Volvo Cars has pulled off a surprise. Despite facing tough times due to high tariffs and weak demand, Volvo reported a second-quarter profit that was better than expected.
This came as good news for investors. On Thursday morning, Volvo’s stock shot up nearly 8%.
Volvo Cars, based in Sweden, is the first European carmaker to post results this earnings season. Analysts were ready for a bad report. The EV (electric vehicle) market is slowing. Chinese competition is rising. And on top of that, there are heavy tariffs on European-made vehicles entering the US.
Yet Volvo’s numbers were stronger than feared.
Tariffs Hit Hard, But Not Enough to Sink It
Right now, Volvo faces a 27.5% tariff on cars going from Europe to the US. It also pays 25% tariffs on car parts, steel, and aluminium. These hit hard.
Because of these and other costs, Volvo took a big financial hit this quarter. It posted a $1.2 billion impairment related to model delays and tariff costs. That led to an operating loss of 10 billion Swedish crowns.
Still, the adjusted operating profit was 2.9 billion crowns ($297 million). That’s down from 8 billion last year, but better than what experts had predicted.
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Margins Shrink, But Strategy Kicks In
Volvo’s gross margin dropped to 13.5% from 18.2% last quarter. But after adjusting for one-time issues, it stood at a decent 17.7%. That shows Volvo is still holding its ground.
Earlier this year, the company brought back former CEO Hakan Samuelsson to turn things around. He wasted no time. He cut 3,000 jobs, stopped giving earnings guidance, and slowed new investments.
These tough decisions seem to be working.
Analysts and Investors React
Analysts at Bernstein said, “This report is better than feared. Stock positions were weak, so this news should lift the market mood.”
And that’s exactly what happened. Volvo Cars shares went up sharply on the news.
Yes, the road ahead is still rough. Consumer confidence is low. EV demand is not what it was. And trade tensions continue.
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