Volvo Cars exceeded second-quarter operating earnings expectations but revised down its full-year retail sales forecast due to the impact of European tariffs on Chinese-made electric cars, the automaker stated.

The company, owned by China’s Geely, produces electric models in China and faces potential tariffs amidst the EU’s dispute with Beijing over subsidies for EV manufacturers.

Earlier this month, the European Union imposed preliminary tariffs of up to 37.6 percent on electric vehicle imports from China, likely dampening demand for these vehicles.

Brussels has until autumn to finalize these tariffs, which are currently provisional.

Despite strong demand for its China-made EX30 small SUV, ranking as Europe’s third best-selling EV behind Tesla’s Model Y and Model 3, Volvo’s growth has been hampered by increasing trade barriers.

American Made

Last month, Volvo announced it would delay shipments of the model to the U.S. following Washington’s imposition of tariffs exceeding 100 percent on Chinese EV imports.

To navigate these tariffs in the U.S. and EU markets, Volvo plans to commence production of the compact SUV at its Ghent, Belgium plant in the first half of next year.

Additionally, the company’s gross margin for electric vehicles improved to 20 percent from 16 percent in the previous quarter.

Automakers and suppliers have long anticipated increasing demand for EVs, yet recent slowdowns in sales indicate that investments in capacity and technology are surpassing current demand levels.

Although Volvo, like other manufacturers, has reported positive EV sales figures recently, the company revised its sales growth forecast for this year downward to 12 to 15 percent from the previously projected 15 percent, as of July 18th.

In the second quarter, Volvo produced 211,900 cars, exceeding the number sold, highlighting a decline in EV demand specifically in Europe.