Volvo Cars shares plummet as Geely Holding initiates massive stock sale

Volvo Cars shares witnessed a sharp decline, plummeting by as much as 14% on Friday morning. The reason was the initiation of a substantial sale of approximately 100 million shares by its parent company, Zhejiang Geely Holding Group.

According to CNN Business: Jim Rowan, CEO of Volvo Cars, said, “This increase in our public float and improvement in trading liquidity benefits both new and existing investors. It allows a wider base of shareholders to invest in (the company).”

Daniel Donghui Li, the CEO of Geely Holding Group, expressed the majority shareholder’s steadfast commitment to supporting Volvo Cars in its transformation towards becoming a fully electric car maker. He affirmed, “We look forward to continuing this ongoing global success story.”

Zhejiang Geely Holding Group justified its decision, stating that the move aimed to “enhance” the value of the stock by increasing liquidity and providing more opportunities for institutional and retail investors to generate sustainable long-term value. After the completion of the sale, Zhejiang Geely Holding Group’s shareholding in Volvo will stand at 78.7%.

Despite the provisional closure of the session with shares down by 11%, Volvo experienced a tumultuous day, with the stock price reaching a record low earlier in the day, according to Reuters data. Year-to-date, Volvo shares have declined by a significant 25%.

The Chinese parent company, Zhejiang Geely Holding Group, is actively working to retain the support of international investors as it progresses with plans to go public with various segments of its automotive empire.

Notably, the company aims to list the electric vehicles arm of the sports car brand Lotus through a Special Purpose Acquisition Company (SPAC) deal later this year and has filed for an Initial Public Offering (IPO) of its new Zeekr brand.

Both endeavors, however, face geopolitical risks due to the tense relationship between the United States and China, along with increased skepticism from investors regarding the viability of electric vehicle start-ups.

The attempt by Zhejiang Geely Holding Group to boost the value of Volvo Cars’ stock seems to have backfired, at least in the immediate term, as the firm’s shares traded down by 11% by 10:21 a.m. ET, according to analysts. Geely, which acquired Volvo from Ford in 2010, affirmed its unwavering commitment to the carmaker despite the stock sale.

In a statement released on Friday morning, Geely emphasized its long-term strategy, indicating that the additional release of Volvo shares was intended to increase liquidity and offer more opportunities for sustainable long-term value. Even after the sale, Geely will maintain a 78.7% stake in Volvo, down from its previous ownership of around 82%, with the sold shares representing over 3%. The sale reportedly occurred at a significant discount, totaling around $350 million, according to Reuters.

According to FT: Both deals are fraught with geopolitical risks because of US-Chinese relations, as well as increased investor scepticism over the viability of EV start-ups.

Geely, which was founded by Chinese business mogul Li Shufu who is still its chairman, acquired Volvo Cars in 2010. The company’s portfolio includes a range of global car brands such as electric car giant Polestar and Smart, as well as Volvo.

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