With Electrification, Volvo Has a Good Story for Investors

By Henny Hemmes
Senior European Editor
Thew Auto Channel

The Hague, September 26,2017. Recently, Volvo Cars announced that from 2019 all new models will be hybrid or fully electric. From then on, new models will no longer be available with an internal combustion engine. Volvo plans to market five full electric models between 2019 and 2021. In addition, Polestar models are going to be promoted as a separate brand for electric and hybrid cars.

With these plans, Volvo wants to achieve the previously announced goal of 1 million electric or hybrid cars sold by 2025. But the presented plan might be somewhat less groundbreaking than Volvo wants us to believe. The company sold more than half a million cars last year. Consequently, the Swedish manufacturer wants to sell 5 million cars between now and 2025.

The announcement could be seen in the light of a possible entry at the stock exchange. Volvo is quite open about its intention to acquire a listing. Since 2010, the company is fully owned by the Chinese Zhejiang Geely Holding Group (Geely). However, at the end of last year, more than half a billion euro of preference shares were issued to a number of Swedish institutional investors.

It was immediately agreed that these shares could be converted into ordinary listed shares. In addition, Volvo has been publishing financial results for a while, just like any listed company does, and makes directors no secret of seeing a stock listing. It is questionable whether Volvo Cars is of much interest to investors. The brand is at the top of the market, but has not yet had the associated profitability that brands such as BMW can offer. In 2016, Volvo booked an operating profit margin of 6.1 percent (2015: 4 percent), the best profit margin since it was acquired by Geely. BMW’s performance was a few percentage points better.

Additionally, after entering a stock exchange, Geely will still hold a majority and the presence of such a large Chinese party could be an objection for some investors. Therefore, a good presentation to potential investors about the strategy could do no harm. A look at Tesla's shares shows how strong such a story can be.

Volvo’s announcement to become the first-established car manufacturer to make the switch to electric, can at least be seen as a smart move towards the stock market.