Designed Around You

Volvo Cars continues to stand out as a pioneer within the auto space. With our sustainability commitment OMTANKE firmly embedded in our business, we are finding solutions to the disruptions being posed around electrification, connectivity, mobility services and autonomous driving (AD). This year we have laid out clear strategies in each of these areas, but before elaborating on them, let me recap on developments in our core business during 2017.

The Chinese passenger car market remains the fastest growing market worldwide, and Volvo Cars performed very well in China in 2017, breaking the 100,000 unit threshold for the first time. With car plants in Chengdu, Luqiao and Daqing, as well as a stable dealer network, we are driving greater awareness of our product quality, technology, brand values and Scandinavian heritage. We continued to increase sales in Europe where the market remained strong. We are particularly pleased with 6 per cent increase in Sweden selling almost 75,000 cars against market growth of 2 per cent.

Overall, the US market was softer this year than last. Our sales during the first half of 2017 declined, but during the second half, we saw a positive sales development, almost ending the year on the same level as 2016. We are opening our new factory in Charleston later in 2018 and we believe a stronger presence in the market will have a positive bearing on sales going forward.

I am very pleased with the successful ramp up of production of the new XC60 after the very impressive launch at the beginning of the year. As of December, the XC60 is now being built in both Gothenburg, Sweden, and in Chengdu, China. Recently, it was named the car with the best overall performance by the prestigious Euro NCAP 2017 Best in Class safety awards. This adds to a list of achievements that exemplify our commitment to our vision that no one should be seriously injured or killed in a new Volvo car by 2020.

By launching the XC40 we have a complete SUV offering for the first time. Production started in November at our plant in Ghent, Belgium, and the car will come to market in the beginning of 2018.

The XC40 launch brought with it the launch of Care by Volvo, our response to flexible mobility. The aim is to give our customers more freedom – without having to own a car. I believe subscription services are one way forward as new mobility solutions continue its rapid development.

For subscription services and AD, connectivity and digitalisation are essential. Being a small player in this sector, we have chosen to make a virtue of our agility in forming a number of strong and mutually beneficial partnerships during the year.

Our collaborations are all with experts in their respective areas. Developing the software required for AD, we have joined up with Autoliv, which is a world leading automotive safety company, and set up a joint venture - Zenuity. Importantly, we believe that we can benefit from commercialising our AD technology as Zenuity will sell its products to other OEMs in the future.

With Uber we are developing the redundant base cars needed for AD. We have also agreed to sell up to 24,000 cars to them for their AD taxi service. Uber is already using XC90s for its self-driving tests, reflecting the strength of our credentials and commitment to becoming the supplier of choice for AD ride-sharing services globally.

On electrification, our strategy, laid out in July 2017, is that all new Volvo cars launched from 2019 will be hybrids or all electric. We think we have a very firm advantage with our progressive, pure electric performance brand Polestar already having started construction at its first plant in Chengdu, China. This clear move towards electrification also underlines our commitment to low carbon mobility, as well as our belief that a sustainable approach is key to our future success. In this respect, I am pleased to report that Volvo Cars is an active supporter of the United Nations Global Compact.

In 2018, we foresee continued growth both in revenue and retail sales. We are launching and ramping up production of our last two models on the SPA platform, the V60 and the S60. The latter will be built in the new factory in Charleston, US. We will also ramp up production of the XC40 and we are looking forward to its reception when it reaches our customers. In addition to our core business of building and selling cars, we will continue to develop business areas within subscription services, as well as embrace the business opportunities provided through electrification and AD. This, we expect, will result in improved 2018 profits while we will continue to lead the way in responding to the disruptive challenges in our industry.

Håkan Samuelsson
President and Chief Executive Officer

Powertrains

Volvo Cars’ SPA and CMA platforms have been designed for electrification from the start.

Fully electric: new models of fully electric cars, including Volvo and Polestar, are planned to be rolled out, the first in 2019.

