Despite a strong demand for its cars, Volvo Cars said today that 2023 is likely to be another challenging year, despite strong demand for its cars, as the Swedish automaker reported a decline in profits.
Volvo Cars, which is majority owned by Chinese automaker Geely Holding, said its operating profit for the fourth quarter fell to 3.4 billion crowns ($322.2 million) from 3.7 billion crowns a year earlier.
Earnings have been hit by rising lithium prices and having to buy semiconductors and logistics from the spot market, which can be more expensive than long-term contracts.
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| Volvo cars |
Volvo Cars and its peers have faced persistent chip shortages over the past year that have periodically affected manufacturing, with the Sweden-based company sometimes having to temporarily halt production at some plants.
Other supply chain issues, an energy crisis, and severe inflation have also made life difficult for the company.
"While 2023 looks set to be another challenging year, we are hopeful that Covid-related supply shortages from China are behind us and that we continue to see a steady improvement in semiconductor supply," it said in a statement.
“Despite the global turmoil, uncertainty, and recent price increases, we continue to see strong demand for our cars,” Volvo Cars said, adding that it expects “strong” double-digit growth in retail sales through 2023.
However, Volvo Cars reaffirmed its goals mid-decade, which include selling cars with an annual run rate of 1.2 million, half of which are electric cars.
Some analysts said before the report that the target was too ambitious.
"We remain skeptical whether the company will be able to achieve these goals before 2027 and believe that the company will have to broaden its definition to the middle of the decade," Bernstein said.
CEO Jim Rowan defended the goals in an interview with Reuters, saying that demand, new models, and easing supply constraints will make it easier for the company to meet them.
He also said that the company does not plan to lower the prices of its cars, despite other electric car makers such as Tesla doing so.
Toyota, which also reported results Thursday, lowered its annual manufacturing target in November and again today. This, like Volvo, despite the high sales of its cars.
December was the strongest month ever in car production for Volvo.
The company again suggested not paying a dividend but confirmed on a call to analysts that it will pay a bonus to its employees this year, and that it has no plans to cut jobs.
“If you look at our electric vehicle journey and our ambitions for growth, we will be very comfortable keeping our employees busy,” said Rowan.