Volvo Car AB (publ.) (VOLCARB) Earnings Call Transcript & Summary

Good morning, and a very warm welcome to this webcast coming to you live from the Volvo Cars headquarters in Gothenburg. We're also live from Bratislava in Slovakia. Just a short while back, Volvo Cars announced that we would be setting up a new car manufacturing plant in Kosice, Slovakia. This car manufacturing plant will produce only pure electric cars. This is a strong and a decisive step by the company in its ambition to become a full EV brand by 2030 and become climate neutral by 2040. It's my honor and privilege this morning to welcome for this webcast the Prime Minister of Slovakia, Mr. Eduard Heger. Good to see you, Mr. Prime Minister. He is accompanied by the Minister of Economy, Mr. Richard Sulík. And standing alongside me in the Volvo Cars headquarters is, of course, our Chief Executive, Jim Rowan. Good to see you, Jim; and our Chief People Officer, Hanna Fager. Good morning, Hanna. And remember, this is a live webcast. So all of you watching this, please type in your questions and I'll take it to our special guests this morning. So without further ado then, let me start with you, Mr. Prime Minister. It's, of course, a very important milestone for Volvo Cars, our third manufacturing plant in Europe. But what does this really mean for Kosice? What does it mean for Slovakia, for Volvo Cars to set up an all-EV plant in your country?

Well, thank you very much. I must say this is a historic moment for Slovakia for several reasons. As you know, Slovakia is automotive country, industrial country with a long, long tradition and also great performance. We are the biggest producer, of course, per capita. But why I say this is a historical moment? Because all the cars have been produced in the western part of Slovakia. And Volvo Cars is coming to the eastern part of Slovakia, where we were preparing this infrastructure for bringing -- for building our second cluster and very double cluster. And Volvo Cars is the first to come with electric car only, which is wonderful news for Slovakia, is a wonderful news for Eastern Slovakia, brings great hope for this part of the country, and we are very much excited. I also think the historic moment is because we're living in a very turbulent times at this moment. And it shows courage, it shows ambition, it shows hard work, it shows preparedness, and it shows the strong signal into the world, which I'm very thankful to Volvo Cars that we could do this decision together and showing the world that there is a great hope for the future in this turbulent times. So it will create a wonderful business, I mean employment opportunities for people who some of them left Slovakia to Western Europe for jobs, and I'm sure that they will come back because this investment will be so attractive for them. But I'm sure that it will also provide for Volvo Cars a great quality of our labor because the tradition is such long here. And really, our people working for other companies are performing very well and belong among the best employees in their company. So I very much look forward to this cooperation that is going to be long term, and we are fully committed to be part of it.

Thank you very much, Mr. Prime Minister, for those opening comments, indeed a historic moment. Let me come to you then, Jim. Why has Volvo Cars decided this capacity expansion, new car manufacturing plant right here in the heart of Europe?

Well, first of all, thanks to Prime Minister, the -- as you mentioned, and the word really was collaboration. I think the collaboration through the entire process has been fantastic. And we, as a company, are fully committed to making sure that we make that full shift to electrification by 2030. And by 2025, our company will be already halfway there. That's why it's really important for us that we continue to make these investments to enable that long-term strategy. And whilst there's some turbulence in the world at the moment, you have to always be thinking about what is the long-term strategic direction of the company, or indeed, in the Prime Minister's case, all of the country. And those are very much aligned as we see it. So we're very excited for the future, and it provides us with the capacity that we will need for our products in the coming years. The demand for our product is incredibly high. The demand for our BEV products and our electrified products even more so. And so this really is a very symbiotic situation for both the Slovakian people and also for Volvo as a company.

And just to follow up on that then, Jim, this is a large manufacturing site. We will make fully electric cars. Are there also plans in the future perhaps to set up a separate battery plant right here?

Well, that's a good question because one of the things when you make such investments like this, you want to make sure that you can future-proof those investments. And what we've done in cooperation with the Slovakian government is that we have a large parcel of land, over 280 hectares of land, and that allows us to further expand the facility, both in terms of car production, should we choose to do that; or as well as putting in a fully dedicated battery facility, which, of course, could feed directly into the production facility itself. So yes, while we haven't made that decision yet, of course, but it gives us the choices and it gives us a future proofness to this large-scale investment.

