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Market Insights

Volvo drops on dividend disappointment

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Away from the rocket-launching adventures of Elon’s Tesla, there’s a whole other world of car (and truck) companies quietly pushing ahead with their own electric-vehicle innovations.

Volvo is possibly one of the least glamorous. Volvo invented the three-point seatbelt. From then on safety became central to their brand and reputation.

For all the differences and unique selling points of different vehicle makers, the past couple of years has been a seriously tough run that they’ve all shared together. The timing was terrible. R&D spending is through the roof as they each race to become the next big thing in the Electric Vehicle era.

In fact this was a key question from the recent earnings report. Volvo fell by over 4% after earnings:

volvo b chart

With analysts left scratching their heads on the dividend payouts. Citi analysts had forecast a total payout of 17.5 crowns per share, yet Volvo announced an ordinary dividend of 6.50 crowns per share plus an extra dividend of the same amount.

Citi pondered:

"This will raise questions as to whether capex and R&D will now increase going forward."

Especially at a time when margins are being squeezed and production hampered by supply chain shortages and raw material price increases.

However, Volvo is making inroads in the electric truck market. President & CEO Martin Lundstedt says the truckmaker has built up a good momentum in the sales of electric vehicles in both Europe and North America.

The battery-electric market is still relatively small, but Volvo forecast rapidly increasing demand in the coming years.

They’ve taken command in Europe, gaining a combined market share for Volvo Trucks and Renault Trucks battery-electric vehicles of 61.6% in 2021.

In North America, Volvo has just (January 2022) launched an upgraded version of the Volvo VNR heavy-duty electric truck with an increased range of up to 440 km, faster charging and more configurations than the prior model.

At the end of 2021, they also created a joint venture with Daimler Truck and Traton Group “to establish a pan-European high-performance charging network for trucks and buses aiming for 1,700 charging points across strategic locations” (subject to regulatory approvals).

There was good news from the construction equipment arm. A steep decline in demand from China was almost offset by strong demand for construction equipment in Europe and North America, driven by high construction activity and infrastructure investments

However, they’re not out of the woods yet. Lunstedt added:

"The situation in the global supply chain for semiconductors and other components remains unstable, characterised by disruptions, unpredictability and lack of freight capacity,"

"We will therefore continue to have disruptions and stoppages both in the production of trucks and in other parts of the group."

Volvo’s share price has fallen slightly since the start of the year, and now sits at a key support level and just below the 200 day moving average.

Volvo Chart 2

Not investment advice. Past performance does not guarantee or predict future performance.

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