Volvo shifting production to better navigate tariffs
July 19, 2018
Volvo Cars, whose Chinese owner Geely is reportedly considering an initial public offering of the traditional Swedish carmaker, said it was on track for another sales record despite rising trade tensions.
Operating profit for the second quarter increased by 28.6 percent compared to the same period last year to 4.2 billion Swedish crowns (€408 million, $474 million) on 66 billion crowns in revenue. The carmaker delivered 317,639 vehicles in the first half of the year, a 14 percent increase over last year.
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Acquired by Geely in 2010, the maker of premium cars such as the XC90 SUV and S60 sedan has notched up four straight record sales years, raising its game against larger rivals Mercedes and BMW.
Pledging on Thursday to hit a fifth record in 2018, Chief Executive Hakan Samuelsson said this year's performance so far left Volvo "well positioned for a new period of sustainable global growth".
Yet the carmaker is trying to cover all of its bases in an uneasy business environment.
Beware of tariffs
Speaking in Hong Kong last month, Geely Chairman Li Shufu said higher tariffs would bring price increases and force Volvo to diversify its American, 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.
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Volvo's US sales rose 40 percent in the first half of this year and the company recently opened its first American plant in Charleston, South Carolina. While the $1.1 billion investment offers some protection against mounting trade tariffs, the company still remains dependent on imports of the flagship XC90 in its fastest-growing market.
Fine tuning
But things are not that simple. After Washington raised tariffs on $34 billion in Chinese imports including cars, President Donald Trump is now also threatening tariffs against car imports from Europe, where Volvo has two car plants.
Read more: Foreign investment in US down sharply
Volvo currently builds the XC60 in Sweden for European customers and in China for other markets including the United States. The risk of duties has edged the company to already start shifting XC60 SUV production for the US market to Europe from China to avoid Washington's new tariffs on Chinese imports, the Swedish carmaker said.
"We will of course reshuffle here and take XC60s for the US... from our factory in Europe, and let China produce for other markets," Samuelsson told Reuters news agency 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."
tr/kd (Reuters, dpa)