Volvo to manufacture SPA vehicles in Daqing, China, as part of expansion plan

Volvo has announced that it is planning to manufacture new models based upon its Scalable Product Architecture (SPA) as part of its intentions to "significantly expand" its facility at Daqing. The company said that initially the site has been prepared to manufacture a variant of the first-generation XC90 sport utility vehicle (SUV) for local consumption, known as the XC Classic, production of which began in September 2014. It added that the site, which currently employs 700 staff and has the capacity to manufacture up to 80,000 units per annum (upa), will eventually produce what the company calls an "all-new premium Sedan". It said that production processes at the site will fully adhere to the automaker's Volvo Car Manufacturing System (VCMS), and utilise global technology and global sourcing, and provide global quality.

Volvo president and chief executive Håkan Samuelsson said in a statement, "Daqing will become an integral part of our global industrial footprint...We are pleased to announce that we are going to introduce SPA and a new sedan here. We are fully committed to the growth of our business in China, our second home market." He added, "Using precise, standardised production methods and world-class premium automotive technology, Daqing will provide consumers with safe, healthy, environmentally friendly, and tasteful Volvo cars with a flavour of Scandinavian luxury."

Outlook and implications

It has been a busy week for Volvo in China. This announcement was preceded by the news that the company will manufacture the current XC60 crossover locally from later this week, requiring an increase in the headcount at its Chengdu facility (see China: 10 November 2014: Volvo begins production of XC60 at Chinese plant). This will support the strong demand for this vehicle locally, which has made it Volvo's best-selling model. Up to now this demand has been met through imports, resulting in the vehicle facing considerable import taxes.

Although Daqing, located in China's Heilongjiang province, is not a traditional location for vehicle manufacturing, Volvo has located what is expected to be a significant base for the company here to partly support one of its key investors, Daqing State Asset Operation, which holds a 37% stake in the company. Volvo said that the move was part of a national policy of “Reinvigorating the Northeast" and accelerating its economic development, which has traditionally depended on natural resources. Indeed, the confidence that has been placed on the Daqing base cannot be underestimated. Although it will initially focus on manufacturing technology that has been sold on the global market for around 12 years in the previous generation XC90, the facility will in turn be entrusted to manufacture vehicles with the brand's cutting edge SPA technology. As noted in the statement, one of the first of these vehicles has been tentatively named the 'S90' and is expected to be a large premium sedan that will replace the S80. IHS Automotive expects production of this model to be launched during 2016. During the same year, production of the second-generation XC90 will take place here as the XC Classic is phased out. Eventually joining these vehicles will be the replacement for the current S60 in 2018, which will also be manufactured on the SPA platform, with Chinese production shifted from its site in Chengdu, leaving it to focus on the replacement of the popular XC60 crossover. IHS Automotive expects the combination of these three vehicles will see output at the site easily surpass the 80,000-upa capacity of the site towards the end of the decade.

Before the end of the decade, we expect to see a site in Taizhou Luqiao, Zhejiang province, which will manufacture the Volvo V40 and Volvo XC40 on a new compact architecture that will be shared by Geely models built at the same site. This altogether will lift the brand's output in China from 3,800 units in 2013 – albeit an exceptionally low ebb for the brand as it transitioned from shifting production from under Ford to its own parent-backed facilities – to over 250,000 upa by the end of the decade, with IHS Automotive expecting further gains beyond this point. IHS Automotive also anticipates that this will help Volvo's sales in China, which is already its leading market worldwide, to grow from around 61,000 units during 2013 to over 205,000 units by the end of the decade. However, the investment in its production base, and the emphasis that it is said to have made on quality, will also result in it becoming a production hub going forward. As already announced, we expect to see shipments of Volvos to the United States in 2015, and export markets are expected to grow in future to Japan, the Middle East, Russia, and Europe, including the brand's home market of Sweden. IHS Automotive expects exports from Chinese plants to various markets to grow from just 1,700 units in 2015 to almost 60,000 units by 2019.