosswalk is not being painted properly. We’ll be able to pick up those geocoordinates, and we’ll be able to send it to the local council and say, “Hey, listen, there’s a big pothole right in the middle of this road that could cause an accident,” or, “There’s a stop sign right outside the school that’s been broken. You guys should go think about fixing that.” The societal benefits, the benefits to the customer, and the benefits to the machine itself will all be helped by that data that we can get access to through the camera set.
Pull this all the way out to the end. You have built a self-driving system on some set of routes in some set of areas. They meet your safety characteristics. I get in the car. I push the button on Google Maps. The car takes off driving to go to SFO. I’m spending that time in the car on my phone, right? I’m no longer driving the car. I know myself. I’m going to spend that time playing on my phone. I should meditate or look out the window. I’m going to play on my phone.
A lot of car companies — I’ve gone to CES every year for a decade — and car companies have told me they want to monetize that time. We’re going to get to self-driving, and then we’re going to somehow monetize the time that the drivers take back in the car. This is not your strategy, right? You’re just happy to let people play on their phones in that time.
Yeah. I think, well… I mean, it’s a long way to go between now and then, but I think—
But you’re not saying, “We’re going to do Netflix in the car, and we’re going to take a rev share of the ads that people show on Netflix.” I have heard this plan from other carmakers. We’re going to fill the car with screens. There’s a movie theater on wheels, and then we’ll have the same business model as a TV network inside the car.
Yeah. That’s not our strategy. No.
You don’t see any particular merit to that?
I don’t think it’s a viable strategy. I think we’re going to stick to what we’re really good at, and that is building really good, safe cars with fantastic connectivity experience for customers that allows them to enjoy the benefits, when we get to full AD, of whatever they want to do with that time that they’ve gained.
Let me ask you just a last question here, and I think maybe my most important question. You’ve talked a lot about safety. That is obviously Volvo’s legacy. That is obviously Volvo’s brand at its core. You are shifting the brand from sedans and station wagons — Volvo was very famous for station wagons for a long time — to crossovers, SUVs. Those cars, especially the United States market, keep getting bigger. They keep getting more dangerous for the people around the cars: pedestrians, children.
There is a little bit of a movement in this country to go back the other way. You see little glimmers of demand for smaller cars, for smaller pickup trucks even. Do you think that pendulum will swing back — that we’ll make safer cars by making them smaller again?
I think what you’ll see is a younger demographic want a smaller car. They don’t have kids. They don’t have dogs. They don’t have the same lifestyle needs of a big car. So the EX30, which we did, is still an SUV but it’s the smallest SUV we’ve ever done. The demand for that car and the preorders for that car are super high. We actually set ourselves a target, and we’ve overshot that target, and I think that’s a great city car.
So I think you’re going to see people who are in the city drive, certainly a younger demographic as well. It’s more affordable. It’s smaller. It suits a lifestyle. Then I think you’re going to see a lot more smaller SUVs in the cities, even in the USA. And then outside of the cities, I still think you’re going to see the demand for bigger cars. So for us, the EX30, we have the 40. We have right now the XC60, and we have the 90. We can cover all of that spectrum right now. I do agree that I think smaller cars, especially in the SUV format in the cities are going to become more prevalent.
Well, James, this has been an amazing conversation. Thank you so much for joining Decoder.
You bet. Take care. Have a great day.
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