Volvo to Invest Up to $11 Billion in Five Years, Plans Exports

Volvo Cars, the Swedish automaker acquired by Zhejiang Geely Holding Group Co., plans to invest as much as $11 billion worldwide over the next five years to tap rising demand in markets including China.

Volvo is also working to win government orders and is considering making cars in China for export, Chief Executive Officer Stefan Jacoby said today in an interview in Beijing.

“It is obvious that at some point manufacturers will export from China,” Jacoby said. “We, as a global premium brand with European heritage, have a very good opportunity to be owned by a Chinese enterprise and to utilize our manufacturing capacities here.”

Premium marques including Volvo, Audi AG and Daimler AG are expanding in China, the world’s biggest automobile market and second-largest economy, as rising incomes and economic growth boost spending. The Swedish brand, whose chief executive presented its China strategy this afternoon in Beijing alongside Geely Chairman Li Shufu, is counting on increasing Chinese demand to help double sales to 800,000 vehicles in 10 years.

Shares in Geely Automobile Holdings Ltd., the group’s Hong Kong-listed unit, were unchanged at HK$3.30 as of 3:12 p.m. local time. The stock has lost 2.9 percent in 2011.

Discount Effect

“There is no doubt about the super importance of the Chinese market to Volvo,” said Yu Bing, an analyst with Pingan Securities Co. in Shenzhen. “The vital question lies with whether Volvo would be able to avoid any discounts in its brand’s premium value because of the takeover by a Chinese homegrown carmaker.”

Volvo, which Ford Motor Co. sold to Zhejiang Geely in August for $1.5 billion, aims to sell 200,000 cars in China by 2015, up from 30,522 in 2010, Jacoby said today. Volvo also plans to increase its dealers in China to more than 220 by 2015 from the current 106, according to the company.

The carmaker is working to increase sales to the central and local governments in China, Jacoby said.

“Being owned by a Chinese enterprise offers us additional opportunities in getting into the government fleet business,” he said.

Volvo will invest in a new plant in the city of Chengdu, southwestern China, and will continue to consider setting up a plant in Daqing in northeastern China, the company said. Shanghai will serve as Volvo’s China headquarters and center for product development, design and sourcing.

Geely produced its first car, a subcompact, in 1997 and was the eighth-biggest automaker in China last year.

Economic growth and government incentives boosted China’s vehicle sales 32 percent to 18.1 million in 2010, making the nation the world’s largest auto market for a second year.

Volvo’s main rivals boosted their China sales last year. Volkswagen AG’s Audi sold 227,938 cars in China, up 43 percent from 2009. Daimler AG’s Mercedes-Benz more than doubled sales to 148,400, while Bayerische Motoren Werke AG sold 168,998 units, an 87 percent gain.

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

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