Volvo Shares Steady After Plunging, Awaiting EX60 Positives.
“We stay “Underperform” with little visibility in earnings bottoming out”
Volvo shares crashed more than 30% after poor 3rd quarter results, bringing the fall to more than 65% for the year, as investors worried about competitiveness in China, the credibility of its electric vehicle strategy generally and problems with the launch of the new EX60 in particular.
The scale of the share price decline prompted some investors to talk about a strong potential recovery story but others wanted more evidence that a turnaround was possible with sustainable profits.
Adding to investor worries was uncertainty over the leadership. Klaus Zellmer, former CEO of Volkswagen’s Skoda, was recently appointed CEO of Volvo, replacing Hakan Samuelsson. But Zellmer won’t be taking the reins until a year from now.
Volvo Cars, owned by Geely of China, reported a net loss of the equivalent of $575 million in the 3rd quarter compared with a profit of $452 million in the same period last year. Volvo announced it would cut 2,500 more jobs, after already slashing about 3,000.
“Still no floor – Underperform”
Investment researcher Bernstein said the latest results missed consensus expectations by just over $500 million. In a report entitled “Still no floor – Underperform”, Bernstein described Volvo was cash-burning.
“We stay “Underperform” (its market rating) with little visibility in earnings bottoming out,” Bernstein said.
Bernstein said market conditions in China were deteriorating, recovery in the U.S. was taking longer than anticipated. These problems are likely to persist in 2027.
“Planned cost cuts of ($502 million) and 2,500 in headcount will be insufficient to remedy the worsened 2027 outlook. We struggle to underwrite meaningful FCF (free cash flow) before 2029, expecting 2027 to be a consecutive year of cash burn,” Bernstein said in a report.
Investment bank UBS agreed investors would require clearer evidence of an earnings recovery before sentiment could begin to improve.
“EX60 demand remains encouraging. The company reported 50,000 EX60 orders in Europe, although execution of the production ramp needs to get better,” UBS said.
UBS had said this a week earlier.
“We view the EX60 as the key swing factor in the equity story. A successful ramp-up is critical to restoring volume growth, improving mix and supporting the medium-term margin recovery. Any prolonged production bottlenecks would not only delay earnings recovery but could also weigh on investor confidence at a time when Volvo is already struggling to demonstrate a clear inflection in its financial performance,” UBS said.
Meaningful U.S. sales potentially delayed
Automotive News had reported significant production challenges, with output running at only around 10% of the targeted 2,000 a week. Volvo had told dealers EX60 availability would remain constrained in the near term. Europe was to get priority allocations. Meaningful U.S. sales were potentially delayed until the second half of 2027.
Bernstein, in its report, said it wanted to see prgress in three key areas to produce more earnings visibility.
- Normalization in China
- The EX60 getting to intended production run-rate
- Return to growth in the U.S., none of which we see as near term.
“Volvo’s Q3 China sales fell 41% year on year, underperforming the market, down 20% in the first 9 months. In the U.S., localization will take time, with XC60 production in Charleston starting in January 2027 and the XC90 only seeing high-volume production in 2029.”
“Despite more than 50,000 EX60 orders, only (about) 5,000 have been built so far, with full production delayed further into 2027 due to manufacturing problems particularly on the new automated battery assembly line. The EX60 has repeatedly been flagged as margin accretive for Volvo, so this push-out is an added near-term headwind,” Bernstein said.
Volvo Car shares closed in Europe at 11.11 Swedish Crowns, up 1.8% on the day.
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