Volvo expects record 2018 sales despite trade tensions

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Automotive News Europe
July 19, 2018 07:13 CET

Volvo Cars said it was on track for a fifth consecutive year of record vehicle sales despite rising trade tensions after second-quarter profit rose on strong demand for its SUVs.

Operating profit increased 29 percent to 4.2 billion Swedish crowns ($ 474 million) in the second quarter on 66 billion crowns in revenue, up by more than a quarter from the same period last year.

Volvo also reported that its first-half operating profit rose 16 percent to a record high of 7.8 billion crowns on revenue of 122.9 billion crowns, up 24 percent from the first half of 2017.

Earlier this month the automaker reported a 14 percent increase in deliveries to 317,639 vehicles for the first half, which was also an all-time high.

Volvo CEO Hakan Samuelsson said in a statement that the first-half performance left Volvo “well positioned for a new period of sustainable global growth.”

Trade risks

The company recently opened its first U.S. plant near Charleston, South Carolina, where mass production of the new-generation S60 will start next month.

While the $ 1.1 billion investment offers some protection against mounting trade tariffs, Volvo remains dependent on imports of the flagship XC90 in its fastest-growing market. Volvo’s U.S. sales rose 40 percent in the first half.

Sedans such as the S60 fell to below one-third of U.S. registrations in the second quarter from 38 percent a year earlier while SUVs such as the Swedish-made XC90 jumped from 62 percent to 67 percent, according to Autodata figures.

Washington this month slapped 25 percent tariffs on $ 34 billion in Chinese imports including cars such as the S90 sedan that Volvo exclusively builds there, and Beijing quickly retaliated with an increase in tariffs on U.S. goods.

U.S. President Donald Trump is also threatening tariffs against car imports from Europe, where Volvo builds strong-selling models such as the XC60 and XC40 SUVs. The Peterson Institute for International Economics forecasts potential tariffs would raise vehicle prices between $ 1,400 and $ 7,000 for top-selling models, depending on a variety of factors including size.

Volvo has so far made no changes to its announced plans to focus on sedan production in Charleston, while importing its SUVs to the United States until production of the next-generation XC90 starts in South Carolina in 2021.

IPO planned

Volvo parent Geely Zhejiang Geely Holding has hired Citigroup, Goldman Sachs and Morgan Stanley to prepare the automaker for a stock-market flotation this year, Reuters reported in May.

Geely, which acquired Volvo from Ford Motor in 2010, hopes any IPO will command a high valuation for the Swedish company’s big plans in autonomous, electrified and subscription-based motoring. However, Geely has acknowledged the problems Volvo could face from a trade war.

Speaking in Hong Kong last month, Geely Chairman Li Shufu said higher tariffs would bring price increases and force Volvo to diversify its U.S., Chinese and European production to assemble more models in each region.

“We will have to invest in producing a higher number of car models locally,” the South China Morning Post quoted him as saying.

Reuters contributed to this report

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