Volvo looks beyond China for car parts as lockdowns spread

Volvo Cars has begun sourcing alternatives to its Chinese-made parts as coronavirus lockdowns now spreading across the country add a new supply chain threat to an auto industry that has been beset by them over the past year.

The company started double sourcing components that are obtained in China in a bid to shield its operations from potential disruption, according to chief executive Jim Rowan.

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

“We have already started a programme some months ago to source more components out of China so that we’re double sourcing, but that doesn’t happen overnight,” he added.

Carmakers typically purchase parts from a single provider, which they ship to factories under a “just-in-time” model that reduces the need to store components in warehouses. Although cheaper, it is a model that has left the industry particularly exposed to supply chain disruptions over the past year, notably because of a shortage of semiconductors and, more recently, Russia’s invasion of Ukraine.

Volvo’s effort to insulate its supply chain came as it reported that first-quarter sales dropped 20 per cent to 148,000 because of a shortage of chips. Revenues, however, rose 8 per cent to SKr74.3bn (£6bn) because of stronger pricing and income from Polestar, the electric brand that Volvo jointly owns with Geely.

The chip shortage also led to problems sourcing one particular component that will affect production until the summer, Volvo added, as it reported that net income dropped 30 per cent to SKr4.5bn. The industry expects the chip situation to ease in the second half of the year.

The manufacturer said that roughly 8 per cent of its models in the first quarter were fully electric, despite the group trying to prioritise battery cars with the chips it is able to source.

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

The marque wants to produce only electric cars by the end of the decade, and Rowan said he expected volumes to increase as infrastructure was rolled out and Volvo launched new battery models.

One in three cars sold in the quarter was hybrid or electric, while the level hit 100 per cent in some markets including Norway, Brazil and Thailand.