Autoliv (ALV -4%) is experiencing a decline in its stock price, even after reporting a record second quarter that surpassed expectations. The Swedish automotive safety product supplier, known for airbags, seatbelts, and steering wheels, reported an EPS increase, though the gain was smaller compared to the previous two quarters. Revenue rose by 4.2% year-over-year to $2.71 billion, marking a return to growth after four consecutive declines. The stock's drop is likely due to a concerning outlook for light vehicle production (LVP), especially in North America.
- Revenue growth was driven by outperforming LVP in several regions and tariff-related compensation. ALV recovered around 80% of tariff costs this quarter and expects to recover most of the remainder by the second half of 2025.
- ALV's broad geographic exposure helps mitigate U.S. tariff impacts. China showed relative strength, with sales to domestic OEMs up over 16% and growth with global customers exceeding LVP by 2 percentage points.
- LVP and content-per-vehicle (CPV) markets in North America and Western Europe declined by about 3% each, causing an unfavorable product mix impact of approximately 2.5%, which significantly affected overall performance.
- The North American production outlook has been downgraded due to trade risks and higher vehicle prices from import tariffs, particularly impacting Q4, with Mexican and Canadian-produced vehicles more severely affected.
- S&P Global July data indicated a global LVP rise of 270 basis points in Q2, surpassing the initial 200bps expectation. However, ALV noted a considerable weakening in Q3 and the second half of 2025, with S&P now forecasting a global LVP growth of just 0.4% for FY25, down from 3% in the first half. LVP is expected to decline by over 2% in the second half of 2025.
Despite the positive revenue growth, ALV's stock is declining. Strength in China, tariff recovery, and positive July data are overshadowed by concerns over North American production and a broader industry slowdown in the latter half of 2025. Investor sentiment is focused more on future challenges than past successes.
