Volvo profit falls on chip shortages, Ukraine war

Volvo Cars said chip constraints were gradually improving after the automaker posted a drop in quarterly profit despite strong vehicle demand.

First-quarter operating profit fell to 6 billion crowns ($607.4 million) from 8.4 billion a year ago, the company said in a statement Thursday. EBIT margin was 8.1 percent, down from 12.3 percent during the same period last year.

The difference in the EBIT reflects two large financial on-offs in the first quarter of 2021 that added 3 billion crowns ($304.7 million) to the company's books, Volvo CFO Bjorn Annwall told Automotive News Europe.

If those were excluded, the EBIT margin for the first three months of 2022 would have beaten the 2021 figure, he said.

A global shortage of semiconductors forced Volvo to halt production in the first quarter.

The automaker warned that the supply problem was expected to continue in the second quarter.

Volvo is also scrambling to secure parts from suppliers outside of China, where severe COVID containment meaures have stymied industrial output, logistics and shipping across the auto industry.

"The lockdowns in China are severe and there is a big supply base that is affected. Let's see how long that lasts. If it continues for longer than it will affect the whole industry," Annwall said, adding the lack of dual sourcing for components has global implications for light-vehicle output.

Annwall said Volvo has seen positive signs, including a more consistent supply of chips, that indicate the shortage will improve in the second half.

"The semiconductor shortage has clearly taken out a lot of volume but the industry has improved its pricing discipline due to the shortage of supply" to help offset the hit, he said in an interview.

That same tactic is being used to lessen the financial hit caused by higher costs for raw materials, energy and freight for Volvo, Annwall said.

Volvo, majority owned by China's Geely Holding, maintained its forecast for 2022 of marginal year-on-year growth in deliveries.

The company said earlier this month that its light-vehicle sales fell 20 percent in the first quarter to 148,295.

Volvo had hoped to be on track to build 900,000 vehicles this year, or about 225,000 a quarter, but that goal was set before the pandemic, the chip shortage and the war in Ukraine.

Annwall said Volvo continues to target selling 1.2 million vehicles a year by 2025.

Volvo in February suspended all sales, service and production in Russia, which last year accounted for about 3 percent of its net group sales.

While German automakers and suppliers are bracing for the possibility that Russia will cut off gas supplies to Europe as a result of the Ukraine conflict, Annwall said Volvo will not be directly affected since its factories in Sweden and Belgium use bio gas.

"We don't have any Russian gas going into our plants. That being said, it is clear the supplier base in Europe leverages that gas so you have another potential supply disturbance," he said.

When asked if there was anything Volvo could do already to buffer itself from the problem he said: "You can look through which components might be hit most, but that won't solve the problem."

Reuters contributed to this report