Interactive Investor

Volvo IPO: everything you need to know

20th October 2021 13:01

Graeme Evans from interactive investor

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One of the world’s largest car companies is about to become one of Europe’s biggest IPOs of 2021. Here are the important facts and a guide to buying the shares.

The racy valuations of NIO (NYSE:NIO) or Tesla (NASDAQ:TSLA) will be set against Volvo Cars when the iconic Swedish brand hits the stock market in a push for pole position in the premium electric car market.

Volvo shares are due to start trading on Nasdaq Stockholm next Friday 29 October, in a move that could value the China-owned business at more than $23 billion (£16.9 billion) in one of the biggest listings in Europe this year. [The company has since announced a price range for the IPO of SEK 53–68 per share].

The company, which was founded in Gothenburg in 1927 and has built its global reputation around automotive safety and innovation, believes the IPO will provide the financial impetus for its transformation towards full electrification.

It aims to sell only full electric cars by 2030, which is when the ban on new petrol and diesel vehicles is due to come into force in the UK.

The number of fully electric cars and plug-in hybrid electric vehicles sold by Volvo Cars has increased from 37,386 in 2018 to 171,456 in the year to the end of June. In total, it sold 770,000 cars in over 100 countries in the most recent financial year, which compared with 373,525 in 2010 when China's Geely bought the business from Ford for about £1.2 billion.

Volvo is targeting sales of 1.2 million cars a year by the middle of this decade, which is in line with the capacity allowed within its current manufacturing footprint.

To grow faster than the underlying market, Volvo will need initiatives such as the expansion of its product portfolio into the small battery-electric SUV segment.

The journey towards becoming a leader in the premium electric car market includes a mid-decade target for 50% of its sales to be fully electric. Tesla's deliveries in the third quarter of 2021 came to over 240,000, a bigger figure than Wall Street expected and a 20% increase over the previous quarter despite industry chip shortages.

The performance has pushed Tesla shares back towards fresh records, with the stock up by almost a fifth in the past month and by around 7% since the production update.

The impressive Tesla figures fuelled speculation that European car manufacturing plants are bearing the brunt of the semiconductor crisis, but UBS also points out that Tesla has the benefit of more flexibility on the hardware side in order to cope with the shortage.

The Swiss bank recently cut its global car production forecasts to 77 million for this year, but believes a strong recovery is still possible in 2022 amid a target for 88 million units.

It said: “With a strong order backlog and low dealer inventories, we think pricing and mix will remain very strong also next year, which likely drives a strong revenues and margin trend.”

Morgan Stanley said earlier this year that it believed Tesla could reach 5.2 million units by 2030, which if achieved would set a high bar for rivals. Volkswagen (XETRA:VOW) recently announced it delivered 122,100 battery electric vehicles to customers from July to September, an increase of 109% on the previous quarter.

Christian Dahlheim, Volkswagen's head of sales, said worldwide deliveries were just below 300,000 so far this year. He added: “Our global electric offensive continues to run at full speed: we are clearly the number one for all-electric vehicles in Europe, and the number two in the US.”

One of the direct challengers to the dominance of Tesla in the high-end electric vehicle market is Polestar, which was set up by Volvo in 2017 and is due to list on Nasdaq in the coming days through a special purpose acquisition company.

Polestar is set to be valued at $20 billion (£14.6 billion) in a move that will reportedly raise $1 billion (£728 million) towards expansion across three continents. It delivered about 10,000 vehicles in 2020 and expects to sell approximately 290,000 vehicles a year by 2025.

As well as Volvo, existing investors include affiliates of Geely chairman Eric Li and the actor Leonardo DiCaprio. Volvo intends to retain a 49% stake as it benefits from synergies such as technology development and sourcing, along with enhanced manufacturing scale.

How to buy Volvo shares

If you are not yet an ii customer, start by opening an account.

Orders for Swedish shares such as Volvo must be placed over the phone, please call 0345 607 6001.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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