BBA is ramping up its localization efforts. Can Volvo's six China-customized models turn the tide?

Image Source: Duge

On November 4, Volvo Cars disclosed its global sales data for the period from August to October 2026. In these three months, Volvo Cars recorded global sales of 141,700 units, down 16% year on year. Among them, the sales volume of pure electric vehicles reached 48,700 units, up 27% year on year, accounting for 34.35% of total sales; the sales volume of plug-in hybrid models was 28,900 units, down 30% year on year, accounting for 20.37% of total sales; the sales volume of mild hybrid and fuel vehicles stood at 64,100 units, down 28% year on year, accounting for 45.28% of total sales.

Volvo Cars stated that the sales performance in these three months reflects the mounting pressure on the Chinese market environment, intensified competition from local automakers, and weak macroeconomic conditions that continue to suppress market demand. The situation in the U.S. market is equally severe, with consumer confidence at a historically low level. Coupled with the withdrawal of subsidy policies related to pure electric and plug-in hybrid models, it has exerted a negative impact on market demand. The electrification transformation momentum in the European market continues to accelerate, driving strong demand for Volvo's pure electric models.

Expanding Losses and Intensified Cost Reduction

Last month, Volvo Cars released its financial report for the third quarter of 2026, posting quarterly revenue of 66.9 billion Swedish kronor, down 23% year on year. Its operating profit turned to -5.6 billion Swedish kronor from 6.4 billion Swedish kronor in the same period of the previous year; its net profit shifted to -5.7 billion Swedish kronor from 4.5 billion Swedish kronor a year earlier. After excluding gains and losses of joint ventures and associated enterprises and comparable adjustment items, the operating profit for the third quarter of 2026 reached -3.7 billion Swedish kronor.

Volvo Cars said the performance reflects further deterioration of the external operating environment, which is mainly dragged down by the market trends in China and the United States.

Looking at the overall performance of the first three quarters, Volvo Cars recorded revenue of 217.2 billion Swedish kronor, down 17% year on year; its operating profit reached -3.2 billion Swedish kronor, with the loss expanding by 99%; its net profit was -4.6 billion Swedish kronor, with the loss widening by 75%.

Therefore, Volvo Cars plans to cut an additional 5 billion Swedish kronor in indirect expenses and variable costs on the basis of the already implemented cost optimization projects. Volvo Cars stated that the new cost reduction target of 5 billion Swedish kronor will be achieved through structural reforms, cutting headquarters management expenses, and delegating power to regional offices. The company will flexibly adjust the size of front-line production staff according to current sales volume, and continue to compress R&D expenditure.

Volvo said this move will lead to a structural reduction of about 2,500 positions worldwide, of which 2,000 positions are located in Sweden, through measures including terminating consultant contracts, natural attrition, and targeted separation compensation schemes. The full financial effect of the above measures will be realized by the end of 2027, when the company's overall indirect expenses will drop by nearly 25% compared with the 2024 fiscal year.

At the same time, Volvo will also optimize its global production layout and focus on five exclusive complete vehicle plants. For the Chengdu plant and the Ghent plant, the company is evaluating a multi-brand co-line production plan with Geely. In addition, the company will further reduce variable costs, expand the shared supplier system with Geely Group, and adopt more common hardware components on its vehicle models.

It is reported that in April 2025, Volvo Cars announced the launch of an accelerated cost reduction and cash flow optimization plan with a total amount of 18 billion Swedish kronor, including 3 billion Swedish kronor in variable cost optimization measures and 5 billion Swedish kronor in indirect expenditure efficiency improvement plans. At the same time, the company will also launch 10 billion Swedish kronor of special cash flow optimization initiatives to compress working capital and cut capital expenditure from 2025 to 2026. In the first half of 2026, Volvo Cars announced that it had completed the full-year target of 5 billion Swedish kronor in indirect and variable cost reduction for the current year six months ahead of schedule.

Overall, with the continuous expansion of losses, Volvo Cars has to continuously intensify cost compression to ease operating pressure.

Sharp Decline in Revenue from Chinese Market

Specifically in regional markets, Volvo is facing challenges in China and the United States.

In the first three quarters of 2026, Volvo's revenue in the U.S. market reached 37.183 billion Swedish kronor, down 19.15% year on year. Its revenue in the third quarter was 9.708 billion Swedish kronor, down 32.91% year on year.

Volvo stated that in the U.S. market, the continued negative impact of tariff policies and the withdrawal of purchase incentive policies for electrified vehicles have squeezed profit margins. It also disclosed that affected by changes in U.S. regulations, its CAFE (Corporate Average Fuel Economy) credits generated a revaluation loss of 1.1 billion Swedish kronor in the third quarter of 2026.

