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Volvo Cars sees no need to cut prices as demand is healthy

An employee at a Volvo car dealer wearing a protective mask is seen in the show room, amid the coronavirus disease (COVID-19) outbreak in Brussels

By Marie Mannes

STOCKHOLM (Reuters) -Sweden-based automaker Volvo Cars reaffirmed its outlook on Thursday and said it saw no point in cutting prices given healthy demand as its operating earnings beat estimates.

Its shares shot up 8% at the market open before retreating to trade flat at 0736 GMT, which Bernstein analyst Daniel Roeska said could be because of some early short-covering orders.

Automakers such as Volvo have begun slowly emerging from an extended period of supply chain pain and shortages, which have hit output and driven up costs.

The company said its manufacturing had improved, but still saw some shortages, which would continue to affect production in the second quarter.

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Volvo has seen robust demand for its models, which it aims to be all-electric by the end of the decade, with unit sales up 10% in the first quarter.

Meanwhile, Tesla has doubled down on a price war begun at the end of last year to spur demand and fend off rising competition, posting its lowest quarterly gross margin in two years and jarring stocks across the industry, including its own.

Volvo, for whom fully electric vehicles (EVs) accounted for 11% last year, said in February it had no intention of cutting its EV prices.

On Thursday, Chief Executive Jim Rowan told Reuters that as long as demand continues to be high for the automaker, he saw no reason to cut prices.

Rowan also said lithium prices, a major source of cost for the carmaker's EVs, had started to decline. This was despite Chile, the world's second largest producer of the metal, saying it would nationalize its lithium industry.

He added that more lithium sources were starting to be available from other parts of the world making him comfortable that the cost would continue to decline.

Volvo Cars, majority-owned by China's Geely, said operating earnings fell to 5.1 billion Swedish crowns ($494.63 million) in the quarter from a year-ago 6 billion crowns, beating a mean forecast of 3.6 billion crowns.

($1 = 10.3107 Swedish crowns)

(Reporting by Marie Mannes, Editing by Terje Solsvik, Sherry Jacob-Phillips and Emelia Sithole-Matarise)