Volvo Cars' Chinese parent company, Geely, has canceled initial public offering of the Swedish carmaker in Stockholm. The IPO would have valued Volvo Cars at between $16 billion and $30 billion, making it the largest on the Swedish stock market since 2000.
The planned IPO has been shelved indefinitely due to possible impacts of the U.S. tariff threats against China and Europe.
Volvo Cars chief executive Hakam Samuelsson explained to Financial Times that the ongoing trade war launched by U.S. President Donald Trump separately against China and Europe could push the company's stock price into a decline after the float.
Volvo Cars have plants in China and Europe where it assembles most of its car units that it delivers worldwide. The Swedish automaker has also opened a $1.1 billion factory in Charleston, South Carolina
In 2017, 50 percent of Volvo's revenues were generated from Europe, 20 percent was from China, and 16 percent was from the United States. The combined profits outside these markets only comprised 14 percent.
Geely acquired Volvo Cars from Ford in 2010 for $1.8 billion. It had since assembled the top-line S90 sedan and compact XC60 SUV at Chengdu and Daqing plants in China. A quarter of the cars manufactured in the country are being disposed to the U.S. market - but this is before the market uncertainties brought by the escalating US-China trade war.
Now, Volvo will instead assemble the cars to be shipped to the United States in its plants in Torslanda, Sweden. Samuelsson said building cars in the company's Charleston plant is not an option at present because it will increase production costs all the more.
In the recent weeks, Trump has threatened to impose new rounds of tariffs on Chinese goods "at short notice." On the other hand, China had already raised taxes on cars imported from the United States to 25 percent up from 15 percent in a retaliatory move against the Trump administration.
Market analysts, however, believed that Volvo Cars' high valuation target is the major concern why the IPO has been delayed. Reuters noted that Volvo is at less risk than Aston Martin which went ahead with its IPO last week. Indeed, an unnamed source said Geely believed that Volvo should first establish deeper inroads into the Chinese market before going public.
Arndt Ellinghorst, Evercore ISI analyst, also told Reuters that some market observers doubted Geely's target valuation of $30 billion, describing it as "ambitious" given that Volvo only acquired overall earnings of $1.1 billion in 2017. As per analysts' estimate, the valuation remains unachievable even if Volvo invests heavily in electric or hybrid cars in 2019.
