Volvo IPO Prices Lower Than Expected Despite Ambitious EV Plans

Shares are set to begin trading on the Nasdaq Stockholm exchange on Friday, Oct. 29, the company said.

The lower pricing will reduce the anticipated proceeds from the IPO. It illustrates how even conventional auto companies with ambitious electrification plans continue to struggle to achieve the stellar valuations that have been readily handed to

Tesla Inc.,

TSLA 5.18%

which boasts a market value of $900 billion, and new electric car makers such as

Li Auto Inc.,

NIO Inc.

and

Xpeng Inc.

Li Auto’s American depositary receipts value the Chinese auto maker at around $33 billion, although it is a fraction of the size of Volvo. NIO’s ADRs give the company a market value of nearly $64 billion, and Xpeng touts a market value of nearly $37 billion.

Volvo ran into opposition from investors who balked at such valuations for a conventional car maker, according to people familiar with these conversations. Potential new investors refused to value Volvo’s business using the same math as used for new EV makers, saying Volvo’s transformation strategy was bold but still unproven.

Instead, they indicated to Volvo that they were willing to value the company based on the lower multiples that traditional auto makers attract, one person familiar with the discussions said.

Investors also valued Volvo’s near 50% stake in electric vehicle maker Polestar at a discount of its almost $10 billion valuation because Volvo has no plans to realize that value in the near term by selling down its holding, the person said.

In an interview with the Wall Street Journal on Monday, Volvo Chief Executive

Hakan Samuelsson

denied that the lower pricing suggested the company had run into difficulties selling the offering to investors, saying the company had considered a range of factors before paring back its IPO.

“It’s of course listening to the market,” he said. “We need to really secure our transformation. We need to secure free float liquidity in the share, but it’s also important to leave a possibility for the new shareholders to have a good value development.”

While the company will raise less money than hoped, Mr. Samuelsson said the proceeds would still be sufficient to secure financing for Volvo’s transition to a fully electric auto maker over the next few years.

Proceeds from the fully subscribed IPO will be equivalent to about $2.7 billion when the so-called greenshoe, or secondary offering, is exercised as planned, Volvo CFO Björn Annwall told the Journal. Initially, Volvo had hoped to raise 25 billion kronor through the primary offering alone, or about $2.9 billion.

“We have an enormous interest from retail investors in the Nordics and I think with this price that will only increase in the coming weeks,” Mr. Annwall said.

Investors, especially those in the Nordic region, also pushed Volvo to end its two classes of shares in favor of just one Class B voting share that would give all investors equal rights. Under the old proposal, Geely would have still held around 97% of the voting rights, although its share ownership would have fallen to as low as about 80%, one person familiar with the discussions said.

Earlier this month, Geely agreed to scrap the nonvoting Class A shares and convert all of its shares to Class B voting stock in the wake of the Volvo IPO.

China’s Geely bought Volvo for $1.8 billion in 2010, when it was struggling under the ownership of Ford Motor Co. Volvo’s pricing values Geely’s post-IPO stake of 82% at around $15 billion, a huge gain that highlights the rags-to-riches transformation of the Swedish car marker under Geely’s ownership, one of the auto industry’s biggest turnaround stories.

Additional core shareholders include Swedish institutional investors Folksam and AMF, bringing the total share of Volvo’s future anchor shareholders to 86.3%. The remaining 13.7% of Volvo’s Class B voting stock, its only share class, will float freely.

Volvo extended the subscription phase of the offering by one day.

—Dominic Chopping in Stockholm contributed to this article.

Write to William Boston at [email protected] and Ben Dummett at [email protected]