Volvo expects record full-year sales despite trade tensions

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UPDATED: 7/19/18 4:40 am ET - adds CEO comments, details

Volvo Cars said it was on track for a fifth consecutive year of record vehicle sales despite rising trade tensions after second-quarter profit rose on strong demand for its SUVs.

Operating profit increased 29 percent to 4.2 billion Swedish crowns ($474 million) in the second quarter on 66 billion crowns in revenue, up by more than a quarter from the same period last year.

Volvo also reported that its first-half operating profit rose 16 percent to a record high of 7.8 billion crowns on revenue of 122.9 billion crowns, up 24 percent from the first half of 2017.

Earlier this month the automaker reported a 14 percent increase in deliveries to 317,639 vehicles for the first half, which was also an all-time high.

Volvo CEO Hakan Samuelsson said in a statement that the first-half performance left Volvo "well positioned for a new period of sustainable global growth."

When asked by Automotive News Europe Thursday whether Volvo will exceed 600,000 global sales for the first time in its 91-year history this year Samuelsson said: "It should be very possible." It"s current full-year record is 571,577, set in 2017.

Trade risks

The company recently opened its first U.S. plant near Charleston, South Carolina, where mass production of the new-generation S60 will start next month.

While the $1.1 billion investment offers some protection against mounting trade tariffs, Volvo remains dependent on imports of the flagship XC90 in its fastest-growing market. Volvo"s U.S. sales rose 40 percent in the first half.

Sedans such as the S60 fell to below one-third of U.S. registrations in the second quarter from 38 percent a year earlier while SUVs such as the Swedish-made XC90 jumped from 62 percent to 67 percent, according to Autodata figures.

Washington this month slapped 25 percent tariffs on $34 billion in Chinese imports including cars such as the S90 sedan that Volvo exclusively builds there, and Beijing quickly retaliated with an increase in tariffs on U.S. goods.

Volvo is also shifting XC60 SUV production for the U.S. market to Europe from China to avoid Washington"s tariffs on Chinese imports.

Volvo currently builds the XC60 premium midsize SUV in Sweden for European customers and in China for other markets including the United States.

"We will, of course, reshuffle here and take XC60s for the U.S. ... from our factory in Europe, and let China produce for other markets," Samuelsson told Reuters on Thursday, adding that the shift had already begun.

Chinese XC60 production previously shipped to the United States would be reallocated to other markets, with some imported back to Europe, he said. "That"s the sort of fine-tuning we can do within our production process."

U.S. President Donald Trump is also threatening tariffs against car imports from Europe, where Volvo builds strong-selling models such as the XC40 SUV. The Peterson Institute for International Economics forecasts potential tariffs would raise vehicle prices between $1,400 and $7,000 for top-selling models, depending on a variety of factors including size.

Volvo has so far made no changes to its announced plans to focus on sedan production in Charleston, while importing its SUVs to the United States until production of the next-generation XC90 starts in South Carolina in 2021.

When asked about this Thursday Samuelsson told ANE Volvo"s answer is to "ramp up Charleston as fast as we can," but he added that the automaker is joining in the lobbying effort against the tariffs because "they would be bad for the whole industry."

He also said that Volvo is not currently looking into adding the S90 sedan in Charleston. "You have to be careful when considering investing to mitigate tariffs," the CEO told ANE. "We want see what happens first.

IPO planned

Volvo parent Geely Zhejiang Geely Holding has hired Citigroup, Goldman Sachs and Morgan Stanley to prepare the automaker for a stock-market flotation this year, Reuters reported in May.

Geely, which acquired Volvo from Ford Motor in 2010, hopes any IPO will command a high valuation for the Swedish company"s big plans in autonomous, electrified and subscription-based motoring. However, Geely has acknowledged the problems Volvo could face from a trade war.

Speaking in Hong Kong last month, Geely Chairman Li Shufu said higher tariffs would bring price increases and force Volvo to diversify its U.S., Chinese and European production to assemble more models in each region.

"We will have to invest in producing a higher number of car models locally," the South China Morning Post quoted him as saying.

Douglas A. Bolduc and Reuters contributed to this report.

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