What you need to know:

• Volvo has committed to become all-electric car company in Australia by 2026 as firm pushes for climate neutral operations – across global supply chain – by 2040.
• MD Stephen Connor says going earlier than Volvo’s  global mandate to only sell electric cars by 2030 is to get ahead of the pack and protect revenue lines as EV demand starts to accelerate and a flood of models hit Australia.
• Volvo aiming to double sales within three years – and backs EVs to drive growth.
• If all electric cars are good – and Connor thinks they will be – the brand becomes key differentiator. So MD is backing Marketing Director Julie Hutchinson with investment despite economic headwinds.
• Volvo now about to start selling cars online but says dealers will always play a role.
• But retail and dealership footprint and model will need to shift rapidly, says Connor, mooting stores in Westfield for better CX, and a new breed of expertise required within service centres.
• Meanwhile, EV ad spending has doubled in the last year, per Nielsen data, as the market starts to heat up.

Stephen Connor put Volvo Car Australia on the automotive world map when he announced last October that the carmaker would go all-in on electric vehicles (EVs) by 2026, four years ahead of the company’s global ambition. Now he has to deliver, navigating some pretty sizeable potholes, not least lumpy supply amid global supply chain disruption and lithium shortages. But Connor is confident of hitting the target – and as much as it’s about ‘doing the right thing’ for the planet, it’s also about competitive advantage and revenue protection. Which is why global HQ is taking a margin hit now in order to fund and build the infrastructure for its future business and double unit sales to 1.2 million by mid-decade – while getting ahead of competitors still trying to play both sides of the engine-electric game.

The global growth target mirrors Volvo’s local trajectory: Connor aims to double sales by 2026 and says this year the firm is currently on track to deliver 35 per cent growth, following record Australian sales in calendar 2022. He’s hopeful EVs will make up to 40 per cent of total sales this year, versus circa 14 per cent in 2022. “Next year that will rise to about 70 per cent,” forecasts Connor. Which shows just how quickly parts of the market are starting to move – and hence the Volvo boss’ confidence.

“People said ‘are you absolutely mad, why don’t we wait until 2030?’” says Connor when he mooted a 2026 all-electric target, especially as electric vehicle sales made up just three per cent of Australia’s car market in 2022. But Connor thinks it’s a case of matching rising demand with supply, and thinks the EV tipping point is coming faster than people realise.

“What happened last year is that we started to see consumer demand change – people were starting to buy battery electric cars without subsidies. That was the big tipping point I noticed in our business. So I said to the team, ‘we all thought the shift to battery electric would be a nice, linear line out to 2030’.” But that appears not to be the case.

“What we've actually seen as a manufacturer in Australia is that the curve has [become] a sharp incline that our consumers are absolutely ready for. If they are saying to us they are willing to pay more for electric cars, why wouldn’t we change the strategy to supply the cars that the consumer needs?”

Plus, there’s only a short window to carve out a bigger slice of the market. Volvo currently sells just one per cent of Australia’s million new cars a year. Connor thinks EVs can quickly power it to two per cent before every other carmaker piles in.

“By 2030 every OEM (original equipment manufacturers, i.e. carmakers) will be standing on the mountain beating their chests and saying ‘we are the fastest transformer’. This gives us the lead and the edge against our competitors and it also protects our revenue streams,” says Connor, because Volvo will no longer be competing with what the firm sees as legacy technology.

“When you have old and new technologies side by side, the only thing most of the manufacturers do is sell on price. Price is not a position that we want to start to fight in, so we're going to be the fastest transformer,” says Connor. “It will be our point of difference.”

Plus, it protects the firm locally from cannibalisation by Geely stablemate Polestar, which launched in Australia last year, selling 1,524 cars over the year – creating a healthy but fierce competition between the two marques.

Market moving

Consumers, Connor reiterates, are moving faster than many forecast. “Tesla sold over 20,000 cars last year. That shows you that the market in Australia is ready for new technology and for battery electric vehicles,” he says.

“We only want two per cent of the market. If we go early, we’re going to be a big fish in a small pond. We will already have established ourselves as a fully electric car company when everybody else starts shouting from the rooftops – and none of our competitors will be able to do until at least 2030. So it gives us competitive advantage, protects our revenue streams and makes sure that we grab the market and consumers that are ready today.”

A two per cent share equates to 20,000 cars. Last year Volvo sold 10,715 new cars, up 18.7 per cent on 2021. “This year we’re heading for just short of 15,000 cars,” says Connor, with upwards of 5,000 forecast to be fully electric models, though like all manufacturers “we’ve got a few constraints on supply”.

Charging, subscriptions, ecom models

Two of the challenges facing electric carmakers – and consumers – is the charging infrastructure required to enable mass use of electric vehicles, and the shift in mindset away from filling the tank in a couple of minutes to ‘opportunity charging’ – i.e. topping up whenever possible, much like charging mobile phones.

Dealers face another set of challenges as they shift from selling cars, parts and servicing to more customer experience-focused retail operations. Volvo Cars global CEO, Jim Rowan, is pushing for 50 per cent of Volvo’s sales to come via direct-to-consumer channels by mid-decade, with the UK market now ramping up DTC operations in earnest. (Though Rowan has said he’s less bothered about how cars are sold, more the first party data and customer connection to attract and keep customers for life.)

In Australia, Volvo will launch online sales imminently. “We do everything else online, why wouldn’t we give people the ability to buy online? We need to make it easier for the consumer,” says Connor.

