Geely, Volvo’s owner, will only continue with an IPO if it achieves an estimate of over $30 Billion for the Swedish automaker, according to two people who are familiar with the details. The Chinese group, which also reins LEVC, black taxi maker, and Lotus, told the banks that they run as the main lead of the bid and they want to reach a valuation between $30 and $40 Billion for the company. The owner won’t trade if the value falls below $30 Billion, the banks said, although the number is extremely high compared to many of Volvo’s largest industry-standard competitors.
It would estimate the automaker 10x its profits, which is two or three times more compared to BMW and Daimler, the owner of Mercedes, according to the calculations of Arndt Ellinghorst, an analyst at Evercore ISI.
Geely said, “An IPO was an option,” but he declined to comment. The progress will be presented at a meeting of the Volvo Cars Board this month. If an IPO advances, Geely will trade-off its shares, but will linger as the major shareholder in the company, according to the people on the basis of anonymity.
Most of the proceeds from the IPO will be invested in Volvo’s development for electric and autonomous driving characteristics. The automaker promised that every new model from next year will include only electric or hybrid technology, although as a smaller player in the market, it will have to disproportionately invest more in technology than its larger rivals who can divest investment from more vehicles.
“Last year, Volvo sold 570,000 cars, which is much lower than the sales of about 2 Million of its German rivals, but Volvo has one advantage, unrestricted access to the Chinese market, which is the largest region in the world for the sale of cars.