Shares of Volvo Cars slid sharply on Thursday after the carmaker reported a steep fall in fourth-quarter operating profit, highlighting how tariffs, currency headwinds, and cooling demand are squeezing margins across the auto sector.
The stock dropped more than 25%, putting Volvo Cars on track for its worst trading day on record.
The reaction reflected investor concern over the scale of the earnings decline and the company’s exposure to trade policy shifts and slowing markets, particularly in the US and China.
Volvo Cars, which is majority owned by Geely Holding, said pressures intensified toward the end of 2025 as competition increased, incentives faded, and pricing power weakened.
Earnings miss jolts markets
The company reported that fourth-quarter operating income excluding items affecting comparability fell 68% from a year earlier to 1.8 billion Swedish krona, or about $200 million.
The drop was attributed to a combination of US tariffs, negative currency effects, and weaker demand, especially in China.
The withdrawal of electric vehicle incentives in both the US and China added to the strain during the quarter, compounding the impact of softer consumer spending.
While Volvo Cars flagged internal progress on cost controls and cash flow, markets focused on the limited buffer left against further external shocks.
The sell-off accelerated as trading progressed, with the stock firmly on course for a record single-day decline.
Forecasts under review
Following the results, analysts moved to reassess expectations for the year ahead.
UBS said the profit miss could lead to 10% to 15% downgrades to full-year 2026 consensus earnings before interest and taxes.
The bank also pointed to underlying EBIT margins that were close to zero in the final three months of 2025, raising concerns about how resilient profits may be if pricing pressure and weak volumes persist.
Tariff exposure in focus
Trade policy remains a central risk for Volvo Cars. Under a framework agreement reached between the US and EU in July last year, the Trump administration imposed a 15% blanket tariff on most EU goods.
While lower than earlier threats, the measure still adds high costs for European exporters.
For automakers, the deal reduced the tariff rate from 27.5%, but industry groups warned the burden would remain material.
Volvo Cars has long been viewed as one of the most exposed European manufacturers due to its reliance on the US market.
Electric push continues
Despite the pressure, Volvo Cars is pressing ahead with its electric vehicle strategy.
The company said deliveries of its fully electric EX60 mid-size SUV are expected to ramp up in the second half of 2026, a key step in its transition plans.
However, management cautioned that the year ahead is likely to remain difficult, with ongoing pricing pressure, tariff effects, regulatory uncertainty, and softer consumer sentiment continuing to weigh on the industry.
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