“But if the consumer wants to come to our retailers, absolutely. We're giving them a free coffee, we give them a nice facility. Maybe we turn them into offices where people can work from the showroom for the day,” he adds.

Meanwhile, Volvo is mulling how to package subscription services – where people pay for cars-as-a-service more flexibly than lease agreements – as it prepares to attract a younger cohort of buyers with a new all-electric small SUV slated for launch in Australia later this year. (There’s speculation it will be called the XC30 or EX30, though Volvo is keeping the name under wraps for now.)

Either way, Connor sees the industry’s service and sales component flipping in tandem with the transition from internal combustion engines to batteries.

“That has been our legacy – carmakers have always expected the consumer to come to us. That has gone. Now we need to be flexible. It’s about being agile to what our customers want … The automotive industry has been pretty staid. We have our footprint, which is a dealership, and we expect our customers to come to us and to love the experience. I think that has got to change,” says Connor.

He says dealers are in no danger of being cut out – but their model will change.

“We will still have that [dealer] footprint for forever and a day, because some people like coming to the retailers, seeing them, talking to the experts. But we’ve got to make sure that we give consumers choice.”

Work to rethink sales, distribution and customer experience is now underway.

“We're starting to try and transform not just our network, but the way we do things. We're going to have the ability for consumers to buy online very shortly, that's the first step for us. We'll have the ability for consumers to buy accessories online, which is the next step,” says Connor.

“We will start to look with our retailers about having a different footprint. It could well be that we have a dealer or retailer in a local marketing area and they might also have a shop front in one of the big Westfields, plus a service outlet that's tucked away that the consumer doesn't go to,” he adds. “We started that journey by talking to our retailers [about what the future might look like] at our conference last month. But it will look different in different locations. What we have in Sydney or Melbourne may not be mirrored in Orange.”

Either way, “we’ve given [retailers] a clear direction on our strategy. There is no wavering from this: By 2026 we will be a fully electric car company. That helps them, because they have clarity. It means they can focus all of their strategy on the future, not on old technology, mild hybrids, petrol and diesel cars,” says Connor. “Obviously they are a bit nervous, because it’s a change. But the world is changing quickly – and it’s only going to get faster.”

Over the next 18 months, all dealers will have fast chargers installed, which means there may be other business opportunities for them should customers come in regularly to charge for 15-30 minutes at a time.

“The next part really is to train and coach our retailers on what the new world looks like, and we're putting in plans again this year to try and support that because our consumers look different,” says Connor. “There's no point this industry just carrying on in the way we've always carried on. We need a new breed of person in the dealership – a new salesperson or new handover specialist, whatever that might be. There may be mobile servicing, all those kind of things are coming towards us and we will work with our retailers to transform their business over the next three years.”

Brand push

Regardless of its sales, distribution and customer experience overhaul, brand investment will be key to Volvo’s all-electric push, per Connor – and likely the broader automotive industry. Marketing Director Julie Hutchinson says that push is already ramping up – and salience will determine the winners and losers.

“Electric vehicle advertising is increasing at a rapid pace – last year EV advertising in Australia represented 12 per cent of all automotive advertising, up a massive 219 per cent versus the previous year. So the race is on,” says Hutchinson, citing Nielsen data.

“I would say, hands down, salience wins every day of the week, so brand [investment] is critical to support our growth – and profit – ambitions for the long term. But I also know that I can never take my eye off the here and now, we always have to remain focused on that. So we have to do both the long-term and the short-term really well all of the time between now and 2026.

That dual strategy means selling mild hybrids – combustion engine cars which also use 48v batteries to boost efficiency and smooth stop-starts, as well as plug-in hybrids (cars with larger, chargeable batteries as well as combustion engines that can operate in either mode but with shorter range than a pure electric) – while also selling all-electric models.

If Volvo is pushing both internal combustion engines and all-electric vehicles – and stating there is no long-term future for petrol and diesel cars, is there a risk of confusion for customers?

Hutchinson thinks not – because a lot of people aren’t actually aware of Volvo’s all-electric commitment, and many are not yet thinking about an electric vehicle. “But I’m really happy that we've put forward the timeline to 2026 versus 2030,” she admits. “Because to run a dual strategy for so long, especially as a two per cent player in the marketplace, it is a challenge to try and do both jobs really well.”

More budget?

Given the increasing ad spend around EVs – and strong competitors such as Kia going all-out on brand, growing rapidly and bringing electric vehicles to market – Mi3 asks Connor whether the marketing department can expect a significant budget increase, i.e. double digits?

"It's very unlikely double digits ... because obviously we're going through tough times, as everybody will notice. But our budget for marketing is a sizeable amount and will continue to be a sizeable amount into the foreseeable future," says Connor. "Julie won't be shy of any dollars available to push the brand message – and it's really important that we do invest in the brand. This isn't just about a short term strategy. We're here for the long term and we need to make sure our consumers understand that. So whatever it is, it's a huge budget. We can always spend more, but we will spend it wisely on brand."

Connor thinks brand will be the key differentiator are more electric vehicles come to market – which implies a ramp up of automotive marketing investment across the board in coming years.

"All of the cars coming through in the future will be fantastic – every manufacturer makes a good product nowadays. So our point of difference is us, want to be different by being ourselves, which is the important point. You can't do that all the time through product, because sooner or later, people won't be buying the product, people will be buying the brand," says Connor. "We need a rational message and an emotional message.

"So, yes, Julie has millions of dollars to spend and she will no doubt spend that wisely. But we will be pushing the brand message, because our point of difference is us."

Get the full download via the podcast here.