Swedish automaker Volvo Cars has announced its decision to cease funding for Polestar Automotive Holding, transferring control of the luxury car brand to China’s Geely Holding, Volvo’s top shareholder. The move comes as Polestar faces challenges in the electric vehicle (EV) market, with its shares plummeting approximately 83% since its public debut in June 2022.
Volvo Cars, which owns around 48% of Polestar’s shares, has faced criticism for its heavy involvement in the struggling brand, seen by analysts as a drain on Volvo’s resources. The announcement prompted a positive market response, with Volvo’s stock surging over 30% at the market open.
See also: Polestar to Reduce Global Workforce by 450 Jobs Amid Evolving Market Challenges
Polestar, like other EV brands, has encountered difficulties, especially with the intensified competition following a price war initiated by Tesla. The company recently disclosed that it fell short of its reduced delivery targets for 2023. In response to the challenging market conditions, Polestar revealed plans to cut around 15% of its workforce, totaling approximately 450 jobs worldwide.
Volvo Cars considered the option of distributing Polestar shares to its own shareholders, potentially making Geely a significant direct owner in the brand. Geely Holding welcomed Volvo’s decision, expressing its commitment to providing operational and financial support to Polestar as an independent exclusive brand without reducing its shareholding in Volvo Cars.
Analysts, however, speculate on the possibility of the Geely ecosystem selling down its shares in Volvo. This development raises questions about the viability of Polestar, which aims to achieve cash flow break-even by 2025. Some analysts suggest the integration of Polestar into Geely might be a more pragmatic approach.
Volvo Cars reported better-than-expected fourth-quarter operating earnings, with operating income excluding joint ventures and associates rising to 6.7 billion Swedish crowns ($643.83 million), surpassing analysts’ expectations. Volvo’s chief executive, Jim Rowan, remains optimistic about the company’s future, highlighting a 13% battery-electric vehicle margin in the quarter, supporting his stance that margins will continue to rise despite concerns raised by industry peers about EV demand and lower-than-expected margins.