And before I bring in the Minister of Economy, but I want to ask you one follow-up question on that then, Jim. Why did we then finally choose Kosice, Slovakia, for this -- for our all-EV plant?

Yes. And with these situations, it's complex. It's a large-scale investment, of course. And it never comes down to one thing. There's always multiple factors in that. Some of that is obviously financial. Some of that is geography-related. But at the end of the day, we -- and the Prime Minister alluded to that earlier, we really think that there will be a fantastic fit between Volvo and our focus on quality, on sustainability, on authenticity of finding the right workforce there as well. And all of those combined together to make this a very comfortable choice for us.

All right. Maybe Mr. Richard Sulík, if you can hear us, Mr. Minister. Prime Minister alluded to this as well that Slovakia has, of course, emerged as a very thriving automotive industry. What makes Slovakia such an attractive destination for manufacturing companies in general and the automotive industry, in particular?

Yes. Good morning, lady and gentlemen. I think the most important reason is our labor force. It started 30 years ago as the first automotive company invested in Slovak Republic. Today, Volvo is the fifth company. And in these 30 years, we have very strong network of automotive companies to deliver for this big auto companies. This is very important. We have more than 330 automotive companies in Slovak Republic. Slovakia is one of the most industrialized countries in the world or perhaps in first 10 ranking. This is very important. And I think this is the reason why Volvo at the end decided to come to Slovakia because the industrial environment is very important. Second reason is that we operate our best industrial area, which is available top infrastructure, very good situation on the labor force market and also very proactive government. And now we are really doing what's in our possibility is that Volvo can start to produce as soon as possible.

Thank you, Mr. Sulík. Hanna then, coming to you then. This -- obviously, this plant, as everyone says, is going to create thousands of jobs, specifically for Volvo Cars, anywhere between 3,000 and 5,000. That's a gigantic number. How will Volvo Cars go about fulfilling this task?

It starts with seeing people as the greatest asset on this journey, both our strategic transformation but also in terms of going for growth. And we will employ highly skilled people in a number of different roles in this new facility. And we will do that to make sure now that we can run this in a safe manner to make sure that we can produce the new electric vehicles. And we have seen that we can find the right competence, and we also see that it's a very strong heritage of strong and also for us, very needed technical competence. I would also say that from our past, I mean, we have done a global expansion. And what we see attract people to Volvo Cars is the strong leadership, our values, our culture and our dedication to a very safe workplace, both for people inside our plants but also for the world around us. We are engaging heavily in the society. And what I also can commit to is that we are looking at employment from a long-term perspective. We want people to stay with us, and that is also what we have proven. So with a strong culture and also a strong value where we have seen a very good match in Slovakia and Kosice, that makes me very proud of being able to say today that we are signing this and really establishing ourselves in a region where we can find competence more long term. And I would like to say that, I mean, to now welcome all those people to our Volvo Cars family is something that will make us all very happily globally. And we will start now with a very small team working with the establishment that will grow. And the more people will join us during 2025 to be ready then for the start of production in 2026. So this is a proud moment for everyone around the globe within the Volvo Cars family.

Indeed it is all very exciting then. Before I throw it open to questions coming in, but Jim, today, what -- we've signed the agreement, we've announced it. What are the next steps? When does construction begin? When does the plant become operational? Fill in -- fill us on those details.

Yes, indeed. And so -- and now really the work starts in earnest in order to get the facility up and running as quickly as possible. As I said, the demand is really strong for our products. So we're really focused now on the next stages. So first of all, next year or through 2023, we'll start to prepare the site. And then '24, we start installing the production equipment, testing that prototypes and with the ultimate aim of being operational by 2026. This will require a huge amount of collaboration constantly between the different teams. But we have a very strong project plan and we have great leadership there, both in terms of the Volvo side and also in terms of the partnership with the Slovakian government. So that will be the next stages. And then -- and one thing maybe perhaps to mention as well, there's very few factories around the world which have been built specifically for electric vehicle car production. Industry 4.0 will give us, and all of the new technologies that are available to us, will make this one of the highest state-of-the-art facilities in the world. and that will allow us to drive maximum efficiencies, of course, high quality and total connectivity across the entire factory itself. And that's a really exciting development for us because this is the first factory that we have built in Europe for almost 60 years, and we will see a massive use of new technologies that we put into this factory, thereby releasing even more efficiency for a purpose-built EV factory for the future. And I think that's important as well because with all of the turbulence that we see today, it's great for us, Volvo, to be confident for the future and make these long-term investments. And of course, that's driven by the quality of our products and the strength of the demand for our products as well as a strong brand. So that's the job in hand going forward. Tremendously exciting, of course. Lots of heavy lifting to get done. And I'm very confident certainly on the Volvo side and on the Slovakian side that everybody is looking forward to their hard work to make this one of the most efficient and effective and state-of-the-art factories that's ever been built for EV production.