The situation in the Chinese market is more severe. In the first three quarters of 2026, Volvo's revenue in the Chinese market reached 24.972 billion Swedish kronor, down 40.32% year on year. Among them, in the third quarter, the revenue in the Chinese market was 7.498 billion Swedish kronor, down 46.73% year on year. Volvo said the revenue decline is mainly because it, together with other traditional luxury brands in the Chinese market, is facing fierce competition from local new power automakers, while bearing huge price pressure.

From the perspective of product structure, pure electric vehicles account for more than 30% of Volvo's global sales, but hybrid models still dominate in China. In the first three quarters, Volvo's sales in China were mainly contributed by three models: Volvo XC70 plug-in hybrid, Volvo S60 and Volvo XC60, with sales of 20,200 units, 16,900 units and 16,300 units respectively. In terms of pure electric vehicles, the EX30, which has the highest global sales volume, only sold 437 units in China in the first three quarters, but it is already the pure electric model with the highest sales volume of Volvo in China. It can be seen that Volvo's main products in China are hybrid models, and its pure electric models have not yet achieved substantial sales growth.

Volvo Cars stated that the environment in the Chinese market will remain severe in the next two years, and Volvo will continue to promote cost reduction and efficiency improvement measures to get through the difficulties. For example, it will integrate two office locations in Shanghai and move the sales team to the China headquarters in Jiading. By mid-2027, Volvo will launch and put into production the first two of six new China-specific models, to deepen cooperation with Geely. The new vehicles will be equipped with local Chinese technology stack and the latest ADAS (Advanced Driver Assistance System) solution, with full local competitiveness.

In this sales report, Volvo Cars also mentioned that in the Chinese market, it is adapting to the weak demand environment, focusing on stabilizing operations rather than blindly pursuing sales growth.

Intensifying Localization Efforts

Facing the challenges in the Chinese market, Volvo has begun to step up its localization efforts.

In September, Volvo Cars released long-term strategic initiatives. It will achieve the goals of an EBIT margin of over 8% and strong cash flow performance by implementing regionalized product layout and governance models, seeking business growth relying on flexible electrification routes, fully tapping the unique synergies with Geely, and realizing the transformation from simply selling cars to providing a full set of comprehensive customer solutions.

Among them, Volvo plans to strengthen cooperation with Geely in the Chinese market, and build six all-new models exclusively developed for the Chinese market with the help of shared platforms, China-exclusive software architecture, common components and a unified supply chain.

With the help of this layout, Volvo can not only reduce R&D costs relying on Geely's supply chain, but also make products more aligned with the demands of the Chinese market.

In fact, many multinational luxury brands other than Volvo are stepping up their localization in China. On the earnings call for the third quarter of 2026, Ola Källenius, CEO of Mercedes-Benz, said that in the face of the continued weakening of the Chinese market, especially the decline of the high-end market exceeding expectations, Mercedes-Benz is conducting a "360-degree comprehensive review" of its China business, covering all aspects including brand, brand influence, product portfolio, market strategy, production, procurement and technology. The management of Mercedes-Benz disclosed that starting from the pure electric E-Class to be launched in the second half of 2027, it will significantly increase the proportion of localized production and procurement in China.

BMW is also stepping up its localization efforts. According to media reports, in October, BMW's sixth-generation power battery was officially mass-produced at the Shenyang plant. With the mass production of the sixth-generation power battery, the three core components of BMW's sixth-generation electric drive system will all be produced in China. According to the latest strategic plan of the BMW Group, nearly 20 new and facelifted BMW models equipped with the new generation technology cluster will be launched in the Chinese market in 2027; BMW will further expand the localized production of key models in China, and plans to raise the proportion of domestically produced models to over 95% by 2030; at the same time, it will actively evaluate and study the pace of expanding exports of Chinese-produced models to overseas markets such as Southeast Asia.

Audi has realized the "separate governance" of North and South Audi. FAW Audi will continue to focus on the Audi four-ring brand. It is reported that Audi is in negotiations with Huawei to jointly develop a new generation of China-exclusive Audi A8, which will be locally produced at the Audi FAW PPE plant in Changchun instead of being imported from Germany for supply to the Chinese market. SAIC Audi focuses on the AUDI brand and targets China's new energy vehicle market.

At present, China is not only an important sales market for Volvo, but also a core battlefield where multinational luxury brands compete for local R&D, supply chain and electrification response speed. Facing global operating pressure and challenges in the Chinese market, Volvo on the one hand continues to intensify cost reduction measures and optimize the global production layout to stabilize its operating fundamentals; on the other hand, it accelerates localization in the Chinese market and deepens synergy with Geely, striving to regain its product rhythm and growth momentum.

This article is from the WeChat official account "Auto Industry Visibility", written by Duge, and published with authorization from 36Kr.