Volvo warns over global chip shortage, shares slide

Swedish truckmaker Volvo Group has warned that the global semiconductor shortage will hit production this year, denting earnings.

In a brief statement released late on Monday, the group said the supply shortage would have "a substantial impact" on production in the second quarter. It will therefore implement stop days at the start of the quarter across its global truck manufacturing options for between two and four weeks in total, based on current estimates.

Volvo said: "Visibility into the global supply chain of semiconductors, as well as other components, is currently very low and the uncertainty about the development is high.

"The disturbances are expected to have a negative impact on earnings and cash flow. The Volvo Group and its business partners are working hard to minimise the number of vehicles affected, and the impact on customers, by keeping flexibility to be able to increase production where possible."

As at 1100 GMT, shares in the Stockholm-listed firm were down 7%.

Nicolai Kempf, analyst at Deutsche Bank, said: "To estimate the potential impact, we used truck deliveries from the 2019 second quarter as a reference, and believe that this could lower production by around 16,000 trucks in the second quarter, or 9% for the 2021 full year, excluding catch-up effects in the second half.

"Assuming that half of the lost volume would be recovered in the second half, we believe that consensus earnings could come down by 4% to 7% this year."

The global shortage in semiconductors has steadily worsened over the last year. Initially caused by temporary delays at the start of the pandemic, production levels have since returned to normal but demand has surged. There has been a boom in home technology - from TVs and consoles to computers and phones - because of Covid-19, while car manufacturers are designing and building increasingly tech-heavy vehicles that rely on chips.

Volvo’s warning follows an announcement from China’s Volvo Cars last week, which confirmed it was adjusting production schedules because of the shortage. Production at Ford, General Motors and Nissan has also been affected.

Numis said: "Recent industry commentary suggests chip shortages will reduce automotive first quarter production by an estimated 600,000 to 1.1m units. IHS Markit expects disruption into the third quarter of 2021, but industry anticipates losses to be recovered by year end. We will continue to monitor this closely, as for the moment, newsflow appears to be worsening."