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(Sharecast News) - Shares in Volvo Cars were crashing on Thursday, after it reported a sharp fall in fourth-quarter earnings and warned of another difficult year ahead, as tariffs, weak demand and currency headwinds weighed heavily on profitability.
The Swedish carmaker said fourth-quarter revenue fell to SEK 94.4bn (7.71bn) from SEK 112.1bn a year earlier, while operating income declined to SEK 1.9bn from SEK 3.9bn.
Operating income excluding items affecting comparability dropped 68% year on year to SEK 1.8bn, leaving an EBIT margin of just 1.9%, down from 5% in the same period last year.
Basic earnings per share halved to SEK 0.43.
Despite the earnings pressure, Volvo Cars said it generated positive free cash flow of SEK 8.8bn in the quarter, supported by working capital movements and the execution of its SEK 18bn cost and cash action plan.
For the full year, adjusted operating income came in at SEK 12.5bn, equivalent to an adjusted EBIT margin of 3.5%, while full-year free cash flow reached SEK 2.4bn.
The company said performance was hit by a combination of EU-US import tariffs, the strengthening of the Swedish krona, weak demand and continued pricing pressure in the premium car market.
It said the removal of electric vehicle incentives in the US also weighed on sales, while wholesale volumes fell 8% year on year in the quarter and retail sales declined 3%.
Chief executive Hkan Samuelsson described 2025 as a "very challenging" year for the industry.
"Externally we have a very challenging market, especially in China, very tough competition. All of our European colleagues have the same problem," he told CNBC, adding that the removal of EV incentives in the US and China had compounded the pressure.
He said the key positive was progress on costs and cash flow, noting: "Internally we have had very good work done with lowering our costs and securing a positive cash flow."
Shares in Volvo Cars plunged more than 25% following the results, putting the stock on course for its worst trading day on record.
Analysts pointed to a weaker-than-expected margin performance, with UBS warning of potential 10% to 15% downgrades to 2026 EBIT forecasts, given that underlying margins were close to zero in the final quarter.
Looking ahead, Volvo Cars said 2026 would remain challenging, citing continued pricing pressure, tariff effects, regulatory uncertainty and softer consumer sentiment, with the overall premium market expected to shrink.
The company also flagged negative cash effects in the first half from a temporary inventory build-up of XC90 and XC60 models as it prepared for the start of EX60 production.
Volvo pinned its medium-term recovery on new and refreshed models, including the fully-electric EX60, which was set to ramp up in the second half of 2026, alongside the XC70 plug-in hybrid, the improved EX90 and the EX30.
Management reiterated its long-term ambition to structurally rebuild the business toward EBIT margins above 8%, stronger cash flows and growth driven by electrified vehicles, while continuing to cut costs and moderate investment levels in the near term.
At 1249 CET (1149 GMT), shares in Volvo Car were down 25.27% in Stockholm at SEK 22.12.
Reporting by Josh White for Sharecast.com.