The Ups And Downs Of Volvo IPO

      On July 21, Volvo car group announced that it had signed an agreement with its parent company, Geely Holding Group, to acquire 50% of the equity held by China's joint venture company Daqing Volvo Car Manufacturing Co., Ltd. and Shanghai Volvo car R & D Co., Ltd., so as to fully integrate the manufacturing, R & D and sales business of Volvo cars in China.

      The deal is expected to begin with the lifting of restrictions on foreign shares of passenger cars in 2022 and will be officially completed in 2023. The transaction must be approved by the regulatory authorities, the details of the transaction will not be disclosed by both parties, and the employees and partners of relevant companies will not be affected.

      If the agreement is finally passed successfully, Volvo will become the first multinational automobile company to fully integrate China's business, and it is likely to become the second foreign passenger car company after Tesla to produce cars wholly in China.

It is worth noting that the deal is another important step for Volvo car to promote its IPO plan. Although the two joint venture companies have achieved financial consolidation in Volvo car group, Volvo will obtain a larger share of net income and assets after holding a wholly-owned share.

For Geely holdings, after the termination of the IPO plan of Geely Automobile (0175. HK), a Hong Kong listed company, the independent IPO of Volvo car is an important part of its "deleveraging". How to make a high valuation of Volvo car is a practical problem for Geely Holding and Volvo car.

Ups and downs of IPO plan

In August 2010, Zhejiang Geely Holding Group Co., Ltd. officially completed the equity acquisition of Volvo car group. After the merger and acquisition, the scale of Volvo's sales has gradually grown, and its profitability has been restored. The listing plan of Volvo cars has also been put on the agenda.

However, in the past five years, Volvo car's IPO planning has been changed again and again.

As a matter of fact, as early as 2016, the news of Volvo car preparing for IPO has been spread, and at that time, Volvo car also conducted market evaluation on IPO.

In 2018, Volvo car hired Citigroup, Goldman Sachs and Morgan Stanley to provide guidance for the listing of Volvo. However, at that time, the relevant institutions valued Volvo at only $12-18 billion. There is a big gap between this and its target valuation, so Volvo's listing plan is shelved.

In February 2020, Geely announced that it was planning to restructure its business with Volvo. According to the original plan, the assets of Volvo car after restructuring will be included in Geely Auto's Hong Kong listed company, and it will be listed in Stockholm in the future.

In other words, the original plan is to package Volvo and Geely, which will accommodate most of Geely's passenger car business.

However, in June 2020, Geely Automobile announced that it plans to list on the science and technology innovation board with the approval of the company's board of directors. In September of that year, Geely Automobile Science and technology innovation board listing application was accepted by Shanghai Stock Exchange. As a result, Geely's merger plan with Volvo was suspended.

However, Geely's return to the science and technology innovation board did not go smoothly as expected, and new changes have taken place in the merger negotiations between Geely and Volvo cars.

In the end, this "merger" plan only turned into a reorganization of some businesses, without involving equity and assets.

In February, Geely announced that it had reached the "best" plan for the merger and reorganization of its Volvo car business. According to the new plan, the two sides will carry out a series of business merger and cooperation on the basis of maintaining their existing independent company structure. Specifically, it includes the merger of powertrain business and technical cooperation related to electrification, intelligent Internet connection and automatic driving.

Shortly after, Volvo disclosed its plans for an IPO in Stockholm at the end of this year.

In addition, on June 25 this year, Geely Automobile also announced the withdrawal of its application for listing on the science and technology innovation board.

On July 1 this year, hankon Samuelson, President and CEO of Volvo cars, said that the company's plan to complete its IPO by the end of the year was in good progress and was studying whether it was possible to list on the Nasdaq Stock Exchange before the end of this year.

Previously, in order to promote the localization of Volvo cars in China, Volvo (China), a wholly-owned subsidiary of Volvo cars, and Geely holdings, respectively established Daqing Volvo Car Manufacturing Co., Ltd. (hereinafter referred to as "Daqing Volvo") and Shanghai Volvo car R & D Co., Ltd. with 50:50 shares.

Volvo car is also a wholly-owned subsidiary of Geely Holding, that is to say, the equity "penetration" of the two companies can be traced back to the root, that is, the establishment of a joint venture between Geely holdings and its subsidiaries.

Volvo car's acquisition of shares in the joint venture from Geely Holdings has clarified the equity line of Volvo car's business in China, turning the two companies into wholly-owned subsidiaries of Volvo car.

China is Volvo's largest market in the world. In 2020, Volvo's global sales volume was 661700 vehicles, a year-on-year drop of 6% due to the impact of the epidemic. Among them, the annual sales volume of Volvo cars in mainland China has exceeded 166300, most of which are domestic models, and Daqing factory is also an important export place for Volvo cars. China's joint venture has provided Volvo with huge revenue and profits.

