The commercial vehicles industry is cyclical
The Volvo Group’s markets undergo significant changes in demand as the general economic environment fluctuates. Investments in infrastructure, major industrial projects, mining and housing construction all impact the Group’s operations as its products are central to these sectors. Adverse changes in the economic conditions for the Volvo Group’s customers may also impact existing order books through cancellations of previously placed orders. The cyclical demand for the Group’s products makes the financial result of the operations dependable on the Group’s ability to react to changes in demand, in particular to the ability to adapt production levels and production and operating expenses.
Continued consolidation in the industry is expected to create fewer but stronger competitors. The Group’s major competitors are Daimler, Paccar, Navistar, MAN, Scania, Caterpillar, Komatsu, Cummins and Brunswick. In recent years, new competitors have emerged in Asia, particularly in China. These new competitors are mainly active in their domestic markets, but are expected to increase their presence in other parts of the world.
Prices may change
The prices of commercial vehicles have, at times, changed considerably in certain markets over a short period. This instability is caused by several factors, such as short-term variations in demand, shortages of certain component products, uncertainty regarding underlying economic conditions, changes in import regulations, excess inventory and increased competition. Overcapacity within the industry can occur if there is a lack of demand, potentially leading to increased price pressure.
Extensive government regulations
Regulations regarding exhaust emission levels, noise, safety and levels of pollutants from production plants are extensive within the industry. Most of the regulatory challenges regarding products relate to reduced engine emissions. The Volvo Group is a significant player in the commercial vehicle industry and one of the world’s largest producers of heavy-duty diesel engines. The product development capacity within the Volvo Group is well consolidated to be able to focus resources for research and development to meet tougher emission regulations. Future product regulations are well known and the product development strategy is well tuned to the introduction of new regulations.
Fossil fuel and peak-oil
Two important issues to address are the role of carbon dioxide emissions and the approach of peak oil, which can influence the fuel prices. More than 95 percent of the energy consumption used in the transport sector today is crude oil-based, hence there is significant potential for developing commercially viable alternatives. Reducing dependency on fossil fuels such as oil, coal and natural gas by increasing the use of renewable fuels makes both business and environmental sense. Developing alternatives that are fuel-efficient and which can be operated using renewable fuels is therefore a priority and a valuable business opportunity for the Volvo Group.
Need for engineering expertise
As the Volvo Group’s products are getting more sophisticated more experts are needed. At the same time the interest for mathematics, science and technology in western countries declines. A crucial factor for the implementation of the Group’s vision and wanted position is input from employees, their skills and commitment. A related risk is the need for expertise and competent engineers to continue the development of environmentally-enhanced products.