Following the VOLVO TECH DAY event, Volvo Cars held a 2023 electrification strategy briefing to supplement the information from TECH DAY.
The CEO mentioned that “Product, brand, system strength, and business model are the things we discuss repeatedly, and the new players learn what the traditional companies have been doing for three years. So what are we learning? We are going 2C directly and are learning from their digitized model. Our biggest issue is that we have to rely on dealers to face customers, which is incorrect. We are now integrating all data streams, and we will face customers together with our dealers. We are not competing with dealers for customer data but sharing the data for them to enhance their customer service quality, so we can work together to jointly link every link of the chain.”
In media releases, “New power” companies hardly discuss brand positioning and internal management structures. If asked, they would only tell you about hardware specifications, hypes, and other related issues. “It will take ten years to establish a system.” Don’t think that many companies have bloated decision-making processes or procedures. Why have they existed for a hundred years? It’s kind of dangerous to push your way to the top internationally. You must balance it, right? Therefore, I would like to say that only companies with strong systemic strength are the necessary but not sufficient conditions for a century of business operations. It is possible for traditional companies that are willing to transform to make a comeback.”
Media Q&A Session:
Q: Because when we communicated at the end of last year, you mentioned that many international automakers’ headquarters had changed, but there was no major upheaval. This time, foreigners came to China, and I want to ask you what major changes there are?
A: Yesterday, the head of our global business, IKEA Yang, and the head of global pricing came. They visited various new power stores worldwide. They spent only half a day there but could summarize it. For example, they said that for some brands, most of the configurations were useless. Why are there so many cool configurations? It is because they can easily catch customers’ attention, and I now understand why this feature exists. Although customers don’t need these cool configurations, they are interesting. If the target consumers are these people, vivid configurations can indeed attract their attention and expedite their purchasing.
In addition, foreigners believe that China’s electric vehicles are cheap. Thus, they can quickly understand what the Chinese market looks like. Firstly, there are numerous participants who will spare no costs to wow people. Second, the cost performance is very high. These cars’ products are stacked with materials and are highly intelligent. All intelligent tools, including the in-vehicle systems, are deemed to be of high quality.Q: During the communication meeting at the beginning of the year, Chairman Qin mentioned that there are four tasks for Volvo’s electrification transformation. I would like to ask for the latest progress of the four tasks and which transformation results can be shared with us.
A: The four tasks are products, brand, system, and digitalization, and the progress is very evident. For example, in terms of digitalization construction, we have completed the entire customer journey link in the 4S store system end for sales and aftersales. Now, we can share all our data with dealers in real time, from scanning and leaving contact information in the peripheral activities, to the electronic test drive in the store and the AI system in the exhibition hall.
Another task is the brand. For our market, our brand construction was relatively successful in the era of gasoline vehicles. The entire system does not need to be changed, and the market also has a set of systems. The content diversification for coping with media diversification and various data-based decisions are unchanged for electric vehicles. The only thing is to make consumers recognize that Volvo is an electric vehicle brand. If consumers can realize that Volvo finally has electric vehicles at the press conference yesterday evening, then the purpose will be achieved.
We have made great progress in exploring the modes of the market, digital construction, and dealer supermarkets in recent months, and we will enter the acceleration period later. The mode exploration has been structured, and it will be rapidly promoted in the future, only lacking a product to lead the way.
Q: After the entire luxury brand entered the era of intelligent electrification, the brand boundary and brand IP are relatively vague. In this new era of transformation, how can Volvo form its own IP with characteristics in providing differentiated experiences?
The second question is: where do you think the largest opportunity point for luxury brands may appear this year?
A: In fact, I have already talked about how to handle the IP of Volvo just now. In fact, it still insists on safety. Because the safety tag of the automotive brand has been magnified rather than shrunk in the era of electric vehicles.
Many things we do are built around safety. The brand is not a slogan, nor is it a brand seen in advertisements. We should have a Nordic atmosphere and tonality in all our showrooms and exposures. This cannot be deviated from. Everyone knows that Volvo is a brand with a unique tag. Also, BMW and Mercedes-Benz are, too. Only brands with brand tags and brand positioning can survive in the long term. This is a long-term perspective. In fact, we all know in business school that all enterprises, whether in the automotive or other industries, are either cost-leading or differentiated, and there are only these two types of competitive strategies.Actually, the cost-leading strategy is only used by Tesla and BYD because any industry is finite. It is not possible for any industry to have ten players who are cost-leading. If there are really 10 players who are cost-leading, then your cost advantage is gone. 8 players will definitely be squeezed out and only 2 will remain as mass-market brands.
