Volvo Cars' quarterly operating profit falls as higher costs bite

SWEDISH automaker Volvo Cars said on Thursday (Oct 27) it expects lower wholesale volumes this year after it reported a fall in its third-quarter operating profit due to higher costs, prompting its share price to drop 6 per cent.

While manufacturing output continued to improve in the quarter, the pace of production normalisation was slowed by power outages and Covid-19 related lockdowns in China, it said.

Volvo shares fell almost 6 per cent at market open.

The Gothenburg-based company now expects 2022 wholesale volumes to be “slightly lower” compared with the year before, down from a previous forecast for better wholesales volumes than in 2021.

In addition, Volvo said it had been forced to conduct spot buying of semiconductors to fill a production shortfall and logistics costs, in addition to mounting raw material costs that all hurt its operating profit.

Despite robust demand throughout the year, a global shortage of semiconductors has forced Volvo and its peers to curtail vehicle output. Only this week, the shortage saw Volvo having to shut one of its Swedish factories for a week.

Stockholm-listed Volvo, majority owned by Chinese automotive company Geely Holding, said its quarterly operating profit fell to 2.1 billion Swedish crowns (S$271.7 million) from 3.3 billion a year ago.

The company aims for 50 per cent of its sales to be pure electric cars by the middle of the decade amid an industry-wide shift in which auto suppliers have to shoulder extra costs while already squeezed by rampant inflation and soaring energy prices.

In its quarterly report, the carmarker affirmed its 50 per cent mid-decade goal as well as its ambition to become a fully electric car brand by 2030.

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Chief executive Jim Rowan told Reuters that it was important to continue to work towards electrification despite the mounting challenges.

“At this particular point in time, it can be easy to be distracted and not focus on your long term sustainability goals,” Rowan said, adding that he believed it was possible to find solutions to be sustainable without hurting its profit. REUTERS