Volvo Cars tops forecast but cuts outlook on market slowdown

By Marie Mannes

STOCKHOLM (Reuters) -Sweden-based Volvo Cars beat third-quarter operating profit expectations on Wednesday but cut its full-year sales growth forecast as an industry slowdown spreads to higher-end cars.

Demand for electric vehicles has weakened in the last year partly due to a lack of affordable models and the slow roll-out of charging points. Competition from lower-priced Chinese models has added to the pressure, and automakers are also bracing for the effects of European tariffs on EVs made in China.

Volvo Cars said it now expects its retail sales to rise by 7-8% this year, down from a forecast in July of 12-15% growth, anticipating no growth in the fourth quarter.

"There's no doubt that the sector's getting tougher ... We're starting to see a slowdown in consumer sentiment, driven partly by the high inflation," CEO Jim Rowan told Reuters.

"A lot of people are taking car loans out in order to pay for their new vehicles, and high inflation obviously affects that."

With Volvo Cars banking on new models, the EX30 and EX90 SUVs, to become major sellers, investors are holding their breath to see if it can achieve the promised high margins.

The company has in the past been confident that demand weakness was primarily hitting the mass market, but it said on Wednesday that the problem had deepened and was now affecting the premium market, where its cars are positioned.

Like others, Volvo Cars in September walked back its ambitions for electrification, opting to continue to selling new hybrids for longer than planned.

It also scaled down its profit margin goal and targeted to outgrow the premium car market rather than give a specific sales goal as before.

Operating profit at the company, which is majority-owned by China's Geely, was 5.8 billion Swedish crowns ($550 million) in the third quarter, against 4.5 billion crowns a year earlier. That beat forecasts, according to JP Morgan and Bernstein.

"Volvo Cars delivered a handsome Q3 beat on revenue and margin," Bernstein said, adding the outlook downgrade confirmed a challenging year ahead.

($1 = 10.5397 Swedish crowns)

(Reporting by Marie Mannes; Editing by Terje Solsvik and Mark Potter)