Geely becomes largest stakeholder in AB Volvo, enters commercial vehicle sphere

27 December 2017

Namrita Chow

Zhejiang Geely Holding Group is set to strengthen its foothold in the production of trucks with the possibility of using its existing commercial vehicle base in Sichuan province in China.

IHS Markit perspective

  • Implications: Zhejiang Geely Holding has now extended its interests in the CV segment by announcing the planned acquisition of Cevian Capital’s stake in AB Volvo.
  • Outlook: Zhejiang Geely acquired a commercial vehicle company in China in 2015 and this latest acquisition will also help the automaker strengthen its presence in the medium and heavy commercial vehicle segment, including a special focus on alternative energy vehicles.

Chinese privately owned automotive group Zhejiang Geely Holding Group (ZGH) has announced it has reached an agreement to become the largest shareholder in AB Volvo, thereby strategically strengthening its presence in the commercial vehicle (CV) market.

In a statement sent directly to IHS Markit, the holding group states that it will acquire Cevian Capital’s 8.2% stake in AB Volvo. Under the terms of an agreement signed by Daniel Donghui Li, executive vice-president and chief financial officer of Geely Holding and in the presence of Christer Gardell, co-founder of Cevian Capital, Geely Holding has committed to acquire Cevian’s 88.47 million A-shares and 78.77 million B-shares in AB Volvo. On completion and following the necessary regulatory approvals, Geely Holding will become the largest holder of AB Volvo’s share capital.

In 2010, ZGH acquired the Volvo Car Group from Ford. Founder and chairman of ZGH, Li Shufu states, “We are delighted to have reached agreement with Cevian to acquire its holding in AB Volvo, making us the largest holder of share capital in a company that leads the world in many aspects of commercial vehicle development, manufacturing and sales. Given our experience with Volvo Car Group, we recognise and value the proud Scandinavian history and culture, leading market positions, breakthrough technologies and environmental capabilities of AB Volvo. We will support the Board of Directors and the management of AB Volvo in their continued execution of the current strategy.”

Christer Gardell, co-founder of Cevian, said, “Today’s announcement concludes over 11 years ownership in AB Volvo by Cevian. During Cevian’s ownership, AB Volvo has been transformed into a more competitive and valuable company through strengthened governance, improved efficiency and increased focus on its core business. This is reflected in structurally improved profitability and a higher market value. We are proud to have played a role in this positive development. AB Volvo is now leading the industry into a new era. The agreement will not only give AB Volvo a new large and committed shareholder, but one with significant expertise in strategically important areas for future value-creation.”

Daniel Donghui Li, Executive Vice-President and Chief Financial Officer of Geely Holding, said, “Geely Holding is a well-recognised strategic long-term investor, and as such we aim to contribute positively to the long-term development of AB Volvo. Geely Holding will be able to contribute its global knowledge, Chinese market expertise and leading research and development capabilities especially in the fields of electrification, autonomous driving and connectivity, to AB Volvo to further its global development, and strengthen the Volvo brand.”

Outlook and implications

The holding group which is the parent of Volvo Cars, Geely Automobile as well as the majority stakeholder in Proton Holdings Bhd and Lotus Cars and also owns the London Electric Vehicle Company (LEVC) as well as the flying car start-up Terrafugia Inc, is also acquiring a stake in Daimler, as reported by Chinese state media earlier this month, which would make it the third largest stakeholder of the German auto group.

So far Zhejiang Geely has mainly been in the business of making and selling passenger vehicles, but this latest announcement signifies its growing appetite for other sectors, including the CV sector.

IHS Markit medium and heavy commercial vehicle specialist for China, Cassie Liu states that Geely has already enhanced its interest in the commercial vehicle sphere. In 2016 a subsidiary of ZGH, Nanchong Geely Commercial Vehicle Company acquired Dongfeng Nanchong Automobile Company on 4 March 2016, from the government of Nanchong for CNY406,826,400 (then USD62,588,676) in Sichuan province. Geely then allegedly invested CNY7 billion to create new energy vehicle (NEV) division. The facility has allegedly a capacity to produce 100,000 NEVs in the commercial vehicle sphere per annum, as well as an engine production facility. Liu explains that through this venture acquisition Geely has already had some relation with AB Volvo on the development on alternative fuel engines.

Meanwhile in July this year Geely announced a positive profit alert relating to the commercial vehicle venture in Nanchong. It is therefore possible that it is here, at the plant in Nanchong that Geely could bring in local production of AB Volvo products. AB Volvo also has an existing joint venture in China, with Dongfeng Group created in 2015.

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The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends.​​​​​​ Get a free trial.

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