Why Volvo is predicting the chip supply situation will improve

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Volvo Cars said on Tuesday the supply of microchips had improved going into the fourth quarter, as it posted its first quarterly report after listing its shares publicly last month.

The Gothenburg-based manufacturer, majority owned by China’s Geely Holding, said preliminary sales volumes were around 52,000 cars in November, down year-on-year due to lower production and build-up of in-transit inventory.

It added that supply was still restrained, but that production had “improved month by month” since September, while the supply of cars was still lower than demand.

“The supply situation has improved going into the fourth quarter, but we expect the industrywide shortage of semiconductors to remain a restraining factor,” CEO Hakan Samuelsson said in a statement.

Volvo Cars confirmed a previously announced third-quarter operating profit figure of 3.3 billion Swedish crowns ($363.8 million), versus 4.6 billion in the year-ago period, and revenues down 7 percent to 60.8 billion crowns.

The automaker’s Ebit margin in the quarter dipped to 5.5 percent versus 6.9 percent during the same period last year.

Volvo had previously warned that sales volumes in the second half could fall year-on-year because of the chip crisis. The automaker maintained its full-year outlook of sales volume and revenue growth with improved profitability to pre-pandemic levels.

Like several other automakers Volvo, whose shares have surged almost 30 percent since the stock market debut on Oct. 29, has been forced to cut production due to a global shortage of semiconductors.

When asked to put a number on the financial impact of the chip crisis on Volvo’s business in the quarter, Chief Financial Officer Bjorn Annwall said the loss in production cost Volvo 2.2 billion crowns ($242.7 million) compared with the same period last year. That, however, was offset by better pricing on the models it sold in the quarter, providing a 2.6 billion crown boost, resulting in a 400 million crown net gain.

Volvo has been able to maintain its strong sales and earnings despite not having debuted an all-new model since the XC40 was launched in 2017.

Since then, Volvo has been upgrading its current fleet and providing derivatives such as the full-electric version of the XC40 and its sleeker full-electric sibling, the C40.

Annwall said Volvo’s success despite a slowdown in its new product cadence underlines the shift the industry is undergoing.

“It used to be that you needed new sheet metal to show [you had] a new car. Now we are putting the investment in electrifying the powertrain, and we are upgraded to Android for the infotainment with Google service such as voice assistants and the maps,” Annwall said. “That’s something that really keeps the car fresh in consumers’ minds.”

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