Business News

Volvo Cars feels margin pressure from US-China tariff war

Reuters with
Key Points
  • Volvo Cars reported higher full-year revenue on Thursday.
  • But the firm said its profit margins were expected to remain under pressure this year.
  • CEO Hakan Samuelsson told CNBC that he expected 2019 would be a year of growth. 
Automobiles nearing completion stand on the production line at the Volvo Cars plant in Torslanda, Sweden.
Kristian Helgesen | Bloomberg | Getty Images

Volvo Cars, owned by China's Geely, reported higher full-year revenue on Thursday, but said its profit margins had slipped and were expected to remain under pressure this year.

Carmakers have faced rising costs and pricing pressure in some markets due to a trade war between Washington and Beijing in 2018 as well as slower demand from Europe and from China, the biggest autos market.

"For 2019, we see another year of volume growth as we continue to benefit from our strong product program and increased capacity. But we have to be realistic and acknowledge that margins will remain under continued pressure," Volvo Chief Executive Hakan Samuelsson said in a statement.

Suppliers and automakers have issued new warnings and results misses this year, with Daimler this week reporting a fall in fourth-quarter operating profit.

Volvo said its operating profit increased by 0.9 percent to 14.2 billion Swedish crowns ($1.5 billion) although its margin fell to 5.6 percent from 6.7 percent. This was despite its 2018 revenue rising by 21 percent to 252.7 billion Swedish crowns.

Volvo has been on a growth path under Geely's umbrella, with five straight years of record sales, aided by its steady push into premium automobiles, pitted it against Daimler's Mercedes-Benz and its fellow German rival BMW.

This year will be another year of growth for Volvo Cars, CEO says
This year will be another year of growth for Volvo Cars, CEO says

The Swedish-based firm postponed plans for a listing last year, citing the adverse impact of the tariff war and an industry downturn, while also taking on the costs of retooling its factories in an effort to limit the negative tariff impact.

Speaking to CNBC's "Squawk Box Europe" on Thursday, Samuelsson said the slowdown in the Chinese market had not blindsighted the company.

"After many years of constant growth in China (there is) finally some reduction – I think that shouldn't really be a surprise to anybody," he said.

"In the European market and the U.S. market we don't see any clear signs of a downturn so far. We really see that this year will be another year of growth because we have the best profit program ever and of course we have the capacity with new factories. Strategically for us it's very important to use that and then improve our market share."

However, Samuelsson added that an IPO was not a part of this year's growth strategy for Volvo Cars.

"We said it's an option, and it's up to our owner, but we decided right now the climate in the market (is) not suitable for an IPO, so we put that on ice – it's not going to happen this year and we have no plans for that," he told CNBC.

- CNBC's Chloe Taylor contributed to this report.