Volvo to End Funding Polestar, May Shift Stake to Geely

Volvo Cars announced on Thursday its decision to discontinue funding for Polestar Automotive Holding, transferring the management of the luxury car brand to its largest shareholder, Geely Holding of China, reports Reuters. This strategic move resulted in a significant surge in Volvo’s stock, which climbed over 30% at the opening of the market.

Critics have long viewed Volvo Cars’ substantial investment in Polestar, where it holds approximately 48% of the shares, as a burden on its financial resources. The luxury EV brand has faced challenges in establishing a market presence, especially in the wake of a pricing competition initiated by Tesla last year. Earlier this month, Polestar reported failing to meet its revised delivery goals for 2023, with its shares plummeting over 83% since its public debut in June 2022 through a SPAC merger.

In light of these developments, Volvo Cars is contemplating the distribution of Polestar shares among its shareholders, potentially making Geely a significant direct stakeholder in Polestar. Following the announcement, Volvo’s shares experienced a 20% increase, peaking at a 32% rise at market open on Thursday.

Geely Holding has expressed support for Volvo Cars’ decision to reallocate its resources towards its core development, committing to continue its operational and financial backing for Polestar without reducing its shareholding in Volvo Cars. However, Bernstein analysts speculate a potential sell-down of Geely’s shares in Volvo.

Amid challenging market conditions, Polestar announced a global workforce reduction of approximately 450 jobs, equating to 15% of its employees. The company also revealed plans to lessen its dependency on external support, including securing additional loans from Volvo and Geely, as part of a revised business strategy aimed at achieving cash flow break-even by 2025. This has led to speculation about the future viability of Polestar and the possibility of its integration into Geely.

Meanwhile, Volvo Cars reported a significant increase in its fourth-quarter operating earnings, surpassing analysts’ expectations with an operating income of 6.7 billion Swedish crowns ($643.83 million), up from 3.9 billion a year earlier. The company also noted an improvement in its BEV (battery-electric vehicle) margin to 13% for the quarter, reinforcing CEO Jim Rowan’s confidence in the brand’s growing profitability amidst broader industry concerns over EV demand and margins.