Volvo Cars Boosts Profit Goal as Europe Sales Outweigh China

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Volvo XC90
A Volvo XC90 SUV automobile, produced by Volvo Cars. Photographer: Simon Dawson/Bloomberg

Volvo Car Group boosted its earnings goal for the year, saying the robust European market would outweigh a slowdown in China, where pressure to discount is increasing.

“The price situation in China is getting tougher,” Chief Executive Officer Hakan Samuelsson said in a phone interview on Wednesday. “The important thing is to see the strength of having Volvo global. We can balance out softer development in China.”

The carmaker said it now expects a “substantial” increase in 2015 profit. Volvo had previously forecast a “clear” improvement in sales and profitability.

The Swedish manufacturer, bought by billionaire Li Shufu’s Zhejiang Geely Holding Group Co. in 2010, is beginning to reap the benefits of a five-year, $11 billion spending plan to develop new models, Samuelsson said.

Volvo remains far less profitable than peers. Its profit margin on sales of 232,284 cars was 2.2 percent in the first half of this year, while luxury-car market leader BMW AG posted an 8.9 percent margin on 1.1 billion deliveries.

The Swedish carmaker’s operating profit jumped 71 percent to 1.66 billion kronor ($194 million) in the first half, the Gothenburg-based company said. Revenue rose a 12 percent to 75.2 billion kronor, helped by a 1.4 percent gain in deliveries despite flat sales in China.

Even with the world’s largest auto market slowing, the carmaker moved to take control of its three joint ventures in China, paying 2.2 billion kronor to lift its stakes in the entities to 50 percent, Volvo said separately on Wednesday. The Chinese JVs with Geely Holdings include car factories in Chengdu and Daqing, engine manufacturing in Zhangjiakou and a Shanghai research and development center.

Volvo started selling the first car built under its five-year investment program, the XC90 sport utility vehicle, in the second quarter and has received close to 57,000 orders so far.

The company still sees total sales close to 500,000 vehicles this year and about 800,000 autos in the medium term.

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