Volvo Cars has revised its full-year sales forecast due to European tariffs on electric vehicles (EVs) made in China. The Swedish automaker announced better-than-expected second-quarter results, causing its shares to rise by 6% in morning trade. However, Volvo lowered its sales growth forecast for the year from 15% to 12%-15% due to the impact of tariffs. CEO Jim Rowan attributed the revision to the newly imposed European Union (EU) tariffs on Chinese-made EVs, which will affect one of Volvo’s key electric models, the EX30, until production shifts to Belgium. These tariffs are expected to last for a minimum of six months.
The EU imposed provisional tariffs of up to 37.6% on imports of Chinese-made EVs, alleging that they benefited from unfair subsidies. Despite China rejecting these allegations, Volvo, which is majority-owned by China’s Geely, faces a 19.9% tariff on its fully-electric EX30. To address this issue, the automaker plans to move production of the EX30 to Belgium, with production expected to commence early next year.
Volvo’s decision to adjust its sales growth forecast reflects the uncertainty caused by the tariffs. Rowan stated that they wanted to provide a range of growth to acknowledge the headwinds they are facing. He emphasized that Volvo still aims for 15% growth but wanted to ensure the market understands the challenges they are encountering.
The automaker’s decision to lower its forecast was deemed sensible by Bernstein analysts, considering the current macroeconomic situation. The demand for EVs has been slowing down, partly due to the lack of affordable models and the slow rollout of charging infrastructure. In contrast, U.S. and European automakers have reported strong sales of hybrid vehicles and are responding to the demand by introducing more hybrid models.
While Volvo saw a “modest decline” in orders for fully electric models in the second quarter, it noted that demand for hybrid cars remains robust. Rowan reassured analysts in a conference call that they would continue to invest in hybrid models, as these vehicles serve as a bridge for customers who are not yet ready to fully transition to electric vehicles.
In terms of financial performance, Volvo reported producing 211,900 cars in the second quarter, exceeding the number of cars sold due to the decline in European demand for EVs. The company’s operating income, including its stake in Polestar, rose to 8 billion crowns ($758 million) from 5 billion crowns the previous year, surpassing analysts’ expectations. The operating income, excluding joint ventures and associates, also showed growth, reaching 8.2 billion crowns from 6.4 billion crowns.
Volvo’s battery electric vehicle (BEV) gross margins saw improvement, rising to 20% from 16% in the previous quarter. This signifies the CEO’s confidence that margins will continue to rise. However, Rowan announced that Volvo intends to stop disclosing its EV margins from the next quarter, as this information is becoming increasingly sensitive.
In conclusion, Volvo Cars’ decision to revise its sales forecast is a response to the European tariffs on EVs made in China. While the company aims for 15% growth, the uncertainty caused by the tariffs led them to provide a range of 12%-15%. The demand for electric vehicles has been impacted by factors such as the lack of affordable models and charging infrastructure, resulting in a decline in orders for fully electric models but continued strong demand for hybrid cars. Despite these challenges, Volvo demonstrated strong performance in the second quarter, exceeding analysts’ expectations in terms of operating income. The improvement in BEV gross margins further adds to the CEO’s optimism about future profitability.