Volvo Cars Takes a Dip: Shares of Swedish automaker Volvo Cars (VOLCARb.ST) faced a significant downturn, experiencing a 14% drop to reach a new record low, and the reason behind this decline can be traced back to its majority shareholder, China’s Geely (0175.HK). Geely decided to sell a portion of its stake in Volvo Cars at a notable discount compared to the previous day’s closing price.
Geely’s move involved launching a placement of 100 million Volvo Cars shares, and after the market close, it was disclosed that these shares were sold at around 37 Swedish crowns each, totaling $350 million. This sale represented a 3.4% stake, resulting in Geely’s ownership in Volvo Cars shrinking to 78.7%.
The rationale provided by Geely for this move was to increase the free float and broaden the shareholder base of Volvo Cars. Interestingly, the proceeds from this share sale were designated to support business development within the Geely Holding group, and none of the funds were directed to Volvo Cars itself.
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In a statement, Geely stated, “This increase in our public float and improvement in trading liquidity benefits both new and existing investors. It allows a wider base of shareholders to invest in Volvo Cars.” Volvo Cars declined to provide further commentary on the share sale.
In response to this development, Volvo Cars shares underwent a notable decline, falling by 10.9% to 36.38 crowns, reaching as low as 35.25 crowns. The sale was orchestrated with the assistance of bookrunners Goldman Sachs, BNP Paribas, and SEB, as disclosed by Geely.
While the move by Geely is a strategic decision to diversify ownership and enhance trading liquidity, its impact on Volvo Cars’ valuation and market perception remains a key aspect to watch in the coming days. The commitment to a 90-day lock-up period for the remaining shareholding signals a degree of stability but also leaves room for market dynamics to play a role in the stock’s performance in the short to medium term.
Our Reader’s Queries
Why is Volvo struggling?
Chip shortages have been a persistent challenge for Volvo Cars and its competitors over the past year. This has resulted in occasional disruptions to manufacturing, with the Sweden-based automaker having to temporarily halt production at some of its factories.
Are Volvos expensive to maintain?
Although Volvo is considered a pricier brand according to Your Mechanic Inc., it is actually more cost-effective to maintain compared to other luxury brands. In fact, over a decade of ownership, Volvo models only cost an average of $100 more to maintain than Audi models. So, if you’re worried about the cost of servicing your Volvo, rest assured that it won’t break the bank.
Are Volvo Cars reliable?
According to RepairPal, Volvo has been rated as Above Average for reliability by experts. In comparison to other makes and models, only 9% of Volvo repairs are considered severe, which is lower than the average of 12%. This indicates that Volvo vehicles are less likely to require serious service and are more dependable than most other vehicles on the road.
Is Volvo still owned by China?
Zhejiang Geely Holding, a Chinese company, is the proud owner of Volvo Car Group. Despite this, the company’s headquarters, product development operations, marketing, and administrative efforts remain primarily based in Gothenburg, the birthplace of Volvo Cars.