"Those Times Are Gone": Volvo Crashes As China Sales Collapse, BofA Recommends Default Protection

Volvo Cars shares in Stockholm crashed the most since the company's October 2021 listing. The Swedish automaker announced another 2,500 job cuts and warned that its Chinese sales are under severe pressure.Third-quarter deliveries in China plunged 40% as domestic brands gained ground with cheaper electric vehicles."Nobody will be successful with the old recipe where you had global cars developed in Europe and sold them at a premium price" in China, CEO Hakan Samuelsson told analysts on the earnings call earlier today.Samuelsson emphasized, "Those times are gone." In other words, Volvo is no longer competitive in overseas markets.The 2,500 job cuts represent about 6% of Volvo's workforce and will primarily affect Sweden. They form part of a turnaround strategy to save an additional 5 billion kronor, following 3,000 job cuts announced last year.Bank of America analyst Stephanie Vincent recommended buying protection against a default by Volvo Car AB, warning that deteriorating finances and prolonged weakness in China and the U.S. are leaving the Swedish automaker's senior unsecured bonds maturing in 2029 and 2030 at risk.Vincent added more color:Spreads not reflecting b/s risks: Buy 5y CDS/UW ‘29s-‘30s We move our recommendation on VOVCAB 5Y CDS to Buy Protection, from Sell Protection. We maintain our UW recommendation on the VOVCAB' 29-'30s senior unsecured bonds on fundamental deterioration at the company (free cash flow, or CFO less capex, has been negative for three straight quarters and for full-year 2025) and relative value (the bonds still trade tight to BB2-BB1 credits in the ICE BofA BB Euro High Yield Index). Volvo's 3Q and ytd results have been negatively impacted by a significant downturn in China (ytd revenues down 40%) and the U.S. (ytd revenues down 19%). 30th September 2026 cash balances have declined to levels not seen since 2018, while gross debt has remained roughly stable since 2025. Further volatility could be seen if the new management team re-evaluates the medium-term production plans and footprint (Klaus Zelllmer plans to assume the President/CEO position in 3Q27). We are MW on near-term maturities (VOVCAB' 27s/'28s) due to the business' previous market access and overall liquidity.U.S., China very tough markets for Volvo CarThe U.S. market was hit by current tariffs and the removal of incentives for electrified cars that hit imported EV margins (Volvo Car only produces the EX90 in the U.S. at present, with the XC60 planned to have a SOP in January 2027). The plan for the U.S. market is to localise production for the XC60, and to also bring product offering, marketing and sales closer to its U.S. customers along four regions. There will also be PHEV offerings for the XC90 and XC60 shortly after deliveries start in Europe. In China the market remains very challenged particularly for the Western Premium manufacturers and management notes "the next two years will remain very tough." The production plans are to deliver the first two of six new cars tailored for China, developed in partnership with Geely. Europe is the sole profitable market now, with BEV/battery electric sales reaching 45% share in 3Q (versus 30% in 3Q25), driven by the EX30.Cash flow a core focus. Management explicitly highlights that cash is being prioritised. We note that Volvo management believes 4Q26 cash flow will be stronger than 3Q26 due to inventory reductions (however this action could pressure margins due to de-stocking). Overall liquidity is well above management’s view of the minimums needed: the business has cash of SEK 32bn and total liquidity of SEK 55bn. However, the net cash position has deteriorated meaningfully, to a level of SEK 725mn (our estimate, from peak levels of close to SEK 37bn, seen in 4Q21).LT targets maintained. Capex, cost actions at forefront. Volvo Car is maintaining its longer-term goal of adjusted EBIT margins >8% and is adding new initiatives: a 30% reduction in capex versus 2024 levels (could lead to lower cash needs of c. SEK 13bn by our estimates) and reinforcing the cost savings. The company is also targets another SEK 5bn in additional cost savings by the end of 2027 (primarily via headcount initiatives).Volvo shares in Stockholm crashed 30% on Friday morning, marking their worst intraday decline on record.The selloff reduced Volvo's market value to 29.8 billion kronor ($2.68 billion), about 80% below its 2021 listing valuation.Beyond Volvo, many other European automakers are in turmoil, including VW. Just go down the list.The elites in Brussels were, oddly enough, more concerned about deindustrialization and mass migration than ensuring the bloc could survive another decade. Now Europe is facing the risk of another debt crisis, with France at the center.