Volvo Cars Q2 Results: Full Speed Ahead in Transformation With a Solid Business Performance

Volvo Cars today reports a 39 per cent increase in operating profits, excluding joint ventures and associates, to SEK 6.4 bn and a corresponding EBIT margin of 6.3 per cent for the second quarter of 2023. The result came despite a SEK 0.9 bn, a non-recurring item related to the redundancy programme announced in May, part of securing a more efficient and sustainable cost base for the future.

Without this item, the underlying EBIT margin, excluding joint ventures and associates, was 7.2 per cent in the second quarter. This illustrates that the solid underlying performance momentum from the year’s first three months continued this past quarter.

The company’s EBIT, including joint ventures and associates, reached SEK 5 bn, lower than last year’s corresponding period. This is mainly because group EBIT for the second quarter of 2022 was positively influenced by the one-time, non-recurring accounting effects of Polestar’s listing on the Nasdaq stock exchange in New York. The interim report for the second quarter of 2023 can be found here.

“The second quarter of 2023 shows that the year is shaping up as planned,” said Jim Rowan, president and chief executive. “In these past three months, we have continued to deliver on our ambitious transformation goals and made steady progress. At the same time, we also achieved a solid underlying business performance with increased sales and revenues. We are performing and transforming while navigating the external challenges that have come our way.”

During the quarter, the company reported a strong sales performance in electric cars. Sales of fully electric Volvo car models increased by 178 per cent year-on-year during the quarter, accounting for 16 per cent of its total share.

The company’s newly launched fully electric cars – the Volvo EX90 and EX30 SUV models – are not yet in production and have so far not contributed to the company’s 2023 performance. Once these new cars hit the roads, they will further boost fully electric car sales towards Volvo Cars’ ambitious goal to sell only fully electric vehicles by 2030.

While it delivered a higher percentage of fully electric cars during the quarter, the company’s margins on fully electric vehicles were impacted because the lithium used in these cars was sourced when prices peaked in late 2022.

Additionally, as it introduced new model year 2024 fully electric cars with a considerably better range than existing models, Volvo Cars proactively shifted out the inventory of model year 2023 cars.

As the company enters the second half of 2023, this dynamic will change since it will benefit from lower lithium prices and realise the effects of increased pricing on MY2024 fully electric cars. Therefore, margins on fully electric vehicles are expected to improve in the coming quarters.

Last month, Volvo Cars also revealed the fully electric EX30, its first-ever small SUV. With this car, the company enters an important new segment and customer demographic expected to increase in the coming years. The EX30 will also boost the company’s profitable growth in fully electric cars, with expected gross margins on the vehicle in the range of 15 to 20 per cent.

Both the EX30 and the larger EX90 are exciting steps into the future and demonstrate Volvo Cars’ course in the future: premium electric cars built on next-generation electric architectures with advanced battery and computing technology, as well as next-level passive and active safety features.

Volvo Cars continued its commercial transformation this past quarter. In June, it reached another critical milestone when the United Kingdom became its first market to fully transform from a traditional wholesale business to a direct consumer model designed around customer flexibility.

The knowledge it gains from the UK commercial transformation will be crucial as the company plans to make more markets fully direct in the coming years, together with its trusted retail partners. This will improve the overall customer experience and make its commercial network more efficient, transparent and cost-effective.

In May, Volvo Cars also increased the focus on the global cost optimisation and resource efficiency initiative it launched late last year. This included an international redundancy programme, including around 1,300 office-based positions in Sweden, as part of efforts to reduce costs and drive efficiencies across its global operations.

The aim is to establish a more efficient and sustainable cost base for the future by restructuring and changing ways of working in parts of the organisation and focusing even more on securing the relevant skills it needs to succeed.

Q2 Operating and Financial Performance

Regarding its operational performance during the second quarter, Volvo Cars recorded revenues of SEK 102.2 billion, an increase of 43 per cent versus the same period in 2022. It also saw a solid global sales increase of 25 per cent to 178,800 cars sold, a strong performance in electrified car sales, and continued premium pricing in many markets.

The sales performance was helped by improved production output in the company’s factories. During the second quarter, it produced 50 per cent more cars than in the same period last year. This is a validation of the company’s steps to make its supply chain more resilient, such as broadening its supplier base, improving performance and delivery from its suppliers, developing direct relationships with crucial semiconductor companies and foundries, and creating more transparency in the overall value chain.

Second-quarter EBIT, excluding joint ventures and associates, was weighed down by a non-recurring item of about SEK 0.9 billion but still came in at SEK 6.4 billion, an increase of 39 per cent year-on-year. This cost was related to the redundancy programme of the enhanced cost efficiency initiative announced in May.

Efforts to reduce the company’s CO2 footprint per car continued to progress. During the year’s second quarter, overall CO2 emissions per car were 18.8 per cent lower than its 2018 benchmark, supporting its mid-decade ambition of a 40 per cent CO2 reduction per car.

Looking Ahead to the Rest of the Year

2023 remains a crucial year in Volvo Cars’ transformation. With more new electric cars on the way and work ongoing on a new battery plant in Sweden and its planned new electric car factory in Slovakia, the company is putting in place essential building blocks for its next growth phase.

It has opened a new Tech Hub in Krakow, Poland, which will complement existing ones in Stockholm, Lund in Sweden, and Bangalore in India. These Tech Hubs and its other R&D centres will help Volvo Cars achieve its ambition to become a leader in future mobility by creating a global powerhouse of next-generation technology. The company will also continue its commercial transformation towards more direct business and a constantly improving customer experience.

More broadly speaking, the company sees supply and demand continue to normalise in the broader market, which brings additional pricing pressure as price levels have also normalised in several markets. Yet while rising interest rates in some of its largest markets put pressure on the consumer and the overall market, demand for Volvo cars continues to be healthy.

Assuming no further unexpected supply chain disruptions exist, Volvo Cars expects solid double-digit growth in retail sales for the entire year. It also predicts the share of fully electric car sales to rise even higher than last year’s full-year share of 11 per cent.

“We’re staying the course and continue to make progress towards our ambition to be a leader in next-generation mobility,” said Jim Rowan. “The proof of a real transformation is in its execution, and that is where our focus continues as we head into the second half of 2023.”

UP IN NEWS