Volvo Cars is about to conduct a $20 billion IPO

Chinese carmaker Geely Holding is taking the next steps in discussions with banks about listing its Volvo Cars subsidiary in the coming weeks, sources told Reuters.

A valuation of $20 billion is equivalent to 6-7 times the profit of Volvol Cars.

According to Reuters, the initial public offering of Volvo Cars shares will become one of Europe’s biggest IPOs this year.

Reuters sources say Volvo Cars is aiming for a valuation of around $20 billion from the Stockholm listing. Goldman Sachs and SEB are leading the deal, while other banks such as BNP Paribas, Carnegie, and HSBC are also involved.

More than 10 years ago, Geely bought Volvo from Ford at a time when the American automaker was in crisis. The acquisition marks the largest acquisition by a Chinese company of a foreign automaker.

Geely had planned to offer shares of the Swedish automaker in 2018, but the plan was later shelved due to trade tensions and a plunging auto share price.

Investing in traditional automakers has fallen out of favor in recent years, as Tesla has taken the throne in electric vehicles and become one of the world’s most expensive companies.

Many European companies, including Volvo Cars, have turned to electric vehicles. The Swedish car brand aims to switch to all-electric production by 2030, and it currently holds a 49.5% stake in electric car maker Polestar.

One source told Reuters that Volvo Cars aims to preserve a valuation of around $20 billion, while another forecast the figure could be as high as $30 billion.

A third source said that Volvo Cars’ valuation of about $ 16 billion would be a more realistic figure if looking at the company’s revenue outlook.

A valuation of $20 billion is equivalent to 6-7 times the profit of Volvol Cars. This number is considered by analysts to be too high and will put the Swedish car brand on par with two German rivals Daimler and BMW. However, this number does not mean anything if you look at Tesla because the valuation for the US electric car company is 70 times higher.

Frank Schwope, an auto analyst at German commercial bank NordLB, estimates that the valuation threshold for Volvo Cars will fall between $10 billion and $15 billion.

“The high margins in the first half of 2021 are unlikely to be sustainable because the market’s benefit from the strong post-pandemic recovery is unlikely to last,” said Frank Schwope.

For Geely founder Li Shufu, the listing of Volvo Cars is an important milestone in the future destiny, an era of electric vehicles with new business investment opportunities and opened data.

A series of startups have frantically exploited the opportunity from the green car industry. All-electric car company Rivian unveiled its first pickup this week, and is seeking a valuation of up to $80 billion when it goes public later this year.

The bank is interested in buying Volvo shares if a large enough stake in the company is sold to keep liquidity high, said John Hernander, chief investment officer at Nordea Bank (Denmark).

“That’s the bottom line. We and many others were really disappointed by the low liquidity of shares in Traton,” John Hernander cited Traton’s IPO in 2019 when parent company Volkswagen offered for sale. 11.5% shares.

Volvo warned this month that sales in the second half of 2021 could fall year-on-year after being forced to cut production due to a shortage of raw materials.