Volvo is betting global investors will look at its long-term potential, rather than its short-term problems as it confirms plans to launch an initial public offering.
The Swedish automaker could earn itself a $25 billion valuation based on what it’s revealed about the IPO plan announced Monday. It initially hopes to raise 25 billion Swedish crowns, or about $2.9 billion, on the Nasdaq Stockholm exchange. But Chinese parent Geely Holdings signaled it will sell off some of its own shares, as well. Geely has not indicated how much of a stake in Volvo it will retain after the public offering.
“Volvo Cars believes that its unique structure and focused strategy makes it one of the fastest transformers in the global automotive industry, with mid-decade ambitions dedicated to electrification, sustainability and digitization,” Volvo said in a statement Monday morning.
A big turnaround
If the IPO goes off as planned it would come as a marked turnaround for a brand that seemed to have a questionable future not all that long ago. In January 1999, Ford purchased Volvo for more than $6 billion. But it subsequently sold off the Swedish automaker for just $1.8 billion in 2010.
Under Geely, Volvo invested heavily to expand and update its product line-up, while also adding new production capacity in both the U.S. and China. It already was shifting toward plug-in hybrids and pure battery-electric vehicles when, in March of this year, it announced plans to completely shift away from conventional gas-powered vehicles by 2030.
“There is no long-term future for cars with an internal combustion engine,” Volvo Chief Technology Officer Henrik Green said at the time.
Volvo’s first long-range battery-electric vehicle, the XC40 Recharge, debuted during the 2021 model year and it is preparing an assortment of additional BEV offerings, including a version of its flagship XC90. That model will launch at Volvo’s plant in South Carolina next year.
Polestar also going public
Meanwhile, it is sharing platforms and technology with the all-new Polestar brand jointly owned by Volvo and Geely.
Polestar last week announced its own plan to go-public by merging with special purpose acquisition company Guggenheim Partners. That deal is expected to be valued at $20 billion.
The possibility of a Volvo IPO has been circulating since 2018 and it appears to have become necessary to help the automaker complete its transformation into an electric vehicle manufacturer.
“The intention here is to secure the future of the company,” Volvo Cars Chief Executive Håkan Samuelsson told the Wall Street Journal. “Volvo will be an electric car company.”
Short-term trouble
The Volvo Car Group set an all-time global sales record of 705,452 vehicles in 2019, an increase of nearly 10% from the year before — and nearly double the volume of 373,525 vehicles in 2010, the year it was sold off by Ford. Demand slipped by more than 6% in 2020, in line with the rest of the COVID-ravaged auto industry.
But, after staging a strong turnaround early this year, Volvo saw global sales slide 30% last month. The downturn reflects production and inventory problems due to the ongoing shortage of semiconductors, however, and isn’t expected to last long-term. As a result, the slide isn’t seen to have any material impact on the Volvo IPO.
The carmaker and parent Geely have provided only limited guidance as to their plans for the public offering. But what could be more significant for investors is Volvo’s long-term financial target. By mid-decade it wants to be delivering 1.2 million cars annually. And it is gunning for an operating margin that would range between 8% and 10 percent.
If Volvo’s IPO goes off as planned, yielding it a $25 billion market capitalization, it would have a value of more than twice French-based Renault, though barely a third that of General Motors, and little more than 20% of Volkswagen. From a market cap perspective, Tesla currently sits as king-of-the-hill, at $779 billion as of Monday morning.