Volvo Cars to Boost Spending on Models in Expansion Push

Volvo Car Group, the Swedish luxury-car maker owned by China’s Zhejiang Geely Holding Group Co. (175), will increase spending this year as it prepares to roll out the new XC90 sport-utility vehicle in a reset of the brand.

Volvo will invest more than 6 percent of revenue in research and development this year after a push to return to profit caused spending to drop to 4.8 percent in 2013, Volvo Cars Chief Executive Officer Hakan Samuelsson said in a telephone interview today. Even with the higher outlays, the carmaker plans to stay profitable in 2014.

“We’re in the midst of the largest investment program in the company’s history,” Samuelsson said. “Our goal is to be stably in the black. 2014’s quite a challenging year.”

Volvo, which built a reputation around safety and reliability, is investing 11 billion euros ($15 billion) in a four-year project to develop a range of new models. The goal is to almost double sales to 800,000 vehicles by 2020. The Gothenburg-based carmaker is about one-fourth the size of luxury-auto sales leader Bayerische Motoren Werke AG.

The revamped XC90, Volvo’s first model developed since Geely bought the Swedish company from Ford Motor Co. in 2010, will be presented later this year. The car, which will sport a touch-screen display using Apple Inc. (AAPL)’s CarPlay communications system, will be Volvo’s first vehicle built on an all-new platform. The company is also working with its Chinese parent on underpinnings for a line of small cars that will be available in three to four years.

Four-Cylinder Engines

Volvo’s research and development investment declined 6.8 percent to 5.86 billion kronor ($913 million) last year. By comparison, Munich-based BMW spent 4.8 billion euros on new models and technology in 2013, equivalent to 6.3 percent of revenue. Samuelsson said the Swedish carmaker’s long-term goal is to spend 5 percent to 6 percent of annual sales on development.

Because of its small size, Volvo is targeting investments and will offer only four-cylinder engines to control costs, reduce emissions and stand out from other upscale auto producers. Customers who want more than the 190 horsepower generated by the standard combustion engines can add electric motors that give the vehicle as much as 400 horsepower.

Full-year operating profit jumped to 1.92 billion kronor from 66 million kronor in 2012 as sales growth in China and cuts in operating costs helped Volvo Cars recover from losses in the first half. Revenue slipped 1.8 percent in 2013 to 122.2 billion kronor, even as deliveries rose 1.4 percent.

The operating margin was 1.6 percent of sales. Samuelsson said, without specifying a target, that he wants boost the figure to a level similar to other upscale carmakers’ profitability. BMW’s operating margins from automaking were 9.4 percent in 2013.

Volvo Cars is forecasting auto sales in 2014 will increase about 5 percent from last year’s 427,840 vehicles, propelled by a jump of more than 20 percent in China, where it started production of the S60L extended-wheelbase sedan in late 2013. The brand’s deliveries in the world’s largest car market surged 46 percent last year to 61,146 cars and SUVs.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net Tom Lavell, Niklas Magnusson

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.