Volvo to cut costs due to tariffs from trade war – report

07/22/2019

Volvo may have prospered under Geely ownership, but the Swedish premium carmaker has now become a victim of the ongoing trade war between the United States and China. According to Reuters, the company aims to cut up to SEK 2 billion (RM876 million) amid mounting pressure from tariffs and pricing on its profits – problems that have already caused rivals like Daimler and BMW to issue warnings.

Despite posting record sales of 340,826 units in the first half of this year, an increase of 7.2% over the same period last year, Volvo’s second quarter operating profit narrowed by 38.1% to SEK 2.6 billion (RM1.14 billion), a worse quarter-on-quarter drop compared to the previous quarter.

As a result, it has revamped its global production plans to reduce the impact of the tariffs and begun a review of its costs which, said CEO Hakan Samuelsson to the publication, has led to hourly wage cuts and the elimination of 750 roles, most of them consultants.

However, Samuelsson insisted Volvo won’t be reviving its failed initial public offering (IPO) bid to raise funds, and that it and Geely were no longer seeking outside investors for their fledgling electric vehicle brand Polestar. “We have the financing required to push through Polestar cars in the pipeline… so [external financing] is not something that is on our radar right now.”

While unfavourable market conditions are set to continue, Volvo said these cost-cutting measures and an expected growth in volume should result in a “strengthened” second half compared to last year. The company is particularly vulnerable to the dispute between the two countries, as it produces long-wheelbase sedans in China for export to Europe and the US, and it also builds its new S60 solely in Ridgeville, South Carolina.

The impact on profits across the industry will likely delay the introduction of self-driving vehicles, with carmakers reportedly pushing their targeted rollout from 2020 onwards to well beyond 2025. Reuters cited unforeseen costs and technological limitations – which have raised safety concerns – as reasons for this.

Volvo has been particularly susceptible of late, with the development of a driverless vehicle with Uber resulting in a widely-publicised fatal accident with a pedestrian that caused months of delays. It had also planned to deliver a production vehicle capable of autonomous highway driving by 2021 through its joint venture with Veoneer, but when asked, Samuelsson put the vehicle’s debut at “some years after 2020.”

“Volvo will have a highway autopilot and it will be safe and it will be able to handle all situations when it’s engaged. Exactly how often you can engage it and at what speeds will be revealed later on,” he said.

Samuelsson added that Volvo’s partnership with Huawei – which grants it access to the latter’s app store in China – will also not be affected by the partial US sanctions put in place against the Chinese tech giant. “We have a cooperation with Huawei, but it’s not really about technology’s access to their apps so we don’t see any influence,” he said.

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