Volvo extends global footprint with opening of U.S. factory

CHARLESTON, South Carolina, USA — Volvo will extend its global manufacturing footprint with the inauguration on Wednesday of its U.S. plant.

The automaker is investing about $1.1 billion in the factory near Charleston, South Carolina, where it will start production this autumn of the S60 for the U.S. and global markets.

Volvo is counting on its new U.S.-made premium midsize sedan to continue its record sales pace while also helping its bottom line.

The S60, which will offer gasoline and plug-in hybrid powertrains, will be underpinned by Volvo’s Scalable Product Architecture (SPA).

“The sedan segment and the SPA platform’s proven ability to boost profitability offer significant growth opportunities for Volvo in the U.S. and globally,” Volvo CEO Hakan Samuelsson said in a release.

Last year, Volvo’s operating earnings rose 26 percent to 14.1 billion Swedish crowns ($1.76 billion). The strong performance continued in the first quarter of this year, with operating earnings up by 3.6 percent 3.62 billion crowns ($417 million) because of growing sales in China and the brand’s U.S. recovery.

After selling a record 571,577 vehicles globally in 2017, Volvo is on pace to sell 600,000 vehicles for the first time in its 91-year history this year, helped by strong demand in the U.S., where sales are up more than 40 percent after five months to 37,754.

‘Big deal’

“The opening of our first American factory is a very big deal,” Volvo Car USA CEO Anders Gustafsson said in the release. “Our U.S. business is developing well, our cars have won prestigious awards [the XC90 was the 2016 North American Truck of the Year while the XC60 was the 2018 North American Utility of the Year], and the new South Carolina facility will be a big asset to both Volvo Cars and the community.”

Volvo said it would create about 4,000 new jobs at the Charleston site over the coming years. Approximately 1,500 people will be employed by the end of this year. The new plant includes an office building for up to 300 workers from the r&d, purchasing, quality and sales departments.

Surprise move

The new plant can produce 150,000 cars a year at full capacity. Volvo will add output of the next-generation XC90 premium large SUV at the factory in 2021.

Starting the new factory with a sedan instead of an SUV was a surprise to IHS Markit Principal Analyst Tim Urquhart, especially since premium rivals Audi, BMW and Mercedes-Benz all produce crossovers in North America.

“Premium sedans are still ‘a thing’ in the U.S. market so there is a rationale in terms ‘build where you sell’,” Urquhart said in an email. “But we expected the XC90 to surpass the S60 in terms of volumes soon after production of the SUV starts in 2021.”

Urquhart said Volvo needs additional capacity for SPA-based cars, which include the 90-series and 60-series family, because its main plant for the models in Torslanda, Sweden, is being “squeezed” by high global demand.

‘Third home market’

Samuelsson said that Volvo’s newest production site extends the brand’s reach. “The Charleston plant establishes the U.S. as our third home market,” he said.

The other home markets are Europe, where Volvo has vehicle plants in Sweden and Belgium, and China, where it has three car production sites and where owner Zhejiang Geely Holding Group is based.

For now, the U.S. will be the exclusive production site for the new S60, however, without being specific, Volvo said output of the SPA-based car will be added later at one of its China plants.

The current S60 is produced in Ghent, Belgium, but it is being phased out there to make room for Volvo’s new family of compact models such as the XC40.

Volvo said output of the S60L long-wheelbase version of the previous-generation sedan will continue in Chengdu, China, because demand remains high for the model. Through five months 11,592 units of the car were sold globally, according to company data. However, the old S60L, which still uses a platform from Volvo’s days under Ford ownership, will eventually be phased out in Chengdu to make room for SPA-based models.

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