Volvo Cars (Hold, TP: SEK25.00) - Margins up, guidance down – again

The Q3 report was mixed, with solid earnings beats but lowered 2024 retail sales and cash flow guidance. The report has not changed our neutral view on the stock, with several risks balanced by a low valuation, in our opinion. We have raised our 2024e EBIT by 15%, while 2025–2026e are broadly unchanged, on which we are still 19–38% below consensus. We reiterate our HOLD, but have cut our target price to SEK25 (28).

Volvo Cars (Hold, TP: SEK28.00) - We eye guidance cut

With Q3 retail sales 8% below consensus (already reported), we see a risk that Volvo Cars will lower its 2024 guidance of 12–15% YOY growth. We are 7% below consensus on Q3 sales, 10% below on gross profit and 46% below on EBIT before JVs, and for 2024–2026e are 20–45% below consensus on EBIT before JVs. We have cut our target price to SEK28 (35) and reiterate our HOLD.

Volvo Cars (Hold, TP: SEK35.00) - Margins up, guidance down

We were impressed by the BEV gross margin (20.1%) but note ‘other’ gross profit – which is difficult to extrapolate – was a significant contributor to the beat versus consensus. The company lowered its 2024 retail sales growth guidance to 12–15% YOY (previously >15%). We have lowered our 2024–2026e EBIT before JVs by 12–0% and remain materially below consensus for 2025–2026e. We reiterate our HOLD, but have cut our target price to SEK35 (37).

Volvo Cars (Hold, TP: SEK37.00) - Upside potential to Q2e, downside ri...

Approaching the Q2 report, we are above consensus by 3% on sales and by 14% on adj. EBIT before JVs, and expect BEV gross margins to be stable QOQ at 16%. However, we still struggle to get excited about the stock as we are 26–44% below consensus on adj. EBIT before JVs for 2025–2026e. We have lowered our 2024–2026e EBIT before JVs by 6–3% due to FX and our target price to SEK37 (39) and reiterate our HOLD.

Volvo Cars (Hold, TP: SEK39.00) - Better than it looked

We were impressed by the BEV and non-BEV gross margins, both of which improved YOY and beat our expectations. Q1 still looked disappointing on headlines as sales were soft and ‘other’ costs diluted the strong margins. However, we believe the positives outweighed the negatives and have raised our 2024–2026e EBIT before JVs by 17–0%, albeit remaining materially below consensus for 2025–2026e. We reiterate our HOLD but have cut our target price to SEK39 (42).

Volvo Cars (Hold, TP: SEK42.00) - Heavyweights on both sides

Although we are 2%, 8% and 26% above consensus on sales, gross profit and adj. EBIT before JVs for Q1e, we struggle to get excited about the stock as we still see material downside to consensus for 2025–2026e, where we are 26–42% below on adj. EBIT before JVs. We see reduced balance sheet risk from the planned distribution of Polestar shares to shareholders (10 April is last day of trading with the right to receive redemption shares). We have raised our 2024–2026e EBIT before JVs by 15–8% and ou...

Volvo Cars (Hold, TP: SEK35.00) - Distributing the elephant in the roo...

Volvo Cars’ strong Q4 gross margin and clarified “mid-decade” targets were overshadowed by the announcement that it is evaluating the distribution of Polestar to shareholders. This would address one of the negative aspects of the equity story and adds a binary aspect with the risk/reward skewed to the upside, in our view. Thus, we have upgraded to HOLD (SELL) and raised our 2024–2025e adj. EBIT (before JVs) by 12–15%, but remain below consensus. We have increased our target price to SEK35 (32).

Volvo Cars (Sell, TP: SEK32.00) - Still a stay-away

Despite recent share-price weakness, we reiterate our SELL. We do not deviate materially from consensus on Q4e, but are 20–41% below on adj. EBIT before JVs in 2024–2025e, as we believe consensus significantly underestimates the negative effects of price competition and selling more BEVs and fewer ICE. Polestar’s financing need and the still-low free-float in Volvo Cars make the equity story even more challenged, in our view. We have trimmed our target price to SEK32 (33).

Volvo Cars (Sell, TP: SEK33.00) - Roadblocks ahead

We have downgraded Volvo Cars to SELL (HOLD) and cut our target price to SEK33 (44) as we believe consensus looks too bullish on 2024–2025e gross margins and cash flow in light of intense price competition and the negative mix impact from BEVs. Risks and challenges are plentiful, including limited free float (Volvo Cars c17%; Polestar c4–5%), Polestar’s financing needs, and significant investment for Volvo Cars in the coming years.

Volvo Cars (Hold, TP: SEK44.00) - Gross margins set to improve

We are 11% above consensus on Q3e EBIT before JVs. We expect Volvo Cars to report improving gross margins for its BEVs QOQ, as raw materials costs finally start to ease. We will look for any comments relating to demand and pricing – thus far, the company has said demand has remained resilient and that it has not participated in the price cuts observed in the broader industry. We reiterate our HOLD, but have cut our target price to SEK44 (48) on minor changes to our estimates.

Volvo Cars (Hold, TP: SEK48.00) - Looking for visibility on margins

Although management said demand was still robust for its cars and that it expected lower raw materials costs in H2, comments about normalising prices in the industry and a BEV gross margin of a mere 2.6% in the quarter add some concerns. We have lowered our adj. EBIT before JVs by 4–9% across 2023–2025e but have raised our target price to SEK48 (47) owing to a slightly higher market value of Polestar and higher peer multiples. We reiterate our HOLD.

Northern Lights

Northern Lights

Volvo Cars (Hold, TP: SEK47.00) - Progress, but uncertainty remains

We are 10% above consensus on Q2e EBIT before JVs, but there are many moving parts with low visibility on costs, meaning high uncertainty in our view. We expect the net effect of price versus cost to have improved slightly QOQ, supporting margins. We still see plenty of risks, but believe they are reflected in the share price. We reiterate our HOLD, but have raised our target price to SEK47 (43) on minor changes to our estimates.

Northern Lights

Volvo Cars (Hold, TP: SEK43.00) - Good quarter but unchanged view

Volvo Cars’s Q1 report was good, and we have raised our 2023e EBIT before JVs by 37%, while our 2024–2025e are broadly unchanged. We still see plenty of risks and reiterate our HOLD. We have trimmed our target price to SEK43 (47).

Still going strong

Although reported EU taxonomy alignment for the sector is low, we have identified which companies screen best and could benefit from attracting ESG capital. We still favour China, mining, energy and aftermarket exposure, and see upside potential to consensus estimates, but view overall risk/reward as neutral on elevated valuation.

Volvo Cars (Hold, TP: SEK47.00) - Still-elevated costs

We are 8% above consensus on Q1e EBIT before JVs, but the base is low and there are many moving parts on the cost side, meaning that uncertainty is rather high, in our view. We expect costs to have remained elevated but see small margin improvement QOQ as more price increases come through (mainly from the backlog in Europe). We still see plenty of risks, but believe they are reflected in the valuation. We reiterate our HOLD but have lowered our target price to SEK47 (53), mainly relating to a lo...

Northern Lights

Volvo Cars (Hold, TP: SEK53.00) - Turning point for volume, not margin...

After a period with supply-chain issues, Q4 was a clear turning point for volumes. However, we are sceptical as to how quickly the gross margin can recover and have lowered our 2023e EBIT before JVs by 11%, despite the guidance for solid double-digit growth in retail sales being better than we expected. Management was optimistic about lower battery costs, further improved supply chains and price rises materialising in EMEA this year. We still see plenty of risks, but believe they are reflected i...