IPO of a Swedish car manufacturer

or The hidden imbalances at Volvo Cars

This Friday, the Swedish-Chinese car manufacturer Volvo will go public. It rummaged hard in advance. Chef Håkan Samuelsson is heading towards troubled times.

It is supposed to be one of the largest IPOs in Europe this year, it was said in advance - before it started to rummage on the whole thing. The Swedish car manufacturer Volvo, who has been a member of the Chinese car group Geely since 2010, wanted to take over 25 billion Swedish crowns (about 2.5 billion euros) by going public. But Earlier this week Volvo had to revise their expectations downwards. Now the group expects revenues of roughly 20 billion crowns, i.e. just over two billion euros. The unit price of the shares is at the lower end of the price range at 53 crowns. On top Volvo starts at the Stockholm Nasdaq exchange a day later than originally planned, namely only on Friday.

Reason for the postponement: Institutional investors are disturbed, among other things, by Geely's strong role at Volvo. Geely had initially relaxed his almost full access to Volvo, but that was not enough. Volvo boss Håkan Samuelsson admitted to the Financial Times that there were "intensive discussions with investors" about Volvo's evaluation over the weekend. Geely was generous to set the price range lower, which gives scope for new investors.

Volvo is not struggling for the first time going to the floor. Three years ago, the Swedes were just before the initial listing, but had to put them on hold because of the trade disputes between the USA, Europe and China at the time. Now Volvo wants to tap into the capital markets for fresh money for its electrification plans announced in March: By 2030, the brand only wants to sell electric cars.

But as with all classic premium manufacturers, this is a long way. Except for Tesla, mass production of pure electric cars is only gradually starting for most providers. At Volvo, all-electric models recently stood for 3 percent of the total Volvo sales of 662,000 vehicles. The brand currently offers two pure E-models, the XC40 Recharge and its crossover brother C40. Both are based on a platform designed primarily for internal combustion engines. Although the Swedes have a grip on mass production, they also have to make many compromises on the maximum battery capacity and space available inside.

In the future, a new platform optimized for pure electric drives, which Volvo has developed in conjunction with the parent company Geely, is to remedy this. The joint subsidiary Lynk&Co should also use it, as is Polestar's participation.

For the Volvo mother, the IPO is definitely a good deal

The Swedes have converted the former Volvo house tuner Polestar into an independent supplier of sportier electric cars - and it is an essential reason for analysts why they now see Volvo shares valued fairly. The company, in which Volvo currently holds 49 percent and acts as a technology and parts donor, is to go public next year via spac stock exchange envelope.

The Polestar rating reported so far: $20 billion. This would make Polestar worth more from a standstill than the traditional Swedish car brand, whose new valuation is now almost 18 billion dollars. Polestar sold just 10,000 vehicles last year, a sixty-twoth of global Volvo sales.

Volvo boss Samuelsson, whose contract was just extended until the end of 2022, must also prepare for turbulent times for other reasons.

Most recently, Volvo had to cope with the departure of numerous top managers - which indicates that the implementation of pure electric engineering by 2030 will not be easy. Analysts also moan that the car manufacturer's margins were not exactly at premium level in the past. Between 2017 and 2019, Volvo averaged below 6 percent operating margin, says the analysis house Jeffries, for example, BMW almost doubled it.

Despite all the recent turbulence, there is a clear winner of the IPO: the parent company Geely. In 2010, just after the financial crisis, she paid 1.8 billion dollars for the Swedish brand. The IPO on Friday rates Volvo ten times the price at the time. On top of that, there is the Volvo share of Polestar when the electric car subsidiary is kindly received on the stock exchange next year