Tariff hit drags Volvo sales expectations lower

Sino-Swedish OEM Volvo Cars is now forecasting full-year sales to be 12-15pc higher, rather than a previous target of 15pc growth, as it digests the impact of higher duties on China-made imports into Europe and the US, as well as a hike in rates on China-made batteries into the latter.  

“For full-year sales volumes, our ambition is still to reach the 15pc previously guided, although considering the challenges we have and the clear prioritisation of value over volume, our guidance is now for the full year retail sales growth of between 12pc and 15pc,” says Volvo CFO Johan Ekdahl.

“There are, of course, challenges ahead — tariffs being one, the EX30 coming from China into Europe and in the US,” he continues. But CEO Jim Rowan points out that the impact on his firm will only be “short-term”.

“We are going to start to see the impact of that in the second half of this year, until we can get the EX30 up and running and into full production in our facility in Belgium in the early part of next year,” Rowan says.

But the start of Belgian production may not signal the end of Volvo’s challenges, given the time that will then be needed to ramp up production. “We will start the production of the EX30 in the first half of next year, but the main volume will come in the second half of next year,” Rowan admits.

“At that point in time, we need to make the choice as to where we will send and sell those cars. We are in the process of doing the planning work around that right now,” he continues. But he stresses that, by the second half of the year, the facility should be producing sufficient volumes to cover both European and US EX30 demand.

The firm cautions that it is still unsure of exactly how the new European tariff system will look before a final vote on legislation among EU member states that is scheduled for November. And that includes whether higher tariffs will apply retroactively.

One option to mitigate the impact of higher duties could be to adjust the price tag of the EX30 higher. But Volvo is non-committal on that option.

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“We are seeing really good gross margins on the product, but we are also seeing fantastic demand. So, we are looking at all of the options available to us to run our business in the most prudent way. Obviously, as you increase the prices, you tend to reduce demand. That is always an equation that we are looking towards,” says Rowan.

There is also a question on whether any price rises would be across the board or apply to the lower- or higher-spec versions of the EX30. “If we are going to make pricing changes, where should we make those alterations in order to benefit the customer and in order to drive value for our shareholders?” Rowan asks.