Volvo Cars Reports 54% Drop in Q2 Operating Earnings, Expects Healthy Demand Despite Pricing Pressures
WHAT YOU SHOULD KNOW
- Sweden-based automaker Volvo Cars reported a significant decline in Q2 operating earnings due to a one-off gain in the previous year.
- While the company expects healthy demand for its cars, it foresees additional pricing pressures as supply and demand continue to normalize in the wider markets.
- Volvo aims to transition all its models to fully electric vehicles by the end of the decade.
Volvo Cars, based in Sweden and majority-owned by China’s Geely Holding, reported a significant 54% decline in second-quarter operating earnings compared to the previous year. The decrease was attributed to a one-off gain in the year-ago period, which boosted profits. However, excluding joint ventures and associates, the company’s second-quarter EBIT for 2023 increased to 6.4 billion Swedish crowns, up from 4.6 billion crowns in the same period last year. Analysts polled by Refinitiv had expected an adjusted EBIT of 5.2 billion crowns.
Despite pricing pressures and challenges in the supply chain, Volvo Cars remains optimistic about the demand for its vehicles. The company noted that sales performance was driven by improved production, and it anticipates that supply and demand will continue to normalize in the wider markets. While the normalization may bring some additional pricing pressures, Volvo believes that demand for its cars will remain healthy, even with high interest rates impacting customers and overall markets.
Volvo aims to transition all its models to fully electric vehicles by the end of the decade. However, the company faced margin impacts on fully electric cars during the second quarter due to the sourcing of lithium when prices were at their peak in late 2022. The battery electric vehicles’ gross margin for the quarter was 2.6%, significantly lower than the 21.4% margin for non-battery electric vehicles. Despite these challenges, Volvo is optimistic that lower lithium prices and increased pricing on some of its fully electric cars in the second half of 2023 will lead to improved margins in the coming quarters. The company has reaffirmed its guidance of achieving solid double-digit growth in retail sales for the full year.
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