So far, there has not been a single industry in China that can still develop healthily during the full industry loss. This is impossible and goes against the laws of nature. The electric vehicle industry is almost entirely in loss, so this is not a healthy state. In a highly competitive industry like this, oligopolistic monopoly is already very difficult, and it is not possible for one company to be the only profitable one while others are losing money. This is impossible, and the industry will automatically find a way to correct itself.
In the short term, one cannot yet see the rapid counterattack of luxury brands, but within one or two years, the entire industry will face a reshuffle. At that time, I still believe that the weakness of the system will still be very obvious, and the time for new forces will not be long. They are still not focused on building teams that can fight because they cannot quickly pull out a combat-ready team, which is a big problem.
Shouting the 4P theory, only having the 1st P in the product is very dangerous. Since classic theories all believe that the success of a company relies on four Ps, of course, there are also six additional Ps derived from them. One cannot only rely on a product, which is the foundation. It is not possible to walk with one leg on this thing for ten or twenty years because the entire company has no system, which is unlikely.
Q: Last night you actually said, “Volvo has something that others won’t learn in ten years.” What is the technology that Volvo has that others won’t learn in ten years?
A: First of all, it’s not about learning or not from me but from all traditional companies and companies with systems. I think Volvo has made more efforts in transformation. Our internal response is more agile, and we still have system strength, which is good. Why have some players collapsed across the net? Because their system has been defeated.
“New forces can learn some things we have in three years; we have something that new forces won’t learn in ten years.” That’s not a harsh statement because I was talking about this matter at the beginning of the year, but there were many depictions at that time. In the situation yesterday, it was impossible to lay this out to many C-end consumers and tell them that our system strength is something others cannot learn. They are not interested in that. I don’t think this is a harsh statement. I am just trying to reason with others; some people understand, and some people do not.Q: I would like to ask, is autonomous driving reliable in the short term? To me, this is a key factor determining which will win between new and traditional automakers.
A: Innovation is always a theme, and there is no one company that is stronger or weaker in innovation. Nordic companies are actually quite innovative, and there are many companies focused on technological innovation there. For example, Volvo was the first to have Level 2 autonomous driving as a standard feature across its entire range. Automatic driving is actually a pseudo-proposition? I think the current public opinion and the discourse of new forces are very interesting. It is always either left or right, and when needed, people rave about autonomous driving.
Autonomous driving is not a left or right issue. No one will launch fully autonomous driving by 2025, and I think it will be very difficult by 2030. However, this does not prevent further liberation of hands and further improvement of autonomous driving.
Q: The era of intelligent electric vehicles faces several problems, starting with homogenization. How is luxury defined, and does Volvo have any standard for defining luxury beyond safety? In the past, traditional luxury cars relied on brand premium to reach million-dollar prices. Can you still rely on storytelling and brand premium to continue the path of the past? How does Volvo view this issue?
Second, the introduction of the EX90 in China is too slow. Who knows what new technologies competitors will launch after next year? What is Volvo’s plan for localizing research and development?
A: “My advantage is low cost, so I want to use popular products to beat the world.” This is internet thinking. The entire industry is in this situation where no one is making differentiated moves. But the brand itself is a differentiated action, otherwise, what is the brand talking about?
Now, everyone may be a little confused, saying that how much brand assets can be retained in the era of electrification for luxury cars. Actually, I think it will still be retained, but there will be a long period of confusion in the middle.
In fact, during the industry’s big turmoil, there may be a drift in brand positioning. People are always interesting and will not go further and further in pursuing functionality. They will always pursue differentiation and pursue different personal identity labels. Not only for cars, but actually for all brands, as long as it does not guarantee people’s basic survival, it will represent your life label, representing your personal preferences, and will eventually become diversified. So, I think there is no need to worry overly about the loss of brand positioning labels in one or two years.Generally speaking, brand assets are not lost overnight, but rather gradually slipping away due to the lack of relevant attributes, which is applicable to international brands since they generally adhere to their brand attributes.
Moving on to the second question, there are various reasons for the late introduction of pure electric platforms. It is not because these companies are arrogant, but rather their previous models are well-received and considered as qualified products in Europe and America. In fact, luxury car brands still dominate the market without the presence of novel brands. This shows the diversity of the world in which consumers recognize and appreciate these brands, which do not necessarily need to be as new as the emerging ones.
Q: You mentioned that luxury brands like Volvo will rediscover their position after a period of confusion, and that their previous brand assets remain competitive. However, there is a limit to how much material can be piled up, and the new forces prioritize intelligence and the heap of materials in software code to make the smart cockpit and autonomous driving stronger. This type of heap of materials may take 5 to 10 years to develop. I want to know if you share this view on this trend of the unlimited heap of materials in software code.
A: First, let me correct one point: Volvo has never been confused. What I mean is that the automotive industry seems to be at a crossroads, trying to identify the correct path. However, Volvo has always been clear on our core competitiveness and target customer base. We simply need to continue to capture the crowd that shares brand resonance during the electrification era.
Regarding the heap of materials, it is meaningless to continue piling up material until full automation is achieved in the automotive industry, and I would argue that we have already reached the point where we are overloading material. Take the mobile phone industry, for instance. Do you think that the heap of material has no limits? Software development is continuously evolving, but the basic functions remain essentially the same.
Unlimited evolution is possible in terms of convenience, comfort, and entertainment, but human senses have limits, beyond which forcibly inputting an infinite amount of information will be unbearable. For instance, flat beds and queen-sized seats require safety considerations during their design. Unlimited heap of materials can be pushed upwards perpetually, but it must be followed by safety considerations. Therefore, Volvo prioritizes safety while striving to improve convenience, comfort, and entertainment with the precondition of safety.Q: There is a popular saying in China that the Chinese automobile industry can overtake on bends with the help of intelligent electric vehicles and is now in the process of overtaking. At this special industry node, in the luxury car market, does Volvo have the possibility or ambition to overtake BBA on bends?
A: The overtaking on bends that everyone sees on the surface must have thick accumulation behind it that we have not discovered. It must be the result of years of hard work, diligent efforts, and waiting for a suitable opportunity to erupt completely. The development of anything has its own laws.
Of course, Volvo hopes to have such an opportunity to overtake on bends. But we have to consider our own core competitiveness and whether the changes in the market are favorable or not. Can we continue to walk steadily? Overtaking on bends may lead to success, or it may lead to both people and cars falling. Like traditional luxury brands, such as Volvo, the biggest demand is for a long-term and stable operation, and the safety of system operation is emphasized.
Q: Traditional car companies have been developing for so many years, why haven’t they found the milk dad car market, and why did others find it? Some people say that if this car does not carry an ideal brand, but carries another brand, it will not sell so much. Do you agree?
A: Everything is the result of multiple factors resonating. If this car carries another brand, like traditional car manufacturers, it should not sell that much. Because what has been popular in the past two years? What has been popular is the new forces, and everything they say is right. Under such a trend, they have launched a product with a completely correct positioning, and the natural result is good.
Why can’t traditional car manufacturers find the milk dad car market? Traditional car manufacturers, especially international companies, do not keep up with research and development and the front end so quickly. The most important thing is that our products must go through various testing processes before they can be launched.
Q: Isn’t this the opportunity for new forces?
A: Yes, this is the opportunity for new forces, but this trend is fleeting. Now when it comes to MPVs, everyone says that the 7-seat version is outdated and that the trend is towards 6 seats. MPVs priced between 300,000 to 400,000 used to be very niche, but suddenly there were a bunch of players and the market was immediately overwhelmed. Moreover, we have the support of industrial policies, which will shorten this path even further. This is actually a business logic. In China, when you find a blue ocean, a bunch of people rush in and turn it into a red ocean, it’s just a matter of speed.
In addition, for companies like us, the logic of enterprise operation lies in stability and sustainability, and we will be more cautious in judging market gaps, which inevitably takes more time.Q: Why is it difficult for people to accept electric vehicles priced above 500,000 RMB, and what is the challenge for the Volvo EX90?
A: It is an objective fact that electric cars priced above 500,000 RMB only account for 1.2% of the market. However, we believe that the electrification level of each segment of the market will increase. This is why we are willing to launch a product in this segment. Also, flagship products are always high-end products, which is a positioning issue. If we launch a product priced at 200,000 RMB, we will fall into a red ocean. Also, the guiding role of brand electrification is not as strong as it is in the higher-end market. We have seen that many companies launch their first cars with relatively high prices, hoping to label them as electric cars by packing them with all the available configurations. Therefore, in terms of commercial operation, regardless of whether the market is large or small, as long as it is expanding, we should have our flagship product in that market.
As for the challenges faced by the EX90, our consumers in the 500,000 RMB and above market are somewhat older, and their choices tend to be more conservative. This is why the higher the market segment, the lower the electrification percentage. This trend is particularly evident for cars priced below 100,000 RMB. Therefore, Volvo still chooses to challenge this market.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.