February 1, 2024
Swedish car manufacturer Volvo will reduce its stake in sister brand Polestar. It is expected that the Chinese parent company Geely will rush to the aid of the loss-making car manufacturer and take over the stake.
Volvo Cars has had enough. The financing of the loss-making luxury brand Polestar, which together with Volvo Car belongs to the empire of the Chinese holding company Geely, weighs too heavily on the Swedish car manufacturer. Volvo Cars’ focus is on developing and focusing its resources on its own ambitious journey. “We have an ambitious growth path ahead of us and that will require investments,” said CEO Jim Rowan at the presentation of the annual figures.
Everyone has their problems
The Swedish manufacturer, which has a 48 percent stake in Polestar, is willing to continue to collaborate with Polestar in the areas of development, production and after-sales. But continued financing is no longer feasible.
We have an ambitious growth path ahead and that will require investments.
Volvo Car has its own cats to flog. The carmaker has announced that 1,300 jobs will be cut to reduce costs worldwide. Automakers are forced to adapt to slower growth in electric vehicle sales. This is largely due to the phasing out of subsidies for electric cars in many countries and the high prices for the cars.
In addition, Volvo Car is also dealing with software development issues that have delayed the brand’s new electric EX30 and EX90 models.
Still need a billion
Polestar, which was founded in 1996, was transferred to Volvo Car by parent company Geely in 2015. But the luxury brand is having a hard time. It was recently announced that the brand will cut 450 jobs or 15 percent of its workforce due to slower sales.
Like other new electric car brands and startups, Polestar has struggled to make progress, especially since Tesla started a price war last year. Polestar said earlier this month that it has missed its reduced 2023 delivery targets.
Polestar also has to count on the financial support of its main shareholders Volvo Car and Geely. Last year, the brand suffered a net loss of $465 million on a turnover of $2.7 billion. Volvo has agreed to continue to guarantee a credit facility that expires in 2028.
Polestar is expected to need around $1 billion in additional support this year, the investment bank Bernstein wrote in a report last week. That money will have to come from Geely. Because the intention is for the Chinese parent company to take over Volvo’s interest in Polestar. Analysts also doubt whether Polestar can achieve its target of achieving positive gross operating profit by 2025.
Fiasco at stock exchange
To finance the developments, the car brand was listed on Nasdaq through a special stock exchange vehicle (SPAC) in June 2022. The IPO turned out to be a fiasco for investors. Polestar’s share price fell 62 percent in the past year, causing the manufacturer’s valuation to drop to $4.6 billion. Since the IPO, the stock has fallen 83 percent.
Swedish car manufacturer has a record year
Volvo Car shares shot up more than 20 percent on the stock exchange on Thursday. Investors reacted euphorically not only to the divestment of the Polestar stake, but also to the good annual results.
Volvo Car, whose largest factory is in Ghent, had a record year with a turnover of just under 400 billion Swedish crowns (35.5 billion euros) and an operating profit margin of 6.4 percent. However, joint ventures and related companies have not been taken into account. In 2022, the profit margin was 1 percentage point lower.
Another striking feature of the annual report is that the margin that Volvo Car achieved on its electric cars increased to 13 percent in the last quarter. The previous quarter the margin was still 9 percent.
The increased margin is a boost for CEO Jim Rowan, who previously emphasized that margins on the sale of electric cars continue to rise. His view is in stark contrast to that of the CEOs of other automakers, who are sounding the alarm about demand for electric vehicles and expecting lower margins.