Good. Thank you. And we're getting a lot of questions. So maybe the first one, I'm going to throw it to Bratislava in Slovakia, maybe if the Prime Minister or the Minister of Economy would like to take it. "This factory will provide several thousand new jobs. How important is this for the region of Kosice? And how will it impact the region and the wider region of Eastern Slovakia?"

If I may, I'll start, and then I'll pass the word to Minister of Economy. Well, it's crucial. And I said that in the beginning, we've been building this huge automotive cluster in Western Slovakia, and it's really -- it went to the mid Slovakia. So now we're going to have a twin, I would say sister or brother, as we can call it. And there is a great potential. There's a great potential in Eastern Slovakia. So I'm glad that Volvo Cars decided, but I'm sure that it will be a great benefit for you, Jim, as well. And this employment as I said, it's bringing new hope for the people. It's bringing new opportunities. I didn't mention, but we -- in our recovery plan, an actual recovery plan that we did after the COVID, we put a lot of investments into the innovations. And we're building a totally new ecosystem for innovations. And if you have such a great brands like Volvo Cars is on the market and you're investing into building this whole ecosystem, we're making our business environment more competitive and the Minister of Economy will speak more about it. So this all comes together in the right time. And therefore, I see this as a great opportunity that we will utilize to the last drop, I would say. And I'm very excited about it. And it is a great signal for the whole Eastern market because we had this 30 years ago in the Western Slovakia. That this is what's going to happen in the Eastern Slovakia now, fast-growing environment around it. Anybody who will be part of it will benefit definitely in multiple benefits from it.

As a short answer from me. As the history of Eastern Slovakia in the last 150 years is integration. All this time, people immigrated somewhere in U.S.A., in Western Europe, to Bratislava and so forth. So people come away from the part of the land where they were born. Now we try to turn this development. We want that people will come back to their homes. And so I am also happy that together with Volvo, we will start the program to motivate people who are born in eastern part of Slovakia, especially Kosice to come back. This will be the real success for us. So to your question, how important is for us, Volvo, especially in Kosice? I would say it's a very good message that Volvo will come to Slovak Republic. But it's a fantastic message that Volvo will come to Kosice.

We're getting a lot of questions on the kind of models we will build. So this comes in from Felix Page from Autocar and same question has been repeated. So maybe, Jim, if I take that to you, "Could you please tell us which models you will build at the new plant?"

Yes, at this point in time, we haven't released any information on that, and that's part of the development process as we go forward. Suffice to say, as we've said earlier, all the products that will be manufactured in this new facility will be fully electric BEV cars. And that's really the design purpose of the factory and the investment itself.

Right. The next question comes in from Slovakia from [ Francis Kupitz ] and he asks, maybe, Hanna, if you could take this perhaps. "Are you planning to cooperate with the technical university in Kosice in the field of graduate training, technology sharing and mutual support and research?"

Yes, we are. We see a very strong collaboration with the society with different universities and different schools there to make sure that we, over time, can make sure that we have the right talent supply to our facilities. But also as I said before, that we can have people moving back to use their technical competence together with us. But yes, we are looking forward to a very close relationship to the society around us as we have in other locations.

Okay. Good. The next question comes in. The journalist asked, "What is the extent of the incentive provided by the government of Slovakia?" Maybe I can throw that back to you gentlemen in Bratislava, if one of you would like to take it.

