Swedish car maker Volvo Car AB progressed well on the back of double-digit sales growth driven by increasing all-electric vehicle sales. Volumes for 3Q23 increased 22% to 167k units, while revenues climbed 16% to SEK 92bn. Reported EBIT increased by SEK 2.4bn to SEK 4.5bn with margins expanding 200bps to 4.8%, helped by higher volumes, and lower costs of raw materials, semiconductors, and logistics. Management anticipates lower raw material input costs, resource optimization, and ongoing operating efficiencies supporting further margin expansion.
VOVCAB can be considered as a rising credit star candidate and therefore offers scope for higher ratings as volumes expand further and supply chain issues ease further. Management has confirmed that it is on track to achieve its mid-decade ambitions which include 50% of fully electric vehicle sales and operating margins in the range of 8 – 10%. We expect ongoing strong demand for VOVCAB’s electric vehicles (currently representing 41% of total volume), supported by solid brand desirability.
VOVCAB is one of the key issuers in the HY segment and its bonds trade at a premium to similarly rated peers. Volvo Cars credit offers a suitable risk/reward opportunity for longer-term oriented investors.