Geely: Higher tariffs will hurt Volvo Car customers globally

Li Shufu, chairman of Zhejiang Geely, which owns Volvo Car, said on Thursday higher tariffs on imported cars resulting from escalated trade tensions between the United States, Europe and China will ultimately hit end users of the high-end Swedish vehicles. Li, who is also chairman of Volvo Car, was speaking at a Belt and Road summit in Hong Kong.

He said Volvo had enjoyed better economies of scale because tariffs were low and it was able to diversify its production base for different car models across continents.

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“However, when tariffs are high, it means that for all our production bases located in China, Europe and the US, we will have to invest in producing a higher number of car models locally [to avoid higher tariffs],” he said. This would hurt car buyers, because manufacturers will have to pass on higher costs to consumers.

The carmaker, whose manufacturing operations were previously limited to Europe, is in the midst of expanding production globally. In China, which produced 21 per cent of Volvo cars in 2017, it has plants in Chengdu, Luqiao and Daqing. The company is also ramping up production capabilities in the US this year with a new factory in Charleston, South Carolina.

Li said if Beijing were to raise tariffs on imported US cars, this would hurt customers of Volvo in China. Similarly, tariffs imposed on European Union car imports by the US will make carmakers pass costs on to end users, he added. While Europe, at 50 per cent, was Volvo’s biggest market by sales in 2017, China accounted for 20 per cent, and the US, 16 per cent.

Beijing this month, in response to the US threat of imposing tariffs on US$50 billion worth of Chinese goods, hit back with threats of an additional 25 per cent tariffs on US$34 billion worth of goods, which included cars and light vehicles, and will be applied on July 6.

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Beyond China, the US has threatened to impose a 20 per cent tariff on car imports from the EU. A national security investigation into US car imports led by US Commerce Secretary Wilbur Ross is expected to be completed by August.

While Li did not say whether higher tariffs would ultimately also affect sales, Daimler, parent of Mercedes-Benz, in which Zhejiang Geely owns a 9.7 per cent stake, this month issued a profit warning citing expectations of lower sales of sport utility vehicles made in the US that are bound for China. It also said higher costs would not be completely passed on to customers.

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Separately, Li said Zhejiang Geely saw potential for electric cars in Southeast Asia. It owns a 49.9 per cent stake in Malaysian car marker Proton.

Zhejiang Geely aims to have more than 90 per cent of its total sales coming from new energy cars by 2020. Li, however, said electric cars taking off in Southeast Asia would depend on several factors, such as the availability of supporting infrastructure, such as recharging stations. The Malaysian government targets to have 100,000 electric cars, and 125,000 charging stations by 2030.