Written by Theo König – October 13, 2021
Reviewed by Asaf Kedem
The car company founded in Gothenburg, Sweden in 1927 has officially announced its intention to list shares through an Initial Public Offering (IPO) on Nasdaq Sweden. Volvo Cars expect to raise approximately SEK 25 billion (Swedish Krona) – roughly €2.47 billion or US$2.85 billion.
Volvo Cars have brought the world numerous automotive safety innovations, notably the three-point safety belt, side-impact airbags, and autonomous emergency braking. Volvo Cars were acquired from the Ford Motor Company in 2010 by Geely Sweden – a wholly-owned subsidiary of Zhejiang Geely Holding Co Ltd. The parent company Zhejiang Geely Holding intends to remain the largest shareholder after the IPO.
This will be Volvo Cars’ second attempt at an IPO. The previous endeavor in 2018 was put on hold after the Geely Group cited numerous concerns. These included heightened trade tensions with the United States, an overall decline in automotive stocks (Stoxx 600 Automobiles & Parts index and Nasdaq OMX Global Auto Index both dropped roughly 30% that year), as well as a valuation of Volvo Cars that Geely Holdings estimated to be around US$16-$30 billion – a figure which many investors deemed too high.
We’d like to emphasize to our readers the distinction between Volvo Cars and Volvo Group. Volvo Cars is the manufacturer of luxury vehicles (such as the XC40 Recharge pictured below). Volvo Cars now belongs to the Geely Holding Group, which also owns brands such as Lotus, Smart, and the London Electric Vehicle Company, amongst many others. On the other hand, the Volvo Group consists of a portfolio of brands such as Volvo Trucks, Volvo Buses, Mack Trucks, and Volvo Construction Equipment. The companies have been separate entities since 1999 when the Volvo Group agreed to the sale of Volvo Cars to the Ford Motor Company for US$6.45 billion.
According to the announcement, the IPO will be listing common shares of Class B stock issued by both Volvo Cars and Geely Sweden. For our less financially-versed readers, holders of a company’s common stock simply have a diminished claim towards a company’s assets. In the event of liquidation, the common shareholders may obtain rights to a company’s assets only after debtholders, bondholders, and preferred stockholders have been paid in full. Volvo Cars’ current preferred stockholders, for example, include institutional investors AMF and Folksam (both Swedish pension funds) who currently hold roughly 2.2% of the shares in the company. Meanwhile, Class B stock refers to a class of common stock that has diminished voting rights and a lower priority of dividend payments compared to Class A stock.
Volvo Cars currently shares in several other automotive ventures. Most notably, Volvo Cars own 30% of the automotive brand LYNK&CO – a company that has manufactured its own SUV (on the same drivetrain platform as Volvo Cars) and is now dedicated to car sharing and connectivity. As well as this, Volvo Cars owns 49.5% of the performance electric vehicle brand Polestar. The timing of Volvo Cars’ IPO announcement comes at an interesting time as Polestar have themselves announced their intent to list shares through an IPO with a Special Purpose Acquisition Company (SPAC), only one week earlier. Many automotive start-ups have followed the path to an IPO by merging with SPACs over the last few years, including Lordstown Motors, Canoo, Nikola, Arrival, and Faraday Future. Volvo Cars have not merged with a SPAC for its IPO.
Another important detail from the announcement is Volvo Cars’ ambition to obtain 50% of sales volumes from online channels. This means presenting customers with complete offerings for their vehicles through the online store. Finally (and this goal might fly under the radar but is by no means an easy feat), Volvo Cars aim to have 50% of the software used in its cars to be developed in-house. This includes setting up a centralized computing system to streamline over-the-air updates in future Volvo Cars’ vehicles. A current partnership with NVIDIA and another collaboration with Google will see Volvo equip vehicles with 3 computers, each responsible for vision processing and artificial intelligence, general computing, and finally infotainment.
Beyond this, Volvo Cars plan on being a fully automotive company by 2030. By 2040 the company plans on being a “climate-neutral company” in terms of CO2 emissions.
Auto Trendy’ take:
There is certainly a lot of information to unpack in this IPO publication. The main takeaway is that the offering is going to free up cash for Volvo Cars to reinvest into the company.
One of the biggest areas of investing will obviously be electrification, with the company clearly setting its sights on an all-electric future. In fact, Volvo Cars plan on being a fully automotive company by 2030, and by 2040 the company plans on being a “climate-neutral company” in terms of CO2 emissions.
The next biggest area of research and development will be the digitalization and connectivity of vehicles. Switching directly to consumer sales and improving their subscription model through their online presence will also require a remarkable overhaul.
Finally, Volvo Cars have previously also expressed their interest in reducing their reliance on external suppliers. Especially with the ongoing semiconductor crisis (currently being supplied to Volvo Cars by Continental AG and Robert Bosch GmbH), Volvo has stated their intent on diversifying their supply chain and reevaluating which components to build in-house.