Volvo's China operations at 'standstill' amid virus outbreak

Volvo expects to lose at least two weeks’ worth of sales, production and supply deliveries in China because of the Wuhan coronavirus outbreak, CEO Hakan Samuelsson said Thursday. 

“China has come to a standstill, and that will affect our company, as well as other companies,” Samuelsson told Automotive News Europe on a call to discuss Volvo’s 2019 fourth quarter and annual financial results.

Volvo Cars, which is a brand of the Zhejiang Geely Holding Group, a Chinese company, sold 154,961 cars in China in 2019, a 19 percent increase in a market that fell by 7.4 percent overall. China is its largest individual country market, although it sold more than 341,000 cars in Europe in 2019.

Volvo has a number of factories in China. It makes the XC60 midsize SUV in Chengdu, the XC40 compact SUV in Luqiao and the S90 large sedan in Daqing. In addition, Volvo’s Polestar electric sub-brand has opened a separate factory in Chengdu. It also has several engine assembly plants.

Those facilities have remained closed after the New Year holiday break, Samuelsson said. “We’re following the recommendations of local authorities, which means we avoid bringing people together, the factories have not opened, and people are requested to stay home and avoid contact,” he said.

“It’s like time has stopped,” he said of the situation in China. “It’s basically two weeks of sales, of production, of supply chain that have been taken out.”

Other automakers, including Ford, Honda, Hyundai, Nissan and Renault, have suspended Chinese production or extended the holiday furlough as the death toll from the virus neared 600 on Thursday.

Samuelsson said the disruption was mostly contained to China, and that Volvo’s plants and operations in North America and Europe were largely unaffected, although there could be a shortage of parts exported from China.

Volvo said in its annual report that the coronavirus outbreak would affect first-quarter operations. Samuelsson said he expected Volvo to recoup any lost sales and production over the rest of this year. “We think the effect for the whole year will be relatively minor,” he said.

Samuelsson said the virus in China had made it “extra difficult” to forecast overall results in 2020, but he said that Volvo was still maintaining its outlook for continued growth and improved profits. Last year Volvo sold more than 705,000 cars globally, a 9.8 percent increase, and the sixth straight year of sales growth.

A report this week from LMC Automotive said that in the most likely scenario, the virus outbreak could push down sales and production in China by 3 percent to 5 percent this year.

Other possible outcomes included a quick containment of the virus in the first quarter, which could lead to modest growth for the year. In the worst case, the virus continues into the third quarter, with “enormous” macroeconomic impact, and the Chinese auto market would fall by at least 10 percent.