Feb 5 (Reuters) - Volvo Cars' fourth-quarter profit fell 68%, hit by tariffs and weak demand, as the Sweden-based automaker warned on Thursday that ​external factors continued to pose challenges.

Operating profit excluding items affecting comparability ‌at the group, which is majority-owned by China's Geely Holding, fell to 1.8 billion crowns ($199.9 million) ‌from 5.6 billion crowns a year earlier on a 16% sales drop.

"External factors (affected) our performance, such as EU-U.S. import tariffs and the negative currency effect of a stronger Swedish krona," CEO Hakan Samuelsson said in a statement.

"On top of that, revenues ⁠were affected by weak ‌demand putting pressure on pricing, and the removal of EV incentives in the U.S., which negatively impacted sales."

Analysts at J.P. Morgan ‍said in a note to clients that both profits and sales lagged market expectations.

VOLVO'S TRUMP TARIFF HIT

U.S. President Donald Trump initially hiked import tariffs on cars from the European ​Union to 27.5% from 2.5% as part of his push last year to ‌reset Washington's global trade relations.

That rate was later reduced to 15%, applied retroactively to August 1, following trade negotiations.

Volvo Cars exports the majority of its U.S.-bound cars from Europe. The company's gross margin - a metric monitored by analysts to assess the impact of tariffs - was 15.8%, against 20.4% in the third quarter ⁠and 17.1% a year earlier.

Volvo Cars said it ​aimed to return to year-on-year volume growth in ​2026, and that an ongoing turnaround plan was on track.

"We have a long list of cost savings ideas, which we are ‍yet to execute," Chief ⁠Financial Officer Fredrik Hansson told Reuters.

"We also see that in terms of synergies and collaborations with Geely to reduce costs, especially on mechanical components, ⁠we've only started to scratch the surface," he added.

The company proposed no dividend for 2025.

($1 = ‌9.0039 Swedish crowns)

(Reporting by Alessandro Parodi, additional reporting by Marie Mannes; ‌Editing by Anna Ringstrom and Joe Bavier)