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Why it’s a crummy time for a car IPO

Alanna Petroff
Senior Economics Correspondent at Yahoo Finance UK
Volvo has shelved plans for an IPO amid global trade tensions. Photo: Getty

Global trade wars have slammed auto stocks and are forcing car companies to rethink their plans for stock market listings.

Case in point: Swedish firm Volvo Cars scrapped its grand plans for an initial public offering (IPO) this week. CEO Hakan Samuelsson told Reuters on Monday that “the timing is not optimal for an IPO right now.”

He added that he needs “stable market conditions” for a listing, according to the Financial Times, which first reported the company was backing away from an IPO.

Volvo is owned by the Chinese automotive firm, Geely (0175.HK), and has its main production centres in Europe and China. It also just opened a large new US factory in South Carolina this summer.

Shares in global automakers have been under pressure amid the US-China trade war and threats from President Donald Trump that he’ll impose massive tariffs on European cars and parts. Automakers and investors have grown concerned about a massive slowdown in the industry if tariffs raise prices for businesses and consumers. The STOXX Europe 600 Automobiles & Parts index has slumped by 15% since the start of this year.

“If the international trade situation is not ideal, it’s not a good time to have an IPO … I’m not surprised that Volvo pulled it,” said Justin Cox, a director at market intelligence firm LMC Automotive in the UK.

“Understandably Geely want the [Volvo] IPO to be a success, so perhaps right now they judge that there is just too much uncertainty surrounding the future global trade environment,” he said. “This uncertainty may be perceived by potential investors as a significant threat for Volvo.”

There were 45 auto sector IPOs around the world last year that raised nearly $7.8bn (£6bn), according to financial services firm Dealogic. So far this year, only 12 IPOs have gone ahead, raising a more modest $1.8bn.

Another planned IPO was shelved this year by the French firm Autodis Group. The company said in May that it made the decision due to the current market conditions.

Meanwhile, luxury car maker Aston Martin said Monday it would still push ahead with its IPO, despite the apparent headwinds. Its wealthy customers are still expected to buy its pricy, exclusive cars regardless of tariff-induced price hikes.

Aside from Aston Martin, experts say there aren’t any other notable auto IPOs on the horizon.

Jaguar Land Rover – owned by India’s Tata Motors (TTM) – said it has no plans for an IPO, despite frequent speculation about the company going public.

“I think other car firms would probably steer away from [a public listing or any other form of capital raising] in the current situation unless it was absolutely necessary,” said David Bailey, professor of industrial strategy at Aston University in the UK.

Experts also noted that rumours surrounding a $30bn valuation for Volvo seemed too rich, which may have led the company to ditch its IPO. Bailey said a $30bn valuation was simply “too optimistic.”