Volvo looks beyond China for auto parts as lockdowns spread

Volvo Cars has started to find alternatives to its made-in-China parts as the coronavirus lockdowns now spreading across the country add a new supply chain threat to an auto industry that has been beset over the past few years. of the past year.

According to Managing Director Jim Rowan, the company has started sourcing duplicate components that are sourced in China in an effort to protect its operations from potential disruptions.

“The longer the pandemic spreads, the more uncertainty there is. We have already implemented a strategy of ‘manufacture where we sell’ and ‘source where we manufacture’,” he said. .

“We already started a program a few months ago to source additional components from China to double our supply, but it doesn’t happen overnight,” he added.

Automakers typically purchase parts from a single supplier, which they ship to factories in a “just-in-time” model that reduces the need to stock components in warehouses. Although less expensive, it is a model that has left the industry particularly exposed to supply chain disruptions over the past year, particularly due to a shortage of semiconductors and, more recently, of the Russian invasion of Ukraine.

Volvo’s effort to insulate its supply chain came as it reported first-quarter sales fell 20% to 148,000 due to a shortage of chips. Revenue, however, rose 8% to 74.3 billion Swedish kronor (£6 billion) due to higher prices and revenue from Polestar, the electric brand that Volvo jointly owns with Geely.

The chip shortage has also led to supply issues for a particular component that will affect production through the summer, Volvo added, saying net profit fell 30% to 4.5 billion Swedish crowns. . The industry expects the chip situation to improve in the second half.

The automaker said around 8% of its models in the first quarter were all-electric, although the group is trying to prioritize battery-powered cars with whatever chips it is able to source.

“The underlying demand for our BEV [battery electric vehicle] products is incredibly high, if we had a supply it would be even higher,” Rowan said.

The brand wants to produce only electric cars by the end of the decade, and Rowan said he expects volumes to increase as infrastructure is rolled out and Volvo launches new battery models. .

One in three cars sold in the quarter were hybrid or electric, while the level reached 100% in some markets, including Norway, Brazil and Thailand.

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