Volvo Cars, priced at 23.40 kr, is a global passenger car manufacturer distinct from the solely named Volvo that produces trucks. The company returned to the Stockholm Stock Exchange in 2021 after being fully owned by the Chinese Zhejiang Geely Holding, led by founder Li Shufu. Geely acquired Volvo Cars from Ford in 2010, strategically increasing sales and production in China.
Geely remains the largest shareholder with 79% ownership, followed by AMF Pension (3.5%) and Folksam (2.2%). CEO James Rowan, appointed in 2022, holds shares worth 16.5 Mkr, coming from a background in consumer electronics companies, most recently Dyson.
In terms of financial projections, Volvo Cars aims to boost its operating margin to 8% by 2026, up from the current 6%. The company’s focus on developing and producing electric vehicles is expected to enhance profitability. Notably, the gross margin for the group’s electric cars increased from 8% in 2022 to 20% in Q2-2024, with sales volume doubling.
Comparing Volvo Cars to traditional car manufacturers, the company stands out for its low valuation, with a P/E ratio of 4x for 2025E. This discount may stem from the company’s lack of free cash flow due to significant investments, despite possessing a net cash position of 14.5 billion kr.
The impact of potential tariffs poses a significant risk to Volvo Cars, particularly in the US market. S&P Global Mobility forecasts a potential 30% decline in Ebitda if tariffs increase, affecting the company’s profitability. Volvo’s strategic shift towards China, with three production facilities in the country, could mitigate some risks associated with tariffs.
The ownership structure and ties to China may contribute to Volvo Cars’ undervaluation. Internal transactions with other Geely-affiliated companies raise questions about whether these deals benefit Volvo or Geely. The company’s performance over the next year hinges on Geely’s actions, potential dividend distributions, and increased investments in US production.
In conclusion, Volvo Cars demonstrates solid operational performance and rapid entry into the electric vehicle market. While uncertainties around ownership and tariffs persist, the company’s attractive valuation presents an opportunity for investors willing to navigate these risks. The stock’s future trajectory will depend on how Volvo Cars manages geopolitical challenges and capitalizes on growth opportunities in the automotive industry.