Cheaper than Tesla

Raised $2.3 billion from its IPO

Tesla tore through the $1 trillion mark in market value this week after news emerged that Hertz had ordered 100,000 Model 3 sedans for its rental fleet. Tesla’s shares, which have surged fivefold since it took over from Toyota as the world’s most valuable carmaker 15 months ago, are now worth more than all the other listed automakers combined, the Financial Times calculated.

But the story hasn’t been quite as electrifying for Volvo, after it downsized its IPO on the Swedish stock exchange by a fifth this week, raising $2.3 billion at the low end of the price range.

An $18 billion price tag will be a disappointment for Volvo’s owner Zhejiang Geely, which was reportedly hoping to get closer to the $23 billion mark. In a previous IPO attempt three years ago it also failed to convince investors that Volvo deserved a $30 billion valuation. A plan to merge Volvo with its Hong Kong-listed sister firm Geely Auto was also called off earlier this year.

This time round the Chinese car giant has also been forced to give ground on governance after fund managers balked at Geely’s plan to keep hold of its superior voting rights in Volvo. A last-minute change in this respect indiced more investor interest, with the shares due to start trading in Stockholm today.

Volvo is still worth substantially more than the $1.8 billion Geely paid Ford for the automaker in 2010. And despite early scepticism about the impact of Chinese ownership, it kept its promise of leaving the Scandinavian firm to manage its own affairs, beyond setting a direction that saw Volvo become the first European carmaker to offer hybrid or fully electric versions for all of its models in 2019.

Maintaining that trajectory, Volvo is vowing to go fully electric by 2030. But the pricing for the IPO signals that it hasn’t tapped into the kind of excitement that has catapulted Tesla to a trillion dollars in value. Investors don’t see Volvo as an EV champion (yet) and they are paying a multiple on its current business, rather than its future one.

Fortunately Volvo has another iron in the fire with its EV spin-off Polestar, which is set to go public on Nasdaq next year in a SPAC deal that values the four year-old firm at $20 billion. Although that’s still tiny compared to Tesla, it’s a pretty impressive price for a company that expects to sell just 29,000 cars this year, or 98% fewer than Volvo itself (it holds a stake in Polestar alongside its parent Geely).

Polestar executives have promoted their brand at the elite end of the market as an all-electric challenger to Porsche. But they also describe it as the ‘only global EV pure-play alongside Tesla’, bringing a little more razzmatazz to the pricing of Volvo’s 50% stake in the Polestar SPAC than to its own shares.

Polestar’s plan is also a heady one with talk of sales of 290,000 units in 2025. Increasing sales by a factor of 10 looks like a stretch but investors are counting on its ties to Geely and Volvo, which bring the benefit of an established manufacturing base. Current production comes entirely from a Geely plant in Luqiao in Zhejiang, with plans to introduce a wider range of models, including an SUV from Volvo’s sole plant in the US in South Carolina.

Despite currently making all its cars in China, Polestar needs to do better at selling them there. Tesla grabbed nearly 22.6% of Chinese EV sales in the third quarter, reporting $3.11 billion in revenues from China this week. Polestar’s performance has been pitiful in comparison, the domestic media lamented, with sales of just a few hundred cars last year. Part of the reason is overdependence on the direct sales model, one analyst told Sina Finance, when it remains the case that a dealership network is still better able to deliver more cars to market. Another commentator told the news platform that the current focus on compact cars is out of synch with local tastes as well, warning the company needs to do more to impress Chinese drivers. “Polestar does not have a separate R&D centre in the Chinese market. Naturally, that means a lack of elements that please domestic consumers,” he told Sina Finance.

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