Plug-in hybrids: the twin-engine set-up positions the high voltage battery in the tunnel console for maximum safety, improving the weight distribution while providing an enhanced driving experience.

Mild hybrids: the mild hybrid system uses a combination of a 48 volt battery that stores energy, providing a solution that acts as both the starter, generator and electric motor.

While Volvo Cars is committed to electrification, we will continue to offer internal combustion engines for the near future. However, this will be our last generation of diesel engines. Our non-complex powertrain family consists of 4-cylinder Drive-E powertrains, while we will soon introduce a 3-cylinder variant. Our powertrain technology is focused on delivering responsive power, clean efficiency and an exceptional driving experience. Based on the modularity principle, the compact engines can be effectively combined with driveline electrification on our new platforms.

All of our powertrains are designed to improve fuel economy and reduce emissions.

For nearly 60 years, since the invention of the 3-point safety belt in 1959, our safety innovations have led the industry and saved countless lives. We are continuing that tradition today with the development of our autonomous driving (AD) technology as a key element of our safety innovation work up to, and beyond, our Vision 2020; that nobody should be seriously injured or killed in a new Volvo car by 2020.

We believe that we are at the forefront of AD development, and that we are uniquely positioned in this area. For AD features to be successfully rolled out, it is key for consumers to have complete trust in the car, and we believe leadership in safety is an enabler to be the natural choice for the consumers in search for AD. Furthermore, we are pursuing a strategy to further develop AD and have become the partner of choice in this area. We concentrate our efforts around three pillars; hardware, software and consumers.

Hardware

We work together with Uber to develop new base vehicles with redundant systems able to incorporate the latest developments in AD technologies, up to and including fully autonomous driverless cars. The base vehicles will be manufactured by us and then pur-chased by Uber. We expect this will in turn lead to increased economies of scale on the SPA platform and position us as a world leader of hardware solutions for AD.

Software

Together with Autoliv, a world leading automotive safety company, we have created a jointly owned company, Zenuity, which will develop next generation AD software. Zenuity has its headquarters in Gothenburg and aims to be a world leading authority in software development for AD, facilitating the faster introduction of new technologies in our cars.

Consumers

As a means to develop our AD-cars, we have help from Swedish families who test cars on the public roads of Gothenburg and feedback their impressions to Volvo Cars engineers. The first two families have received the Volvo XC90 premium SUVs with which they will support the Drive Me Project. Three more families will follow in 2018 and over the next four years, up to 100 people will be involved in Drive Me. Both families contribute to Drive Me with valuable data by allowing engineers at the company to monitor their everyday use and interaction with the cars as they drive to work, bring the kids to school or go shopping for groceries. Volvo Cars plans to have a fully autonomous car commercially available by 2021 and the data derived from the Drive Me Project will play a crucial role in the development of these autonomous cars.

Sensus is our entertainment and driver support solution, an intuitive in-car control system. It provides connectivity, premium sound, a navigation system with lifetime map updates, and seamless integration with smartphones and wearables.

In our new cars based on SPA and CMA, we replaced all the buttons in the control console with a 9-inch tablet-style touch-screen that can be utilised even when wearing gloves. We also teamed up with British audio legend Bowers & Wilkins, to create an industry-leading in-car audio experience. Furthermore, Sensus can integrate seamlessly with Apple CarPlay and Android Auto, enabling easy access to phone features, such as Spotify, Yelp and Douban FM, directly via the touch-screen.

In 2017, Volvo Cars also provided a first glimpse at the future of its in-car control systems, by announcing a partnership with Google to develop the next generation of Sensus based on Android. Launched in a few years from now, the Android-based system will provide access to the large catalogue of popular Android apps – developed by Google, Volvo Cars, or third party app developers – and will offer connective and predictive services in and around the car.

