Sweden-based automaker Volvo Cars (VOLCARb.ST) reported a 54% fall in second-quarter operating earnings on Thursday as a one-off gain boosted the year-ago period’s profit. Still, it forecasts healthy demand for its vehicles despite pricing pressures. Earnings before interest and taxes fell to 5.0 billion Swedish crowns ($488.62 million) from 10.8 billion crowns a year ago, missing expectations of 5.3 billion crowns. Analysts polled by Refinitiv had expected an EBIT of 5.2 billion crowns.

Sales were impacted by ongoing supply constraints from previous quarters and a powerful effect from the Covid-19-related lockdowns in China that also hit production. Despite these challenges, the company’s Recharge cars remain popular with customers and are expected to grow in sales in the third quarter. However, the firm’s gross margin on fully electric cars was weighed down by the high price of lithium — a commodity used for battery packs in electric vehicles.

Volvo, majority-owned by China’s Geely Holding (GEELY.UL), has invested heavily in several of its plants, research, and development. Its flagship plant in Gothenburg has been redeveloped to build a range of smaller SUVs and sedans for markets across Europe and North America. It is scheduled to start producing these new models in 2024, with output rising to 179,000 units a year, and the facility will run on 100% climate-neutral electricity.

The company is also spending more money to revamp its tech hubs in Stockholm, Lund, and Bangalore as it works towards becoming a leader in future mobility. And last year, it opened a plant in South Carolina to produce its SUVs for the U.S. market, its first plant in the United States. This site was selected because of the potential to grow production to 150,000 units a year and double the workforce to almost 4,000 employees.

The plant will make the new XC40, S60, and V60 sedans and XC90, XC60 and XC70 SUVs. The facility is also expected to produce plug-in hybrids and pure electric vehicles.

Volvo Cars said it was seeing an improvement in the normalization of global supply and demand, and it expected retail sales to improve for the rest of the year compared with 2021. But because of the time lag between production and retail deliveries, the improvements will unlikely result in significantly higher retail volumes for the entire year.

This is information that Volvo Cars AB is obliged to disclose under the EU Market Abuse Regulation and the Swedish Securities Markets Act. The information was submitted for publication on 20-07-2023 at 07:00 CET.

Shares in Volvo Cars were down nearly 2% at 0908 GMT. Geely’s chairman Li Shufu has promised to give Volvo a blank check as it pursues a path of self-driving cars, a move that could see the firm lose some of its prestigious image. But analysts say it will be hard to maintain that reputation in an environment of slowing sales and rising competition from other companies with automated vehicle offerings.