Volvo Cars CEO Björn Annwall
BMW got into a public relations mess this year when it started charging car owners Monthly subscription fee for their rear heating. Volvo Car will not make similar moves.
“If you charge for software updates, that has to be a step change for the benefit of the consumer,” Volvo CEO Björn Annwall said in an interview this month. “We will not be asking people who bought a car for 1 million kronor ($96,500) to pay 10 kronor more for extra seat heating.”
While BMW will certainly have other manufacturers follow in its footsteps – Mercedes-Benz recently started asking buyers for its EQ tram fork $1,200 a year to unlock faster acceleration, for example – the automotive world has begun to guess how much money it will make from the proliferation of software in their hardware-intensive business. In a 91-page article on the topic last month, analysts at UBS has pegged the total address market at $700 billion by 2030. That’s no small amount, but pales in comparison to the $2 trillion opportunity they had previously predicted.
Annwall found Volvo generated little additional revenue from software until the middle of the decade. Only when there are major upgrades – such as self-driving modes – will Volvo charge an extra fee. “You don’t have to hold the wheel — now that’s a step change in the interests of users.”
Annwall was speaking at the opening of Volvo’s new technology center in Stockholm, where the manufacturer builds software to sell and market cars online. The company, last month unveiled a battery-powered vehicle utility sports car to succeed in its petroleum era, intends to discontinue production of internal combustion cars by the end of the decade. That would be a tough hit: Electric vehicles accounted for less than a fifth of the company’s shipments last month.
Bloomberg spoke with Annwall about Volvo’s technology efforts, software issues that have plagued some competitors, and ongoing supply chain issues that are gripping the industry. Here are highlights from the conversation, edited for length and clarity:
Major automakers including Volkswagen have had problems with their car software. Have you experienced similar obstacles?
I won’t hide the fact that we also have some problems with the software in our cars. But we were very good at fixing them pretty quickly. It’s a big change for an industry that’s heavily focused on hardware. All processes are focused on ensuring the quality of the hardware. Now a lot of the value is in the software and we need to have processes in place to ensure software quality.
Your goal is to produce 50% of the software you need yourself. How’s everything?
It’s progressing well. Fifty percent more is an indication of where we want to go, that we should have more control over this ourselves.
We did a pretty good job there, on automotive architecture above all, determining which parts of the software stack we should control and where we could attract partners with good solutions. more and cheaper. That journey continues.
Obviously, a very important area for us is everything related to safety and that is something we will develop internally. But there’s no reason for us to strive for better voice recognition than Google. We also don’t see a need to start developing semiconductors at the moment. It is very complex and requires a lot of scale.
Chips have been in short supply for quite some time. Have you been hit harder than other automakers by supply chain issues?
During the early stages of the pandemic, we were able to deliver better than our competitors and as a result gained significant market share. But in the last 1 to 1.5 years, we have relatively poor delivery capacity and we have lost market share. That hasn’t been driven by demand, as our order book is growing.
We had a pretty clear strategy that we used the same components on our cars and had a big thing in common, which helped drive efficiency. But it also means we’re pretty vulnerable if the supplier makes that particular component in a Chinese province where Covid restrictions are in place, for example. After that, we were hit pretty hard.
What are you doing about that?
There is no quick fix, but we are working in a structured way as we always do. We make cars where we sell them, and we source them where we make them.
We are also working on establishing relationships on some key components. It can be a semiconductor, it can be a certain raw material for the battery. Establishing a direct connection with the source is important, but not something that can be done in two months or solved every problem.
Is the supply chain situation starting to get worse again?
No, like we said, we had a pretty big hit during and after the summer. Over the past three months, we have seen production gradually and quite strong. It is being repaired. But the danger is far from over. It’s going to be a little messy next year.
