Volvo Cars Faces Significant Profit Drop Amid Global Market Challenges

Volvo Cars' Financial Struggles and Future Outlook

By Alessandro Parodi

Impact of U.S. Tariffs on Profit

Feb 5 (Reuters) - Sweden-based Volvo Cars on Thursday reported a 68% dive in fourth-quarter profit as it adjusted prices in response to weak demand, putting its shares on track for their biggest daily fall on record.

Turnaround Plans and New Product Launch

Volvo Cars, the first European carmaker to report fourth-quarter results, forecast year-on-year volume growth in 2026 but braced for what it termed a "persistently tough external environment". 

Market Conditions and Pricing Strategies

Operating profit before one-off items at the group majority-owned by China's Geely Holding fell to 1.8 billion crowns ($199.9 million) from 5.6 billion a year earlier, hit by U.S. import tariffs, a weak dollar and low demand.

"We do see pricing being a big element in Q4," Chief Financial Officer Fredrik Hansson told analysts and media in a call, highlighting tough market conditions in China and the U.S. after the country ended tax incentives for EVs.

Handelsbanken analyst Hampus Engellau said incentive-driven sales and price discounts had hurt the company's profits more than the market had expected. JPMorgan analysts said in a note both profits and sales, down 16% in the quarter, had lagged market expectations.

Volvo Cars' shares were down more than 22% by 0930 GMT, taking a three-month drop to 29%. 

VOLVO CARS' TRUMP TARIFF HIT

U.S. President Donald Trump initially hiked import tariffs on cars from the European Union to 27.5% from 2.5% during last year's push to reset Washington's global trade relations. That was later reduced to 15%, applied retroactively to August 1.

Volvo Cars' gross margin - a metric monitored by analysts to assess the impact of tariffs - was 15.8%, against 20.4% in the third quarter and 17.1% a year earlier. 

Samuelsson told analysts and media that, following a fairly big hit from U.S. tariffs in the fourth quarter, he saw more opportunities in 2026 to mitigate tariff-related costs. 

Volvo Cars also said an ongoing turnaround plan was on track. The group cut 3,000 jobs last year, pulled guidance and slowed investments to offset pressure from U.S. tariffs, fierce competition and an EV market slowdown.

It launched in January its new EX60 electric mid-sized SUV, which offers a driving range of up to 810 km (503 miles) on a single charge, seeking to win over buyers sceptical of EVs.

Samuelsson said on Thursday that the aim was to roll out more than 40,000 EX60 cars this year with a ramp-up in 2027, adding the model's pricing, which is near that of a hybrid equivalent, would help improve margins.

The CEO said that in the short term, the group would focus on efficiencies and lower its cost base. "This will help us mitigate the challenges posed by a persistently tough external environment," he said.

Chief Financial Officer Fredrik Hansson told Reuters the company had a long list of cost savings ideas which it was yet to execute.  

"In terms of synergies and collaborations with Geely to reduce costs... we've only started to scratch the surface," he added.

($1 = 9.0039 Swedish crowns)

(Reporting by Alessandro Parodi; additional reporting by Marie Mannes; writing by Anna Ringstrom; editing by Joe Bavier and Jan Harvey)