Volvo wants to acquire 50% stake in joint venture in China or increase IPO valuation

Or to get a higher valuation for the IPO at the end of the year, Volvo is planning to fully integrate its manufacturing, R & D and sales operations in China.

On July 21, Volvo announced that it had signed an agreement with its parent company, Geely Holdings, to further consolidate its position in China and expand its influence in the Chinese market by acquiring 50% of Geely's shares in the joint ventures Daqing Volvo Automobile Manufacturing Co., Ltd. And Shanghai Volvo Automobile Research and Development Co., Ltd.

"through this agreement, Volvo will become the first global carmaker to fully integrate its China operations." According to CEO Hanken Samuelson (Hakan Samuelsson) of Volvo Automotive Group, although the two joint ventures have achieved financial consolidation in Volvo Automotive Group, Volvo will get a bigger share of net income and assets after being wholly owned.

Li Donghui, CEO of Geely Holdings, said: "Geely Holdings and Volvo are constantly looking for the best asset portfolio within large groups, and this deal will establish a clearer ownership structure within Geely Holdings and Volvo to ensure maximum synergy between the two sides."

It is reported that the deal will be divided into two steps and is expected to be officially completed in 2023 from the beginning of China's lifting of foreign equity restrictions on passenger cars in 2022. The transaction is subject to regulatory approval, details of the transaction will not be disclosed and employees and partners of the relevant companies will not be affected.

In August 2010, Geely completed the delivery of its stake in Volvo cars and officially included Volvo cars under its control. However, according to the industrial policy at that time, Volvo had to land in a joint venture with Chinese companies if it was made domestically. "to set up a joint venture is to marry yourself, sign a contract with yourself, and cooperate with yourself." At that time, Li Shufu said so.

In September 2013, Daqing Volvo Automobile Manufacturing Co., Ltd., which was funded 50% each by Geely holding Group and Volvo Automobile (China) Investment Co., Ltd., was established. Zhongjia Automobile Manufacturing (Chengdu) Co., Ltd., which funded 50% each, has taken the lead in the establishment of Daqing Volvo Automobile Manufacturing (Chengdu) Co., Ltd.

The above two companies are the main bodies of what is commonly referred to in the industry as Volvo's Daqing plant and Volvo's Chengdu plant.

In January 2014, Shanghai Volvo Automotive Research and Development Co., Ltd., another important organization of Volvo cars in China, was established with a registered capital of nearly 620 million yuan, and its shareholders are also Geely Holdings Group and Volvo Automobile China, which are equally funded.

Volvo has been trying to go public for a long time. Earlier this year, Volvo and Geely abandoned plans to merge the two, raising expectations that the company would seek an independent listing.

"Volvo is considered to be one of the few luxury car brands in the world that continue to be profitable but do not have access to the capital market." On June 30, at Volvo Automotive Technology Day, Samuelson revealed that the company's plans to go public are making good progress, and the IPO plan is expected to be completed on Sweden's NASDAQ Stockholm Stock Exchange by the end of 2021.

"in addition to complying with the logic of capital, IPO is also in the midst of changes in the automobile industry. Affected by the pressure of transformation, Volvo hopes to speed up the pace of transformation and achieve better development through the capital market." Some people in the industry believe that once it is invested by Swedish institutional investors, Volvo will receive a large amount of capital, which will not only solve the problem of future product research and development, but also enable Geely to make some profits. It will help both sides to make more flexible and effective investment decisions in the market, which is beneficial to both sides.

How much can Volvo value? In response to overseas media in February, Mr Samuelson said: "[company] valuations make sense only on the day when people are prepared to pay for it".

Volvo sold 166617 cars in China in 2020, up 7.5% from 2019, and set a record in the Chinese market for eight years in a row, according to the data. Sales increased by 44.9% in the first half of 2021 compared with the same period last year.