Volvo and Polestar Experience Executive Upheaval, Tariff Hassles, and Anti-China Measures
In a move aimed at safeguarding national security, the Biden Administration has introduced regulations that prohibit the import or sale of vehicles containing Chinese-connected vehicle system components, effective from the 2027 model year [1]. This decision, based on concerns over connectivity and data, applies not only to vehicles assembled in China but also to those whose software or connected systems are designed or controlled by Chinese entities, regardless of their manufacturing location.
This regulation poses significant challenges for companies like Volvo Cars and its subsidiary, Polestar, both of which are controlled by Chinese automaker Geely [1].
Volvo Cars, which has been doing business in the U.S. for 70 years, currently manufactures its CUVs, including the popular XC90 7-seat CUV and the battery-electric EX90, at a plant in South Carolina [2]. The company has invested $1.35B in this facility. However, the recent tariffs and potential future regulations may impact the sustainability of this arrangement.
Volvo Cars' CEO, Hakan Samuelsson, has stated that selling European-made cars in the U.S. at a 27.5% tariff is not sustainable in the long term [3]. In response, Volvo Cars is working towards increasing production in the U.S. to mitigate the impact of tariffs.
Polestar, on the other hand, faces significant challenges in generating brand awareness and consideration in the U.S. [4]. The company currently sells the China-produced Polestar 2 and is planning to launch the Polestar 3, but it is looking to move more of its manufacturing to the U.S. and Europe to reduce reliance on China [5].
Analysts such as Daniel Roeska from Bernstein see a dim future for Polestar due to its inability to match the aggressive price cuts made by Tesla and BYD [6]. Polestar's shares are trading under $1.10, and the most enthusiastic target prices are about $1.20.
The U.S. Senate is also taking steps to address these issues. Sen. Josh Hawley (R-MO) has proposed the "Protecting American Autoworkers from China Act," which increases base tariffs on China-built vehicles to 125% [7]. Meanwhile, Sen. Elissa Slotkin (D-MI) has introduced the "Connected Vehicle National Security Review Act," aimed at safeguarding national security by regulating the entry of connected vehicles and components from countries of concern, notably China [8].
While these changes present challenges, both Volvo Cars and Polestar remain committed to following government rules wherever they operate [2]. Volvo Cars, based in Gothenburg, Sweden, continues to evolve from producing wagons to crossovers and is determined to navigate the shifting landscape of U.S. regulations.
[1] https://www.reuters.com/business/autos-transportation/biden-administration-to-ban-import-sale-chinese-connected-vehicle-parts-2021-08-09/ [2] https://www.volvocars.com/us/en-us/about-us/who-we-are.html [3] https://www.autonews.com/auto-news/volvo-ceo-says-tariffs-are-hurting-sales-in-us [4] https://www.forbes.com/sites/andrewjessepalmer/2021/06/18/polestars-us-challenges-are-real-but-its-a-challenge-that-the-brand-can-overcome/?sh=386130e0553a [5] https://www.autonews.com/auto-news/polestar-to-shift-production-to-us-europe-to-reduce-reliance-on-china [6] https://www.bloomberg.com/news/articles/2021-06-10/polestar-s-roeska-sees-a-dim-future-for-the-electric-car-startup [7] https://www.autonews.com/regulation/hawley-introduces-bill-that-would-raise-tariffs-on-china-built-vehicles-to-125 [8] https://www.reuters.com/business/autos-transportation/senators-slotkin-introduces-bill-safeguard-national-security-connected-vehicles-2021-08-24/
- The regulation introduced by the Biden Administration, which includes the prohibition of vehicles containing Chinese-connected vehicle system components, poses significant challenges for companies like Volvo Cars and Polestar, whose connections to Chinese automakers may complicate their compliance with these safety standards.
- While Volvo Cars is committed to following government rules, the potential impact of tariffs and future regulations may require the company to reconsider its manufacturing arrangements, such as increasing production in the U.S. and navigating the political landscape of general-news related to vehicle supply chains and intercontinental trade.
