Volvo Cars sees robust demand despite Polestar losses, Q1 earnings miss forecasts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Swedish automaker Volvo Cars said on Wednesday it expects good demand for its vehicles this year after a rise in first-quarter unit sales, though operating earnings missed forecasts due to lower revenues and losses at its Polestar business.

Operating income (EBIT) for the first quarter fell to 4.7 billion Swedish crowns ($434.78 million) from 5.1 billion a year ago on the back of a decline in sales due to a negative foreign exchange rate and lower contract manufacturing sales, it said.

This was below a consensus referenced by JPMorgan, which had expected operating income of 5.93 billion crowns.

However, its adjusted operating income, which excludes joint ventures, associates and one-offs, rose 8% to 6.8 billion Swedish crowns ($629.27 million).

“Overall, a good start to the year where Volvo reported double-digit sales growth and continued to ramp up production of the EX30,” JPMorgan said, referring to unit sales.

“We expect demand for our cars to remain robust in coming quarters in line with our guidance of full-year sales volumes growth of at least 15 per cent,” CEO Jim Rowan said in a statement.

Rowan has expressed confidence in the company’s ability to drive high electric vehicle (EV) margins and continue on a profitable path despite the troubles the industry faces.

While automakers and suppliers are betting on future demand for EVs, sales growth has slowed, with investment in capacity and technology development outrunning demand, boosting pressure on companies to cut costs.

The company’s BEV (battery-electric vehicle) gross margins were 16% in the quarter, a rise from the previous quarter’s figure of 13%, underpinning Rowan’s stance that its margins will continue to rise.

In February, Volvo said it would seize further funding of the loss-making luxury car brand Polestar, which had for some time ahead of the decision been criticised by analysts who saw the company as a drag on Volvo’s resources.

“Generally… during the quarter there were higher losses in Polestar that hurt the reported EBIT,” Handelsbank analyst Hampus Engellau told Reuters.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow