Volvo IPO postponed amid continuing trade tensions

10 September 2018

Chinese manufacturer Geely has postponed its plans to float share in its Swedish carmaker Volvo, citing trade tensions and a downturn in automotive stocks.

The two companies had been discussing an initial public offering (IPO) to value Volvo at up to €26 billion. The company has said that a listing is still possible in the future. However, CEO Hakan Samuelsson has suggested that IPO prospects had dimmed with the business cycle, amid a broad-based decline in automotive shares that has dragged the Stoxx 600 Autos & Parts index 15% lower so far this year.

′We have concluded that the timing is not optimal for an IPO right now,’ Volvo CEO Hakan Samuelsson told Reuters in a telephone interview.

One reason Geely may have cancelled the IPO is down to continuing trade difficulties between the US and China, which have scared automotive investors, hitting share prices and skewing market outlooks.

However, the Swedish company has said that it is less exposed to the war over automotive tariffs in trade than its German counterparts are, and will move production of its XC60 SUV model outside of China to reduce their impact.

Geely and its boss Li Shufu concluded that Volvo should make deeper inroads into the Chinese market before listing, a person familiar with the situation told Reuters. Volvo delivered 61,480 cars in China in the first half of 2018, a fraction of sales by rivals Mercedes-Benz, BMW and Audi.

Volvo, which is developing Polestar as an electrified performance brand and owns a stake in Geely stablemate Lynk & CO, has ′other alternatives’ to raise finance in future, CEO Samuelsson said on Monday.

The IPO postponement reflects bigger concerns about ′price development after a potential IPO’ rather than about the initial valuation, he maintained, citing sensitivities over the prevalence of public pension funds among Swedish institutional investors likely to participate.

Amid growing market uncertainties, the Volvo CEO told the Financial Times: ′what made me nervous especially was leaving headroom for investors.’

US President Donald Trump has previously clashed with the EU over tariffs on manufacturing materials. Steel and aluminium were targeted specifically, which provoked a strong reaction from EU officials and European manufacturers. Recently, he also announced that any free trade deal with the EU would not be good enough for the country.

′Everybody would lose,’ Samuelsson said of the ongoing tariff dispute. ′This includes Volvo because our whole system is based on free trade. And the consumers would lose out because they will have more expensive goods, including cars.’