Volvo to buy parent Geely Holding's stake in China JVs

Automotive Industry

Source: Automotive News Europe, 2021-07-21

Volvo Cars said on 21 July it reached an agreement to buy out parent company Geely Holding from their joint ventures in China, aiming to take full ownership of its factories and sales business in the world's biggest auto market.

The deal, for which financial terms were not disclosed, will give Volvo full ownership of its manufacturing plants in Chengdu and Daqing, its Chinese sales company and its R&D facility in Shanghai. The move will further strengthen its position in its largest market, the company said in a release.

Handelsbanken Capital Markets analyst Hampus Engellau added that taking full control of the Chinese joint ventures could help smooth the way for Volvo's planned initial public offering.

"The clearer the ownership structure is, and the clearer the stakeholders in the company look, the easier it gets for investors to consider what it is they are investing in," he said.

Volvo said in May it was considering an IPO on the Nasdaq Stockholm stock exchange.

Volvo and Geely Holding abandoned merger plans in February. During that announcement Volvo hinted that it may seek a listing of its own. Volvo said in May that an IPO could be a "logical next step" on the company's "capital market journey."

Previous estimates of Volvo's value have ranged from $8.1bn to $11.6bn.

Analysts expect other foreign automakers to strike similar deals in China, the world's biggest car market, when the country's requirement for auto manufacturing to be carried out with a local joint venture partner is lifted next year.

Such rules for electric carmakers have already been lifted, allowing Tesla to make and sell vehicles via fully owned operations in China.

Volkswagen has gained control of an electric car unit in the eastern city of Hefei.

Volvo sold more than 166,000 vehicles in China last year, and its dealers are offering heavy discounts to compete with other premium brands such as BMW and Audi.

The Gothenburg-based company was bought by Geely from Ford Motor in the aftermath of the global financial crisis more than a decade ago, and has since shared ownership of its Chinese plants with its parent.

Volvo said the transactions, which are subject to regulatory approval, should be completed in 2023.

"These two transactions will create a clearer ownership structure within both Volvo Cars and Geely Holding," Geely's CEO Daniel Li said in a statement, which did not refer to the possible IPO.

Volvo CEO Hakan Samuelsson said in June the company was making progress toward a possible IPO later in 2021, and that while it would continue to share platforms and components with Geely, they would do so at "an arm's length distance," consistent with the way independent companies do business.

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