Volvo Cars to Take Full Control of its Chinese Business From Automaker Geely as it Explores a Possible IPO
【Summary】Swedish automaker Volvo Cars has struck a deal to buy out parent company Zhejiang Geely Holding (Geely) from its joint ventures in China, in a move that could make a possible initial public offering (IPO) of Volvo Cars more attractive to investors. Chinese automaker Geely is the parent company of Volvo Cars and the two companies are joint venture partners in China building cars for the local market.
Swedish automaker Volvo Cars has struck a deal to buy out parent company Zhejiang Geely Holding (Geely) from their joint ventures in China, in a move that could make a possible initial public offering (IPO) for the Swedish automaker more attractive to investors.
Chinese automaker Geely is the parent company of Volvo Cars and the two companies are joint venture partners in China building cars for the local market. The deal will give Volvo Cars full ownership of its factories in Chengdu and Daqing, its Chinese sales company and its research and development facility in Shanghai.
Geely purchased Volvo Cars from Ford Motor Co in 2010. At the time, its was the largest acquisition of a foreign car maker by a Chinese automaker. Geely's purchase of Volvo was intended to help extend its reach outside of China.
Geely also owns a 9.7% stake in Daimler.
Geely said earlier this year it was considering options for its Volvo Cars unit, including an IPO and stock market listing. Handelsbanken Capital Markets analyst Hampus Engellau said to Reuters that taking full control of the Chinese joint ventures could help smooth the way for a Volvo Cars IPO.
"The clearer the ownership structure is, and the clearer the stakeholders in the company look, the easier it gets for investors to consider what it is they are investing in," he said.
According to Reuters, Volvo Cars said the transaction, which is subject to regulatory approval, would be carried out in two steps, starting in 2022 and seen formally completed in 2023.
"These two transactions will create a clearer ownership structure within both Volvo Cars and Geely Holding," Geely's CEO Daniel Li said in a statement.
In order to protect its own interests, China had rules in place that required foreign automakers to set up joint ventures with a Chinese partner in order to build and sell vehicles in the country, which is the world's biggest automarket. It also required that foreign automakers own no more than a 50% stake in their respective joint ventures, but those rules are being lifted next year.
As a result, analysts expect other foreign automakers to strike similar deals in China in order to gain a stronger foothold in the China market.
Tesla was the overseas automaker to build and operate a wholly-owned factory in China, when its Shanghai manufacturing facility went online in late 2019. The plant, which was Tesla's first factory outside of the U.S., currently produces the Tesla Model 3 and Model Y.
Earlier this month, Volvo Cars also said it was acquiring additional shares in electric performance vehicle brand Polestar, which it jointly operates with Geely. The additional shares in Polestar will increase Volvo Cars' stake back to 49.5%.
Volvo Cars and Geely established Polestar as a new standalone electric vehicle brand in 2017. The brand leverages the manufacturing capabilities of Volvo Cars and Chinese automaker Geely.
Volvo Cars owned 50% of Polestar until a private placement earlier this year diluted its shareholding in the company. With the transaction, Volvo Cars' share of Polestar returns to its previous level of around 50%.
The move by Volvo Cars reflects Polestar's potential in the high growth segment for premium electric vehicles that's currently dominated by Tesla.
In February, Volvo Cars and Geely announced that they would combine their powertrain operations in a new joint venture company to develop electric and hybrid vehicle powertrains. In addition to developing new EV powertrains, the two automakers said they will share electric vehicle architectures, autonomous driving technologies and jointly procure components to save costs. Volvo and Geely alos plan to jointly source EV batteries and electric motors from suppliers.
In March, Reuters reported that Geely was planning to launch its own dedicated luxury-electric brand in China that would compete with Tesla, as well as with China's two biggest EV startups XPeng and NIO Inc.
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