Volvo Cars’ Stock Hits All-Time Low as Geely Reduces Ownership Share

Nov 20, 2023 02:57 AM EST

Volvo red — (Photo : Unsplash/Neil Mark Thomas )

Volvo Car stock found itself in dire straits as Geely, its majority shareholder, executed a strategic maneuver that sent shockwaves through the financial markets. Geely, the Chinese automotive giant, opted to reduce its ownership share in the Swedish automaker, leading to a dramatic 14% plunge in Volvo Car stock, marking an all-time low on a fateful Friday.

Major Turn for Volvo

This unforeseen downturn followed Geely's decision to divest a portion of its stake at a substantial discount relative to the previous day's closing price, prompting investors and market observers to scrutinize the implications of this unprecedented development.

Reuters shared that on Thursday, Geely initiated a placement of 100 million Volvo Car shares, revealing that the deal's bookrunners had successfully executed sales at an average price of approximately 37 Swedish crowns per share, aggregating to a total transaction value of $350 million. This transaction came on the heels of Volvo Car's prior closing stock price of 40.84 crowns, leaving market participants to grapple with the apparent absence of fundamental factors, such as weak car sales or rising costs, to account for the stock's precipitous decline.

Rather, the primary catalyst behind this downturn appeared to be of a technical nature, offering a potential window of opportunity for astute traders and investors. As Volvo Car (ticker: VOLCAR.Sweden) weathered an 11% drop in stock value, attributed to entities linked with its parent company, Geely, shedding shares, the financial landscape surrounding this iconic automaker underwent a profound transformation.

An Opportunity Opens

Geely, the majority shareholder of Volvo Cars' stock, has made strategic moves in the automotive industry, although Volvo Car stock remains listed on the market. Prior to the recent sale, Geely held a dominant position, with ownership of more than 80% of the outstanding shares, as reported by FactSet. However, the latest development has seen Geely slightly reduce its ownership, now holding just under 80% of Volvo Cars' stock.

During the late European trading session on Friday, an astonishing volume of nearly 18 million Volvo Car shares exchanged hands-approximately seven times the average daily trading volume. Such a substantial increase in supply invariably prompts price adjustments as the market seeks equilibrium. The underlying motive behind this sale ostensibly aimed to benefit Volvo Car shareholders by augmenting the available shares for trading. Although it has ushered in near-term volatility, the broader implication is that a greater supply of shares facilitates more extensive participation from larger investors, broadening the potential pool of buyers for Volvo Cars' stock.

Importantly, Geely has affirmed that there are no immediate plans for further divestment of its stake in Volvo Cars' stock. As the majority shareholder, Geely remains resolute in its commitment to support Volvo Cars on its transformative journey toward becoming a fully electric car manufacturer. In a recent news release, Geely expressed its anticipation of continuing to contribute to Volvo Cars' ongoing global success story, signaling a steadfast partnership between the two entities.

According to Barron's , the recent sale of Volvo Car shares by Geely, driven by the desire to enhance liquidity and provide support to Volvo Car shareholders, has increased the number of available shares for trading. While initial volatility may be observed, the expanded supply of shares paves the way for larger investors to engage in the stock, broadening the potential investor base. Importantly, Geely's steadfast commitment as the majority shareholder to support Volvo Cars in its journey towards becoming a fully electric car manufacturer assures continuity and augments the prospects of an ongoing global success story for both companies.