Volvo Cars exploring investment into US expansion

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Volvo Cars is exploring options to increase its US production, including expanding its South Carolina factory or opening a second American site, its chief executive said. 

The Swedish carmaker wants to take advantage of funds available from US president Joe Biden’s Inflation Reduction Act, which offers $370bn in green subsidies that have led to a flurry of car and battery investments from across the world. 

The act has put a potential US expansion “top of mind for us right now,” Volvo Cars CEO Jim Rowan told the FT.

Currently the brand has a plant in Charleston, South Carolina, that it opened in 2017, and will produce its new electric Volvo EX90 and the Polestar 3. 

Volvo, which sold 615,000 cars last year, aims to produce 1.2mn cars a year by 2026, and will set more ambitious targets for the end of the decade, Rowan said.

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“We need to add additional capacity in the second half of the decade to meet our growth ambitions beyond [2026], and we need to balance that region by region,” he said. 

“The money for the funds for IRA runs out [in 2032], so if you do want to expand at some point in time, and want access to those funds, you need to start thinking about how you are going to do that.”

Although investment decisions are typically taken several years before production begins, the carmaker is still exploring several US options, Rowan stressed. “It depends on really how much that expansion has to be, whether there is enough land on that site, or whether we take an adjacent location, or even another location [in the US].”

Volvo is also considering other options across the world, he added. 

The carmaker, which listed on Nasdaq in 2021, is majority-owned by China’s Geely, though is preparing to buy some of its EV batteries from Northvolt, a Swedish start-up part-backed by the carmaker. The US IRA excludes batteries originating in “foreign entities of concern”, such as China, from receiving funding.

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The company already has plants in China, Sweden and Belgium, and is constructing a new factory in Slovakia, which will begin producing vehicles around 2026. 

Volvo already makes most of its models in more than one location, as a way of reducing logistics costs and tariffs, as well as reducing potential political exposure. Last month it announced it will produce its new electric EX30 in Ghent in Belgium as well as in China. Any model made in China and sold to the US faces a tariff of 27.5 per cent.

The US is a “strong, strong market for us,” Rowan said, and likely to be one of the last where Volvo sells its hybrid models that run a traditional engine alongside a battery. 

The company is planning to sell only electric models from 2030, making it the first major established carmaker to shift entirely away from conventional engines. 

The IRA, which offers subsidies to build a US supply chain for green industries such as electric vehicle and battery manufacturing, has tipped the balance of the non-Chinese battery industry away from Europe. 

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Toyota last week announced investments of an additional $8bn in its North Carolina battery factory, the largest investment by an international carmaker following the act’s introduction.