Volvo capitalized on a strong fourth quarter and record global vehicle sales to report its best-ever full-year earnings, but the Swedish automaker’s profit margin slid, causing it to warn that its business will remain under pressure this year.
Volvo’s operating profit (EBIT) for the fourth quarter was 4.5 billion Swedish crowns ($488.8 million), an increase of 25 percent compared with the same period last year. The company's operating profit margin for the three-month period was 6.2 percent, up from 5.9 percent during the same period last year.
The positive final quarter of 2018, and record sales of 642,253 cars last year, helped Volvo set a new high for full-year earnings at 14.2 billion crowns ($1.54 billion), an increase of 0.9 percent on last year, the company said on Thursday. Volvo’s operating profit margin for 2018, however, dipped to 5.6 percent from 6.7 percent last year. Volvo’s target is an 8 percent margin.
“I think volume was good, but financial profit is not quite were we want to be,” Volvo CEO Hakan Samuelsson told Automotive News Europe. He blames the reduced margin on the ongoing trade war between the U.S. and China, weakening overall demand for cars in Europe and China, and pricing pressure in China. “Due to the tougher climate we will start focusing on cost actions and improving operational efficiency,” he said.
Daimler on Wednesday reported that its fourth-quarter operating profit fell 22 percent because trade challenges and rising costs to develop electric and autonomous vehicles hit earnings at Mercedes-Benz.
Companies such as Daimler and Volvo are carefully scrutinizing their bottom lines in all areas as they prepare for headwinds from global trade risks, tougher emissions legislation and the pressure to launched new technology such as EVs and AVs. BMW, Daimler, Volkswagen, Porsche, Jaguar Land Rover, Ford and Renault-Nissan all have recently announced plans to save billions of dollars over the next few years to brace for the forthcoming challenges.
While Samuelsson said risks such as Washington’s trade war with Beijing, the potential of higher tariffs on cars going back and forth between the U.S. and Europe, and Brexit make market conditions “extra uncertain” right now, he doesn’t plan to join other automakers in announcing a multi-billion euro austerity plan.
“We see a future with continued growth [global sales were up 17 percent last month led by a 24 percent gain in Europe],” the CEO told ANE. “We have no plans for layoffs because we need all our people. Our focus is on increasing our productivity in car building. Also, operationally we have to question every dollar we spend. And we are focused on reducing our materials cost.”
Samuelsson believes that Volvo will set a new global vehicle sales record for the sixth consecutive year in 2019, and he won’t rule out exceeding 700,000 for the first time in the automaker’s history.
“Yes it’s absolutely possible, but let’s wait and see,” Samuelsson said. “If we want to reach 800,000 [by the target year of 2020], we have to keep growing at the same pace as the past few years.”