As the joint venture becomes a sole proprietorship of Volvo cars, Volvo cars will double its net income and assets, and its financial statements will become better.

How does Volvo raise its valuation?

The key factor causing the ups and downs of Volvo car's IPO plan is that the company's valuation fails to meet the ideal expectation. So, the question is, is this the best time for Volvo to go public?

As a high-end luxury brand automobile enterprise, Volvo car has good profitability, and in recent years, its revenue and net profit have also shown a trend of increasing year by year. According to the financial report, in 2020, Volvo's operating revenue will reach 262.8 billion Swedish kronor, and its operating profit will reach 8.5 billion Swedish kronor.

However, this does not prove that it can be sought after in the capital market. From the perspective of Listed Companies in the whole automobile industry, the market value of traditional multinational automobile enterprises is generally not very high. However, new energy vehicles and smart cars are becoming the wind outlet of capital competition.

Improving the attributes of new energy and science and technology is the main idea of Volvo car to raise its own valuation. Some industry insiders said that for a traditional automobile enterprise, the judgment of capital for valuation is the price earnings ratio, while for a new energy automobile company, capital will pay more attention to its future development potential.

"Go public with a traditional car company, if the P / E ratio is not high, investors will not chase you. Now Volvo is listed independently, and it will focus on new energy companies, so it will be the same as the new car companies now. Although it is a traditional automobile enterprise, it is a complete new energy vehicle with internet thinking and new energy vehicles. Take all the traditional parts out and go public as a new energy technology company. " On July 23, a person familiar with Geely Automobile industry told the reporter of the 21st century economic report.

In fact, it was mentioned in Geely Volvo's business restructuring plan released in February this year that the two sides will merge the powertrain business in the form of equity merger, so as to provide both parties with powertrain products and develop powertrain products and the next generation of dual motor hybrid power system for both parties. The combined powertrain company plans to be operational this year and will also provide products and services to other auto companies.

In other words, through this plan, the engine, transmission, powertrain and other businesses of Volvo's traditional fuel vehicles will be owned by the independent joint venture company established by Geely and Volvo cars, instead of directly belonging to Volvo cars. This move will reduce Volvo's "traditional car enterprise" attribute.

Indeed, Volvo car is also one of the most active automobile enterprises in the global electric transformation, and it is also the first multinational car company to propose to give up fuel vehicles and transform into an electric vehicle company.

On March 2 this year, Volvo further said that it plans to realize full electrification by 2025, when pure electric vehicles will account for 50%, and the rest will be hybrid models; In 2030, it will become a pure electric luxury car company. At the same time, Volvo car will also adjust the existing sales model and actively promote the online direct sales mode.

However, Volvo's electric transformation has not been successful, and it can even be said that "the thunder and the rain drop are small". Volvo car has said that global sales of the Volvo ReCharge series (including pure electric and plug-in hybrid vehicles) will more than double in 2020, accounting for 17% of its total sales. However, the only pure electric vehicle Volvo is selling in China is xc40 reclaim. As a "oil to electricity" model, the market response of the car is not very good.

The performance of polar star, a pure electric brand owned by Volvo, is even more worrying. The brand has launched two pure electric vehicles, among which the counterpart of Polestar 2 is Tesla Model 3. However, according to the luxury brand insurance data released by the data resource center of China automobile center in 2020, the accumulated insurance number of polar star in 2020 is only 365.

Obviously, Volvo's grand goal of radical electrification has not given it a matching market leadership position.

"In fact, electrification is only a phased process that must be experienced. What really forms the difference is the intelligent attribute. This is the reason why Volvo does not have an advantage in the competition with Tesla, Weilai, ideality and Xiaopeng, because for the consumers in this market segment, Walworth has not created new value." A car industry person familiar with Volvo said that the failure of Polestar was the same as that of "the lack of product power and marketing is the root cause. The product has not enough sense of science and technology, has no advantage in endurance, has not created new category advantages, and can not form a real competition with Tesla; In terms of marketing, in the absence of brand awareness and product advantages, the premium ability is not strong, and it is not surprising to rely on increasing sales contact points to increase product sales. It is not surprising to maintain the sales through price reduction and the service can not keep up with it. "

The above-mentioned people further said that another reason for the flat sales of Volvo's pure electric xc40 actually exposed Volvo's long-standing problems and chaotic price system“ In fact, Volvo had the opportunity to reshape the chaotic price system with the help of XC60's listing. However, contrary to our wishes, the price of XC60 still needs to be lowered after its listing, thus squeezing the pricing space of xc40 fuel version and electric version, which poses a great challenge to xc40. "

Can traditional automobile enterprises really transform into a "new company" through transformation? Will the capital market treat Volvo as a new car company rather than a traditional car company?

