Volvo Cars has warned that possible European Union tariffs on electric vehicles from China could affect sales of one of its flagship models.
The company will, however, start production of the model at its plant in Ghent, Belgium, in the first half of next year to produce more vehicles closer to the sales markets. Production volumes in Belgium are expected to increase significantly in the second half of 2025. Belgium will also serve as a production center for deliveries of the EX30 to the USA, after the Biden administration decided to impose a new 100% tariff on Chinese electric vehicles.
The EU has provisionally set new tariffs of 17.4% to 37.6% on all electric cars imported from China, in addition to an already existing 10% tariff. This tariff uncertainty adds to the ongoing concerns about high inflation, increased interest rates, commodity price volatility, and geopolitical complexity, prompting the company to lower its retail sales forecast on Thursday. For the entire year, Volvo Cars now expects retail sales growth of 12% to 15%, down from the previous target of at least 15%.
As soon as the EU investigation is completed later this year, following the member states' votes and the possible imposition of final tariffs, we will have a clear overview of how the tariffs will impact Volvo Cars," said CEO Jim Rowan.
Volvo Cars has chosen Europe as the main target market for the EX30, as customers on the continent prefer smaller vehicles. Until production begins in Belgium and the car manufacturer can avoid potential tariffs, the possible rise in costs will act as a headwind. Nevertheless, Rowan is confident that the company can gain market share in the highly competitive EV market despite the challenges. Current sales figures, according to Rowan, confirm the strong brand position and robust product offering of Volvo Cars.
In China, where intense competition in the EV market has led car manufacturers to lower prices to gain market share, Volvo Cars is relatively well-protected thanks to its positioning in the premium segment. China remains an important focus market for the Swedish manufacturer, and Rowan said that the company has largely escaped the disruptive price wars of new EV brands that compete more in the mass market.
We still expect growth in China, not as strong as previously expected, but we still see a strong market for Volvo Cars," he said.
The total quarterly sales in China fell to 40,200 cars from 42,100 in the same quarter of the previous year, with battery electric and plug-in hybrid vehicles together making up 9% of these sales.
Despite the ongoing challenges, the group recorded a record growth in core earnings for the second quarter on Thursday, with an increase in adjusted operating profit by 28% to a record level of 8.2 billion Swedish krona (777.8 million US dollars). The net profit attributable to shareholders rose to 5.35 billion SEK from 3.33 billion SEK, supported by higher volumes and lower material costs.
The revenue fell by 0.7% to 101.45 billion SEK. A consensus from Visible Alpha had expected a net profit of 4.88 billion SEK on a revenue of 104.82 billion SEK.
Retail sales of the group increased by 15% to 205,400 cars sold in the quarter, with the EX30 having a strong start in Europe.
Rowan said that the gross margins for fully electric cars reached a new high of 20% during the reporting period, as the group continues to profitably steer towards electrification. However, he warned that the transition to fully electric vehicles should be supported by a "bridge" of plug-in and mild hybrid models, as many consumers are still unable to fully switch to electric vehicles due to insufficient charging infrastructure and the phasing out of government incentives.
By region, sales in Europe increased by 40%, led by the United Kingdom and Germany, while sales in the USA and China decreased by 10% and 4% respectively.
At 12:35 GMT, Volvo Cars' shares were trading 8.5% higher at 34.87 SEK.