To drive forward some of these initiatives, we have forged an even closer relationship with our parent company Zhejiang Geely Holding Group Ltd. (Geely Holding). As part of this, and to support the coordination of procurement and commonality for shared and existing and future technology, the joint venture GV Automobile Technology (Ningbo) Co. Ltd. (GV Tech) was established. It is a 50/50 owned company which aims to deliver economies of scale by facilitating close cooperation between Volvo Cars and Geely Holding. The benefits of this close collaboration are clear, previous joint development projects include the 2016 release of our Compact Modular Architecture (CMA).

We also established Lynk & Co Investment Co. Ltd., a 30/50/20 owned company between the three related parties Volvo Cars/Geely Holding/Geely Automobile Holding Ltd. The company owns, and is responsible for, Lynk & Co’s hassle-free, shareable carline. The cooperation will create economies of scale and value for the owners, while providing Lynk & Co with synergies that will enable it to achieve its full potential.

To support our electrification efforts, Volvo Cars and Geely Holding decided to jointly invest MSEK 6,100 to establish Polestar and a top-of-the-line manufacturing plant in Chengdu to support its product, brand and industrial development. These important steps show commitment to China as a manufacturing hub and the set-up will radically shorten the time Polestar needs to commercially launch its cars in China, giving it a strategic advantage. Polestar is a Volvo Cars subsidiary, and will be a stand-alone electric performance brand. Volvo Cars and Polestar will collaborate and both parties will benefit from synergies in the development of next generation technologies, shared procurement costs, joint development processes and economies of scale.

The Volvo brand has been built for over 90 years and is closely associated with human centricity, sustainability and safety. Our brand values permeate all our offerings and we ensure this through a close link between our customer promises and our products and services. Volvo Cars strongly believes that one of the keys to long term success is to be truly human centric. We will not bring products and services to market that are not “Designed Around You”.

Volvo Cars is committed to bring out the best in people and become the Employer of Choice for people who want to make a difference. Volvo Cars is a truly human centric company and we believe people performs at best when they are inspired and can utilise their strengths. We lead through missions and gather around topics to solve together as opposed to following a rigid organisational structure. We focus on engaging employees where they can play to their strengths.

At Volvo Cars, sustainability is in our DNA. Our founders made clear that we would make cars that protect people, and safety would be our guiding principle. We have led the industry, from the invention of the three point seat belt and the world’s first catalytic converter to our ground-breaking commitment to an electric future. Our Sustainability Program reflects the fact that we should always work to minimise our environmental impact, maximise our social impact and care for our customers and fellow employees.

We compete in the premium car segment with confidence in design, innovations and niche products and services. Based on our Scandinavian heritage, our products are developed on highly flexible vehicle platforms and powered by our industry leading in-house developed engine technology. Our innovations are designed to simplify and improve life and we are especially proud of our advances in electrification, autonomous driving, safety and connectivity. Being in the middle of a unprecedented expansion of our global manufacturing footprint, we integrate and optimise our supply chain, building where we sell, and source where we build. We work hard to engineer and produce fuel-efficient and safe cars. Our product portfolio, our engine programs and our electrification strategy show our clear commitment to the environment.

Optimised production footprint and logistics operations are the expected outcomes, at the same time taking major consideration to minimising the environmental footprint of our global expansion, including becoming climate neutral in all our manufacturing operations by 2025.

Our human centric focus is at the heart of everything we create and an improved customer journey aims to improve the user experience. We will achieve this by advancing on digitalisation and experimenting with new retail concepts as well as provide carefree user experiences and personalised technical services. Beyond the new car sales, we also offer subscription services and a global used car program.

We put people at the heart of everything we do. Our culture, our products and our commitments to employees, consumers and environment make us unique and attractive, and are reasons to why people want to join our exciting journey and work at Volvo Cars.

We work towards contributing to a better society and protecting people and the climate by creating partnerships for sustainable development and promoting traffic safety together with local and international organisations.