Sweden’s Volvo Trucks delivered 60,000 new trucks in Q4, but the combination of messy supply chains, semiconductor shortages and COVID impacts constricted the number of new orders the manufacturer could add to its backlog.
Q4 net sales increased by 6% to Swedish krona (SEK) 102.4 billion, or about $10.9 billion, compared to SEK 96.9 billion, or about $10.3 billion a year earlier. Adjusted for currency movements and divesting UD Trucks — sold to Isuzu for about $2 billion in April 2021 — the increase was 12%.
“Demand for trucks across key regions remains high and we are doing our utmost to produce as much as we can to reduce long delivery times to our customers,” Volvo AB CEO Martin Lundstedt said in a shareholder letter. “We have had extra costs to manage production due to supply chain disruptions as well as higher costs for material and freight.”
Net sales of trucks rose 8% in Q4 to SEK 67.2 billion with share increases in North America and Europe. But the extra costs to keep production moving impacted the operating margin, which came in at 103% compared to 13% a year ago. Operating income was SEK 10.2 billion versus SEK 12.2 billion a year ago.
Demand returns but challenges abound
Freight demand and improving construction activity returned fleet utilization to pre-COVID levels, evidenced by higher demand for Volvo service products in addition to new and used trucks.
“The situation in the global supply chain for semiconductors and other components remains unstable, characterized by disruptions, unpredictability and lack of freight capacity,” Lundstedt said. “We will therefore continue to have disruptions and stoppages both in the production of trucks and in other parts of the Group.
“Since the summer, we have taken an even more conscious choice to run production on high levels and with extra flexibility,” Lundstedt told analysts on a conference call Friday. “This is, of course, not optimal in the short term when it comes to efficiency, but it gave us extra flexibility and maneuverability in a bumpy second half year.”
Volvo Trucks North America delivered 39,090 trucks during the quarter, up 23% from Q4 2020. Mack Trucks delivered 6,310 trucks, an 8% increase year over year. However, order intake in North America fell by 33% to 16,624 trucks in Q4.
“Besides causing unplanned production stops in the fourth quarter a couple of weeks, the supply chain disturbance [affected] industrial productivity, adding extra cost” for shifts and express freight, CFO Jan Ytterberg said on the conference call.
Lighting up electric truck sales
Lundstedt pointed to early market share success for Volvo with electric trucks in Europe and North America, where Volvo recently launched an upgraded version of the Volvo VNR heavy-duty electric truck featuring an increased range of up to 275 miles, faster charging and more configurations than its predecessor.
“During the year, we built up a good momentum in the sales of electric vehicles in both Europe and North America,” he said. “In Europe the combined market share for Volvo Trucks and Renault Trucks battery-electric vehicles reached 61.6% for the full year.
“Even though the total battery-electric market is still small, we are off to a good start and we believe that demand will increase rapidly in the coming years.” Volvo finalized an agreement with Daimler Truck and Traton Group to establish a high-performance electric charging network at strategic locations in Europe.
Transition from a fossil fuel-based truck manufacturer to electric and other zero-emissions technologies is a major undertaking including climate targets in line with keeping global warming at a maximum of 1.5 degrees centigrade. In 2021, Volvo and rival Daimler Truck formed a zero-emissions, hydrogen-powered fuel cell truck joint venture.
Volvo spent more on research and development, partnering with Pittsburgh-based Aurora Innovation, to scale high-autonomy driverless trucks for hub-to-hub applications in North America. Many of the 793 new white-collar workers hired were for R&D efforts. Blue-collar ranks fell by 413 workers.