Volvo Cars announced on Thursday its intention to cease its financial support for Polestar Automotive Holding. Responsibility for the underperforming luxury car brand will shift to Geely Holding, Volvo’s primary shareholder in China.
This news boosted Volvo’s stock by over 30 per cent at the start of trading. However, analysts criticised Volvo Cars’ significant stake in Polestar, approximately 48 per cent, as it burdens Volvo’s resources.
Polestar, like other emerging EV brands, has found it difficult to progress, especially after Tesla initiated a price war last year.
Earlier this month, the car manufacturer admitted to falling short of its downsized delivery goals for 2023.
Since going public in June 2022 through a merger with a Special Purpose Acquisition Company (SPAC), Polestar’s shares have plummeted by just over 83 per cent.
Volvo Cars has contemplated transferring Polestar shares to its shareholders, which would result in Geely becoming a significant direct stakeholder in the brand.
At 0814 GMT, Volvo’s shares had risen by 20 per cent, following a 32 per cent surge at the start of trading.
In a separate statement, Geely expressed approval of Volvo’s decision to concentrate its resources on its own growth, commenting that it will keep supporting Polestar fully without reducing its Volvo stake.
The brokerage firm Bernstein mentioned a clear chance that the Geely ecosystem might reduce its Volvo shares.
Last week, Polestar announced plans to eliminate approximately 450 jobs worldwide, which is about 15 per cent of its workforce, due to difficult market conditions.
In November, Polestar expressed its intention to lessen its dependence on outside assistance, unveiling an updated business plan that involves securing more loans from Volvo and Geely.
This news might lead to doubts about Polestar’s viability, given its goal to reach a cash flow break-even point by 2025. Some analysts suggest that integrating Polestar into Geely could be a more logical approach.
On Thursday, Volvo Cars reported a significant increase in its fourth-quarter operating earnings, surpassing expectations.
The operating income, excluding joint ventures and associates, rose to 6.7 billion Swedish crowns ($643.83 million), up from 3.9 billion a year ago.
Analysts from London Stock Exchange Group (LSEG) had predicted adjusted earnings before interest and taxes (EBIT) of 6.5 billion.
The margin for Volvo’s battery-electric vehicle (BEV) increased to 13 per cent in the quarter, a rise from 9 per cent in the previous quarter.
This growth in BEV margin supports Volvo CEO Jim Rowan’s assertion that the company’s margins will continue to increase, despite concerns about EV demand and lower-than-expected EV margins among industry peers.
