Analysis: Volvo's Polestar troubles signal 'shakeout time' for EV industry
01/02/2024 17:20
By Marie Mannes, Nick Carey and Joseph White
STOCKHOLM, Feb 1 (Reuters) - The shakeout in the global
electric-vehicle industry is picking up speed.
Chinese automaker Geely's GEELY.UL move on Thursday to
take over funding of struggling EV maker Polestar PSNY.O from
Volvo Cars VOLCARb.ST is the latest consolidation among EV
brands since Tesla Inc's TSLA.O historic financial surge in
the early 2020s.
Tesla rode cheap capital, technological breakthroughs and
Elon Musk's outsized persona to a $1-trillion valuation - but
only after years of heavy spending before turning a profit. Now
legacy automakers, startups and investors that bet more than
$1.2 trillion on EVs face increasingly tough decisions to cut
losses.
Geely owns a majority stake in Volvo, which has operated
Polestar as an offshoot luxury EV brand with similar styling.
The struggles of Polestar and other smaller players
underscore the massive expense of developing EVs, which favor
deep-pocketed companies willing and able withstand sustained
financial bleeding. A global EV-demand slowdown could now weed
out weaker players or force a consolidation wave.
"It's certainly shakeout time," said Andy Leyland,
co-founder of supply chain specialist SC Insights. "EV startups
need to start showing both how they will move to profitability,
and how they will compete ... with larger players and the
Chinese."
Volvo's decision to halt Polestar investments came after the
money-losing luxury EV offshoot brand missed a 2023 delivery
target that had already been repeatedly revised downward.
Polestar needs another $1.3 billion in funding before it
reaches the break-even point in 2025. Its stock has dropped 87%
since it debuted in June 2022, limiting its ability to raise
fresh capital.
Geely, among China's largest automakers, sold nearly 2.8
million vehicles in 2023 - roughly four times the number of
vehicles as Volvo.
Geely Chair Li Shufu aims to expand exports from China and
gain economies of scale across brands including Western
nameplates Volvo, Smart and Lotus. With full control of
Polestar, Geely could streamline investment and technology
sharing, analysts said.
Polestar welcomed Geely's financial backing in a statement
Tuesday. Geely said Thursday it will "continue to provide full
operational and financial support" to Polestar going forward.
That will not require a reduction of Geely Holding shareholding
in Volvo Cars.
Other EV startups including Rivian, Fisker, Arrival, Xpeng
and Lucid have all struggled with the cost of scaling up.
Fisker, for example, last month renegotiated terms of a debt
deal to allow it to take on a strategic partner.
Tesla also struggled with what Musk called "production hell"
- but did so in 2018 when money was cheap, investors were more
patient and future demand for EVs seemed limitless.
Capital-market enthusiasm for EVs has cooled as the growth
of EV sales slowed and financial losses have piled up. That
shortened runways for money-losing startups and pushed legacy
automakers to seek more public subsidies.
EV PRICE WAR ESCALATES
Musk's warning last week Tesla's growth pace will slow this
year led investors to slash $80 billion from the company's
market value in one day. Tesla has lost more than 40% of its
value since it hit the $1 trillion market cap milestone in 2021.
The price war that Tesla and EV sales leader BYD escalated
last year has forced weaker EV industry rivals to choose between
wider losses or lower sales volumes.
Ford last summer ramped up production of its Ford cut F-150
Lightning in anticipation on strong demand only to cut later cut
2024 production forecast by half in January.
In Europe, Stellantis has said it needs more
Italian-government subsidies to increase production of electric
vehicles at Fiat factories. A senior Italian official said
Thursday the government would consider taking a stake in Fiat to
support more jobs.
As the EV industry has become more Darwinian, investors are
rewarding companies that pull back on spending.
Volvo shares soared more than 30% Thursday after the company
said it would no longer fund Polestar. Investors cheered when
Renault said it would not go forward with a planned share
offering for its Ampere EV unit.
General Motors GM.N shares have risen nearly 50% since
November as CEO Mary Barra has slowed spending on EVs and
autonomous vehicles and launched a $10 billion share buyback.
GM has realized "spending $36mm per day trying to be the
‘next Tesla’ isn’t working," Morgan Stanley analyst Adam Jonas
said in a note Thursday.
Consolidation waves are not new for the capital-intensive
auto industry.
In the early 20th century, scores of U.S. and European
entrepreneurs tried to cash in on the promise of then-new
combustion-engine technology. For every Henry Ford, dozens of
other car-company founders failed or were swallowed by bigger,
better-funded rivals. General Motors, Stellantis and Volkswagen
are built on the skeletons of once-independent automakers.
Geely's move to consolidate Polestar represents one pathway
for struggling EV startups.
"Putting Polestar in the direct Geely orbit may help
distribute the weight over a larger group’s balance sheet,
giving them more time to scale up," said Bill Russo, CEO of
Shanghai-based advisory firm Automobility.
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BREAKINGVIEWS-Volvo Cars is doing its Chinese owner a favour
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ANALYSIS-EU's electric dreams short-circuited by EV charging
gridlock urn:newsml:reuters.com:*:nL8N3C87GK
ANALYSIS-Hybrid vehicle sales surge in China, posing fresh
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ANALYSIS-Slow-selling EVs are the auto industry's new headache
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(Reporting by Marie Mannes; writing by Nick Carey in London and
Joseph White in Detroit; editing by Brian Thevenot, David
Ljunggren and Nick Zieminski)
((marie.mannes@thomsonreuters.com; +46 8 502 423 82;Joe White
313-498-4038))