AB Volvo Warns Of Production Halts For 2021 Due To Global Chip Shortage

The global shortage of auto chips prevented Sweden’s truck maker AB Volvo from fully capitalising by producing more truck to cater to the strong demand for its vehicles during the second quarter and consequently the truck maker warned of further production disruptions and stoppages for the rest of this year because of the chip shortage.

On Tuesday, the company announced that its operating profit had almost tripped 9.73 billion Swedish crowns ($1.12 billion) from 3.27 billion for the same quarter a year ago. The maker of trucks, construction equipment, buses and engines however slightly missed estimates at 9.84 billion, according to Refinitiv data.

The makers of heavy-duty trucks as well as smaller vehicles have been forced to cut down on production because of the global shortage of semiconductors which started at a time when the global auto market was experiencing a bounce back from the pandemic lows that it had suffered last year when transportation was brought to a virtual standstill throughout the world. the shortage has extended lead times and has significantly increased costs of production and consequently prices of new vehicles.

During the quarter Volvo faced severe challenges with production stoppages of close to a month, said the rival of Germany’s Daimler and Traton.

And even though the company is registering a strong recovery, sales and adjusted earnings as reported by the group were lower than the cyclically high levels the group reached for the same period in 2019 when the Covid-19 pandemic was not there.

“There will be further disruptions and stoppages in both truck production and other parts of the group in the second half of the year,” the company’s CEO Martin Lundstedt said in a statement.

In the second half of the current year, Volvo will try to boost capacity, Lundstedt said on a conference call, while also warning that its aims could get curtailed by supplies of components – especially semiconductor chips.

“Volvo printed a good set of results, slightly below street estimates,” analysts at JPMorgan said in a research note. “With limited visibility in the supply chain and semi-conductor shortages still impacting the industry (in the second half), we expect limited movement in with consensus expectations.”

With a significant growth in online shopping due to the pandemic, there has been strong growth in demand for heavy-duty trucks as retailers and delivery firms struggling to meet increased freight volumes and rates. That prompted many of the emboldening fleet operators to speed up their plans for vehicle orders that they had suspended after the first wave of the pandemic hit the world in March last year.

There was a growth of 143 per cent in order bookings of its trucks, also sold under brands such as Mack and Renault, compared to the same quarter a year ago when demand was very weak because of the pandemic, Volvo said. The company retained its forecasts for solid market growth in both Europe and North America for the current year.

The company also raised its 2021 outlook for construction equipment markets in both regions

(Adapted from FXEmpire.com)

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