Episode 112 | Volvo Group: Transforming From a Hardware Business to an As a Service Business

David Hanngren, Investment Director, Volvo Group Venture Capital joined Grayson Brulte on The Road to Autonomy Podcast to discuss how the Volvo Group is transforming from a hardware business to an as a service business, and the role that the venture capital group is playing in Volvo’s transformation. 

The conversation begins with David discussing how all of the Volvo Group’s businesses with a $31 billion dollar market cap compliment each other ranging from heavy-duty trucks to construction equipment to buses to heavy-duty engines and marine industrial engines. 

We are earning a lot of money which we invest in new technologies. – David Hanngren

All of the business are business-to-business (B2B) that operate under a CAST (Common Architecture Share Technology) model. Components and technologies amongst the various businesses are shared which allows the Volvo Group to optimize the business as they shift to electrification. 

Heavy-Duty trucks account for 60% of Volvo Group’s revenue. As the Volvo Group prepares to move from a 100 year old hardware business to an as a services business, the company sees heavy-duty truck business continuing to grow and gaining market share. 

We are moving from hardware to services. – David Hanngren

With the shift to services and electrification, Volvo has created two new divisions: Volvo Autonomous Solutions and Volvo Energy. The as a services model will carry over to autonomous trucks.

We do not plan to sell an autonomous truck, we will provide a transport service. Both on-road or off-road. – David Hanngren

The autonomous transport service will be offered for the following applications: mining/quarries, ports/logistics and on-the-road hub-to-hub autonomous trucking. This new service model will allow the company to continue to grow their revenue while they continue to invest in new technologies. 

As Volvo Group develops an autonomous transport solution for North America, the company entered into a partnership with Aurora in 2021 to accelerate the plans.

It’s not a traditional situation where an OEM is supplying a truck and Aurora is developing the software, we do this together. We have hundreds of engineers working on the virtual driver and we do it together with Aurora. We want to develop a self-driving transportation service together with them. In the end when it’s ready, Volvo will then offer a transport service to our customers. Together we will make it happen. – David Hanngren

While Volvo Group is developing an autonomous transport solution with Aurora, it is not an exclusive partnership. More partnerships could be coming as Volvo transforms into services oriented company. The venture capital group will play a key role in this transformation. 

We want to be one of the ways to transform Volvo from a product centric company to a service oriented company. We see ourselves as an important piece of the puzzle. – David Hanngren

Volvo is going to scale their autonomous transport solution by leveraging all of their brands; Volvo, Mack and Renault Trucks in North America, Europe and Asia. Over the last 12 months, 249,000 Class 8 truck orders have been placed and some dealers are sold out for all of 2023. The demand for freight is up, the demand for Class 8 trucks is up. This environment is creating the perfect backdrop for Volvo to launch their autonomous transport solution.

Staying true to their new as a service model, Volvo is currently testing selling Class 8 trucks as equipment as a service. As Volvo introduces more electric heavy-duty electric trucks, these trucks will primarily be sold as a equipment as a service.

In Europe, Volvo has a 42% market share for electric heavy-duty electric trucks. Volvo expects this market share to grow as Amazon will be taking possession of 20 Volvo heavy-duty electric trucks in Germany by the end of the year. The trucks that Amazon will be using in Germany are projected to drive over 621,000 miles a year. 

With 36% of Germany’s domestic transport emissions originating from heavy goods vehicles and other commercial vehicles, Volvo’s electric heavy-duty truck business is poised to flourish as the world begins to decarbonize. 

In 2030, half of all the products that we sell will be zero emissions. So either electric or fuel-cell technology. In 2040, which is less than 20 years away all of the new sales should be zero emissions. Then we hope by 2050 that the entire running fleet will be zero emissions. – David Hanngren

Wrapping up the conversation, David discusses the strategic advantages of working with Volvo Group Venture Capital. 

We care a lot about the well being of the start-up. Our focus is not on how Volvo can just profit, our focus is on how can we help the start-up. – David Hanngren

Recorded on Tuesday, October 11, 2022

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