Volvo Cars aims to raise 25 billion crowns ($2.9 billion dollars) in the first of two planned issuances of shares before year-end as part of its initial public offering on the Nasdaq Stockholm stock exchange.
Volvo CEO Hakan Samuelsson says the automaker could have covered the cost of its transition into an electric-only brand by 2030 without an IPO, but he believes the timing of the move is ideal given investors’ interest in EV-focused brands. Volvo CFO Bjorn Annwall says the pressure to satisfy global investors will make the company “stronger, better and quicker.” Both men spoke with Automotive News Europe Managing Editor Douglas A. Bolduc.
What percentage of the company will be available on the open market?
Bjorn Annwall: I guess the short answer is that we don’t know at this point. What we have said is this is a primary issuance of 25 billion crowns, or $2.9 billion dollars. Then there will likely be a secondary top up. In the end, the shares that will be available depends on the size of the secondary issuance as well as the valuation of the company.
Therefore, I can’t give you a definitive answer. But when we issued the prospectus, there will be much more clarity around the price range and also what we’re planning with regard to the secondary issuance. I think it’s key to say that we are doing this mainly to raise the primary proceeds to fund our transformation.
What will the $2.9 billion cover?
Annwall: The big picture is our transformation. We’re going toward a full-electric future, we are going toward a kind of core compute architecture in which we are taking over a lot of software development ourselves, and we are going toward a direct-to-consumer retail model. To do that, we need to invest in battery cell technology and R&D as well as battery factories. We need to invest somewhat more in our balance sheet to cover the cost of moving to a direct-to-consumer relationship.
That is what this money is for. And then on top of that, in an industry that is transforming as much ours, things will happen. As a small and nimble player with a position of strength financially, I think opportunities will present themselves. I think we need to be proactive in that case.
It sounds to me like you want to have enough funds so that if something pivots, you have the flexibility and the speed to go after that particular new thing, right?
Hakan Samuelsson: Yeah, I think you could say that. I mean, it’s very difficult to know exactly what will happen in the next five or six years. Either way, our ambition is to be the fastest transformer. With this issuing of new shares, we want to secure that. It’s fair to say we don’t know exactly what could happen in the future, but we want to stay in the lead. This helps secure the transformation, which is very important. We have talked a lot about our plans. Now are saying how we are going to secure this financially, all while making the company a real, global listed company. I think that will be appreciated by people who want to work for us and for investors.
Volvo has been making strong profits for years. Couldn’t the company have covered the costs of the transition without taking this step?
Annwall: Part of it is we want to be proactive if opportunities present themselves. Another factor is that you can’t count on having five years in a row with sunny weather [positive financial results]. There might be rain or other things that happen. Therefore, I think it is good to have a bit of insurance because this is a transformation that you need to complete. You can’t stop halfway. It’s important when going into this transformation that you have the funds needed to come through it. That’s the main objective of this [IPO]. On top of that, being a listed company and having the constant challenge that comes with answering to a global investor base will make our company stronger, better and quicker.
Some companies struggle with that quarterly pressure to perform. It seems to keep them from making long-term decisions that require big investments and patience like the ones Volvo has made as is revived after struggling in the early 2000s. Has Volvo reached the point in which that quarterly pressure can do more good than harm?
Annwall: Investors can look at the volumes and the margin every quarter. That’s important. I think the investors we are talking with now are clear that we have a dual objective: Delivering the numbers every month, but also doing what it takes to complete the longer term transformation of going full electric and going into the software development world. So, I’m sure investors will value Volvo’s desire to deliver on both our strategic objectives and the short-term operational result. There can’t be one without the other. We can’t just deliver the operational result and forget about the strategic transformation. Then Volvo’s valuation will tank. I think the investors are coming with the expectations of both. That is the type of pressure we need.
How will you deal with any outstanding debt on the balance sheet?
Samuelsson: This is a new issuance of shares. It brings in in equity to the company. If you look over the future development process, there are three sources of money. Either you make the money and finance things from your cash flow, or you go to a bank and borrow, or you have equity. Like Bjorn said, it’s impossible to know the future condition of the debt market or how much cash will we make. That is why we want to secure the equity for that. This will help us if we go to the debt market or even if there are some rainy years here. But if we look at our plan, I think we could probably do this without this [the IPO]. But are credit markets going to be this favorable with these low interest rates in the next five years? Who knows?
Were you surprised by the $20 billion enterprise valuation for your subsidiary Polestar? And do you expect Volvo to have that same kind of enterprise value?
Samuelsson: Maybe a year ago we would have been surprised, but we have seen the valuation of EV companies really go up. I think that shows confidence from investors about the transformation into electrification. In addition, customers are more and more interested in electric cars. This has developed very rapidly. That is what you see in the valuation of Polestar. Volvo is a company that is also going to develop in this direction. I expect that we will also see that type of the recognition from the investors in Volvo. The question is: How big will that be? We are coming out with credible plans to show the investor community. I think the timing is good. Interest in the electric car is rising, and we have a solid strategy that we are going to execute.
When you meet with investors what are they asking most often?
Annwall: One consistent topic is scale. When we talk about, however, it they are not posing it as a question but more as a reflection that goes something like this: “I used to think about Volvo as having a scale disadvantage. But when I think about all the changes the industry is going through and what you are about to do, I realize that you have an optimal size. You are big enough to do this, but you’re small enough to do it quickly — and speed is going to be the name of the game in the next five years.” That’s what has come out of the discussions. Another comment is “You guys are refreshingly incumbent.”
Is there anything that they’re saying they wish Volvo had or did differently during this process?
Annwall: No, not really. They see the need to move toward a full-electric future for sustainability and other reasons. They also see the need to shift toward central compute for the car. Therefore, I think they buy our strategy full heartedly. Yes, there is an execution risk, but there’s execution risk for anybody involved. They see that Volvo has been in constant change management for the last five years and that we have become quite good at it. So, if anybody has a chance to succeed with this transformation, it should be Volvo.
By 2025 Volvo wants half of the new cars it sells to be full electric and to be all electric by 2030. Polestar will have been electric only for years by then. How will the brands differentiate once they only offer EVs?
Samuelsson: We will differentiate much like car brands did in the past. All cars had gasoline or diesel engines, but there was still a big difference between them. Yes, as some point all cars will be electric, but Polestar and Volvo will have different identities. Volvos will be more functional, family oriented, understated and continue to protect what’s important for you [because of its longtime focus on safety and a rising emphasis on sustainability]. Polestar will be more performance oriented, a bit bolder, with a more distinct design. You could compare it with Audi and Porsche.