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Volvo Cars' third-quarter profit exceeds expectations, but full-year sales forecast slashed amid weakened demand and Chinese EV competition

Swedish Carmaker Volvo Cars surpassed its Q3 expectations and led the company to a higher operating profit but lowered the full-year sales forecast on a broader slowdown. This major move by Volvo is being attributed to high-end vehicles indicating a shift in consumer demand due to EV transition and cheaper EV competition from China. Moreover, Volvo Cars trimmed its year-to-date retail sales growth forecast to 7-8% from 12-15% estimated in July 2024.

The lower forecast is due to weakening demand for electric vehicles. Consumers have become more unenthusiastic about investing in electric vehicles, mostly because there aren't so many affordable models available, but poor development of charging infrastructure doesn't encourage consumption either. Matters have gotten worse with competition from relatively cheaper Chinese models. Volvo, as well as other European makers, is also preparing to take the new tariffs on electric vehicles built in China.

In an interview with Reuters, the chief executive officer of Volvo Cars, Jim Rowan said, “There's no doubt that the sector's getting tougher.” He said high inflation has started to affect consumer sentiment, particularly at a time when car loans are being incurred to make such purchases. “A lot of people are taking car loans out to pay for their new vehicles and high inflation obviously affects that,” Rowan added.

Hence, now Volvo is pinning a lot of its hopes on Volvo's new models, EX30 and EX90 SUVs, to drive sales, as well as assure high margins. Whereas, investors are also keeping a close eye on this. The Volvo group had indicated earlier that it was truly at the mass market level where it was seeing the slowdown, but now it's admitting to pressure even in the premium segment where Volvo operates.

Bernstein, an investment research firm, praised Volvo's strength in the third quarter, particularly on both revenue and margins. At the same time, however, the firm sounded cautionary notes going forward. Bernstein quoted, “Volvo Cars delivered a handsome Q3 beat on revenue and margin.” However, this tempering by warning Bernstein indicates a downgrade challenge for Volvo moving forward.

In fact, the fourth quarter of the year will be significantly momentous for the company's long-term positioning in the market because Volvo is subjected to high pressure through mounting inflationary pressure, consumer unwillingness, and fast growing competition from China.