Stockholm, Sweden - In a significant blow to the electric car industry, Volvo Car has announced that it will no longer provide financial support to Polestar, the electric car manufacturer it co-founded with Chinese company Geely. This decision comes at a time when the global auto industry is facing setbacks in its transition to electric vehicles, despite the increasing number of battery-powered models hitting the market.
The trend of setbacks in the EV industry is becoming more apparent. Just recently, French automaker Renault canceled its plan for an initial public offering of its electric car unit Ampere. Similarly, Ford had to reduce production of its highly anticipated electric pickup truck, the F-150 Lightning. Rental car company Hertz also decided to replace one-third of its EV fleet with gas-engine vehicles.
It is worth noting that Tesla, the world's most valuable automaker, has also expressed concerns about lower growth expectations for this year. Additionally, sales data from earlier this year shows a slowdown in EV sales growth in the United States, leading automakers to delay or scale back their electric vehicle plans. Consequently, anxiety is rising among dealership owners.
The market's response to Volvo's decision to withdraw funding from Polestar speaks volumes about investor unease towards the industry's electric future. Following the announcement, Volvo shares surged by over 20% on Thursday.
Volvo and Geely initially created Polestar as a separate entity focused solely on EV production, distinct from Volvo's own extensive efforts in the electric vehicle space. Later, it went public on Nasdaq through a special-purpose acquisition company merger in 2022. Unfortunately, Polestar's stock has plummeted by 83% since its listing.
Industry analysts have emphasized that Volvo's 48% stake in Polestar has been burdensome for the company as it faces losses due to slow consumer adoption of electric vehicles and intensifying competition in the market. To sustain Polestar's operations during its turnaround plan, Volvo had to provide approximately $1 billion in financing.
According to UBS analyst David Lesne, Volvo's ownership stake in Polestar has significantly impacted its group EPS, impairing it by approximately SEK 1.9 (18 cents) in 2023. This slump contrasts with Volvo Car's overall group EPS of SEK 4.4 for the same year.
The discontinuation of funding for Polestar raises concerns about the viability of electric car startups and highlights the challenges faced by established automakers in navigating the rapidly changing landscape of the EV industry.
Volvo Extends Repayment Period for Convertible Loan
Volvo announced on Thursday that it will be extending the repayment period for its existing convertible loan by 18 months, now due at the end of 2028. This decision comes as the company focuses its financial resources on meeting its own needs moving forward.
Additionally, Volvo stated that it is currently evaluating a potential adjustment to its shareholding in Polestar, which may include distributing shares to Volvo Cars' shareholders, including Geely. Should this distribution take place, Geely would become a significant new shareholder.
The Chinese auto group, Geely, confirmed in a statement that it will continue offering full operational and financial support to Polestar as an independent exclusive brand. It emphasized that this support will not require a reduction of its shareholding in Volvo Car.
Jim Rowan, the Chief Executive of Volvo Car, clarified during a call that the separation from Polestar is a natural evolution and that now is the right time to consider reducing its shareholding. Concurrently, Polestar will seek alternative funding.
In other news, Volvo reported an increase in fourth-quarter revenue primarily driven by higher volumes. It projected that the growth rate in retail sales will continue to rise this year, barring any major disruptions.
Net profit attributable to shareholders saw a rise to 3.11 billion Swedish kronor ($299.2 million) from SEK2.46 billion in the previous year, with revenue increasing by 4% to SEK109.44 billion.
Analysts polled by FactSet had estimated a net profit of SEK4 billion on revenue of SEK108.35 billion.
"We remain firm on our ambition to report an EBIT margin above 8% for 2026, and now do so based on expected revenues between SEK550 billion-SEK600 billion," said Rowan.
"By the end of 2026, this calculates to a revenue compound annual growth rate of 11%-15% from 2023 to 2026."
Volvo aims for a higher year-over-year growth rate in total 2024 retail deliveries compared to 2023.
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