Yes, but let me say some words to the university. In Kosice, it's the best technical university, which we have. Here in Slovakia, 50% of all patents from all universities are coming from Technical University Kosice. This is a very, very good message. And I am also very happy about this next cooperation because we need all the research and development, not only production. And now to your question about the incentives. We will pay EUR 267 million as a direct state aid. And we will purchase -- we will -- we made the land acquisition, 330 hectare. This, we will sell to Volvo and we will invest in infrastructure in Valaliky Industrial Park.

Thank you. This question comes in from Alice Nordevik in TT News. "Will this affect the existing factories in any way? Will any of the production be moved from Sweden or Ghent to the new factory?"

Absolutely not. This is a growth story for Volvo. As I said earlier, the demand for our product is incredibly high. The demand for our BEV products and electrified products even more so. And this is designed to complement that demand so that we can make sure that we satisfy those customers that want to buy our products. Aligned to that, of course, we have the opportunity for us to expand further should we need it in the site. As the Minister mentioned, we have a large-scale site, which allows us to further expansion as well.

Since we also said that this will be a climate-neutral plant, this question comes in from [ Nicolas ], who is asking that, "Could you elaborate a bit more on the fact that -- on how we will use climate-neutral energy in this particular plant?"

Again, we've reiterated this time and again that Volvo will be a -- not only it will be a fully electric car company by 2030, we will be carbon-neutral by 2040. And that means that every decision that we make in these large-scale investments needs to be geared towards that strategic intent. And therefore, this facility itself and the Slovakian government have given these assurances that we have access to fossil-free electricity in the amounts that we need in order to run such a large-scale operation. And so that was part of the selection criteria and a very important part of the selection criteria at that.

This question comes in and perhaps I'll throw this back again to Bratislava. "How long have the discussions been ongoing for the factory? And how do you feel now that it's finally announced today?"

Yes, I'll start with how do we feel. Well, like I said, we're very excited. We are very thankful that it worked out. It was a lot of hard work on both sides, a lot of technical debates, a lot of calculations and preparations, very hard work, as I said. So we feel like after delivering great work, and it works out. So it's a victory. But we know at the same time, we are at the beginning of the implementation. So we need to make it happen, and we will -- we are so committed. So it feels very good.

Prime Minister is only happy because he doesn't really know how much work we have to do from today in the next 3 years. So it's very easy to say, that is a good victory. But I am a little bit more involved together with my team, and we will have really very, very tough work. Now to your question, how long was the discussion with Volvo? It was 1 year and 10 days from -- so the first contact was on 21st of June, 2021.

That's very specific, Mr. Minister. Thank you for that. This question comes from [ James Atwood ] in the U.K. He asks, perhaps, Jim, you could take this. "Does this plant now give Volvo all the European and global production capacity we need for the foreseeable future?"

Well, it gives us the capacity that we need, and we've had the strategy for quite some time now, which is to make sure that we are -- we say build where you sell and source where you build. And that gives us the supply chain resilience as we build that up so that we can satisfy that demand in each of the geographies. So we have manufacturing facilities in Asia. We have manufacturing facilities in Europe. We have manufacturing facilities in North America. And as that demand changes, of course, this is a situation where we're seeing Europe growing very, very quickly for us, especially on the BEV side, and so we've made this investment. That future-proofs us for the time being. We'll continue to look at further investments that we need. And some of those investments maybe in different parts of the world. But for the foreseeable future into our midterm ambitions, this sets us and positions us to achieve that.

Maybe we have time for one or two last questions. So a little bit more on the hiring process. This comes in from Peter. He asks, "When will the hiring process launch? Could you tell us when the first employees will be on board?"

Yes. We will start, as I said, do the detailed planning now for the recruitment. We will start during 2025. So more exact than that I cannot say, but we will come back as soon as we can. But we will start already now with a small team, making sure that we are on-site, that we take the context that we need to be able to start the recruitment and also to onboard people to learn how to work within Volvo Cars.

Good. I think with that, we should wrap up this live webcast. Again, a special thank you to the Honorable Prime Minister of Slovakia and the Minister of Economy. Thank you very much for joining in. And thank you very much, Jim. Thanks very much, Hanna, and thanks to all of you who tuned in live. We'll be back again soon. Goodbye.