"It depends on whether Volvo's operation ideas, management concepts and customer relations can really match the new car making forces after the assets transformation and product transformation of Volvo, and the self-reform is not thorough. If products, marketing, customer relations and ecology are all turned around, the capital market may recognize it. " The industry said.

To some extent, Volvo IPO will be a test of how the capital market evaluates the traditional car companies in transition.

Geely's capital story

Facing the transformation of the whole industry, Geely needs more funds to seek change, and the pressure of reducing leverage is also increasing. Geely needs to tell a new story in the capital market for the comprehensive re judgment of auto enterprise valuation.

From "Volvo merging into Geely Automobile Hong Kong stock company merging and listing" to "Volvo independent IPO", and Geely Automobile withdrawing from the science and technology innovation board listing, Geely Holdings has entered a new stage in the capital market layout, and its thinking is also changing.

Geely is the largest independent auto company in China, but its market value is far lower than the other two first tier private car companies BYD (002594. SZ) and Great Wall Motors (601633. SH).

One of the reasons behind this is the shortage of Geely in the field of new energy vehicles. Although Geely has already launched electric vehicles and launched independent electric brand geometry, the models based on "oil to electricity" have not been recognized in the market, and the development of geometry brand has not reached the expectation.

However, Li Shufu, chairman of Geely Holding Group, is firm in his determination to transform. Geely's internal senior management also admits that Geely's transformation is a phased failure and promises to "get up from where you fall down".

In February this year, Li Shufu released a new blue Geely action plan in an internal speech, proposing two plans to focus on energy saving and new energy vehicles and to establish a new intelligent pure electric vehicle company.

A month later, Geely quickly formed a new company, polar krypton. Jikrypton is jointly invested by Geely Automobile and Geely Holding Group (including employee co investment platform and user equity platform), in which Geely Automobile holds 51% shares and Geely Holding Group holds 49% shares. Li Shufu, chairman of Geely Holding Group, is in charge of the board of directors of the company, and an Conghui is the CEO of the company.

Krypton is not only an important support for Geely's electric transformation, but also a new important carrier for Geely Holding in the capital market.

On June 25 this year, Geely Automobile announced the cancellation of the IPO of the science and technology innovation board, but also issued another notice: explore different external financing schemes for krypton.

"Originally, I wanted to put krypton in Geely, but Geely has both traditional and new energy parts. The traditional part is the main business. Other people will value it according to the traditional car company. After independence, it will be valued according to the new car company. Now take out polar krypton, in the future in A-share or scientific and technological innovation board listing, can get better results. " Geely insiders said.

Some analysts pointed out that compared with Geely, the independent pure electric brand jikrypton is benchmarked by new automobile manufacturing forces such as Weilai, Xiaopeng automobile and ideal automobile. From the development trend of the industry, intelligent electric vehicles are the trend of the times and are more favored by investors than traditional automobile business.

"Krypton has established a separate brand, brand-new products, teams, organizational structure and new business model. It operates according to the operation mode and method of Internet technology-based companies, and reconstructs the industrial chain layout with the demand of users in the intelligent electric era as the core; Compared with the new car manufacturing enterprises, we also have more mature and comprehensive high-quality resources to support, which any new car making brand can not have in a short time. " An Conghui used to be very confident about the development expectation of krypton.

The ideal is beautiful, but the reality is often not as smooth as imagined. The traditional automobile enterprise transformation is bound to be full of challenges.

Geely's internal expectations for krypton are very high, and the first model of krypton 001, once launched, is also well received in the industry. However, in recent years, a series of disturbances such as delayed delivery, price increase in disguised form and reduction of distribution of polar krypton have aroused many consumers' dissatisfaction with the cancellation of orders, and this young brand has been in the forefront of the storm.

An Conghui first sent an apology letter to users in the official community of krypton. He said frankly, "as a young brand, krypton is not perfect, and there is still a long way to go."

The problems faced by krypton automobile are the epitome of the arduous transformation of a large traditional automobile enterprise.

In fact, with the growth of sales and scale of Geely, as well as a series of mergers and acquisitions, the establishment of new companies and other initiatives, Geely holdings is becoming more and more large, and problems such as rigid organization and slow decision-making of large companies are also exposed.

It is worth noting that Geely has undergone major personnel adjustments while frequently deploying new energy sources. In March this year, Li Shufu stepped down as chairman of Geely Automobile Group and personally took charge of the chairman of jikrypton company. An Conghui, former CEO and President of Geely Automobile Group, became chairman of Geely Automobile Group and CEO of krypton company, Gan Jiayue, former vice president of Geely Automobile Group and general manager of purchasing company, was appointed CEO of Geely Automobile Group.

From the "barbaric growth stage" before Geely's acquisition of Volvo, to the "back feeding Geely stage" after the acquisition of Volvo, and now the era of fully embracing intelligent electrification, the elephant has turned around and a new story has begun.