In spite of price constraints, Swedish automaker Volvo Cars anticipated strong demand for its vehicles on Thursday, despite reporting a 54% decline in second-quarter operating earnings due to the year-ago quarter’s profit being boosted by a one-time gain.

Volvo Cars, which is majority owned by Geely Holding in China, reported that earnings before interest and taxes (EBIT) decreased from 10.8 billion Swedish crowns to 5.0 billion crowns ($488.62 million) in the previous year.

According to the business, a one-time, non-recurring accounting effect from Polestar’s listing was the cause of last year’s high earnings. Excluding joint ventures and affiliates, its EBIT for the second quarter of 2023 increased from 4.6 billion crowns to 6.4 billion crowns.

Refinitiv estimates that an adjusted EBIT of 5.2 billion was what analysts surveyed by Refinitiv had predicted.

Volvo stated that increased production was the primary factor in its improved sales results and that it anticipated supply and demand to remain stable across all markets.

The business went on to say that although the normalisation will result in some additional pricing pressure, overall market conditions and customer demand for its cars were still projected to be healthy.

Automakers like Volvo have started to gradually recover from a protracted period of supply chain hardship, not least because of chip shortages and production disruptions in China that have reduced output and raised prices.

Volvo has had strong demand for its models, which it hopes to be entirely electric by the end of the decade, despite rising inflation and increased pricing for raw minerals like lithium.

Due to the fact that the lithium utilised in these vehicles was sourced when prices peaked in late 2022, the company’s profits on fully electric vehicles were hurt during this time, according to Volvo.

According to Stifel analyst Daniel Schwarz, the second quarter’s gross margin for battery electric vehicles was 2.6% compared to 21.4% for non-battery electric vehicles, demonstrating the growing disparity between these two types of vehicles and the declining profitability of battery electric vehicles.

The Gothenburg-based firm also stated that it will benefit from reduced lithium costs for the second half of 2023 as well as higher prices for certain of its fully electric vehicles, and as a result it anticipates an improvement in the margins on its completely electric vehicles in the upcoming quarters.

Volvo reaffirmed its forecast for strong double-digit annual retail sales growth.

(Adapted from USNews.com)

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