When periods of exuberance come to a close, ideas that once seemed to make a lot of sense no longer do. So it is in the European car industry. Slowing growth of electric vehicle sales has caused a series of corporate U-turns. While sharp swerves are never fun, the change in direction is sensible.
A decision by Volvo Cars on Thursday to cut loose its premium EV brand Polestar is the latest example of a strategic about-turn. Earlier this week, Renault axed plans to float its EV unit Ampere. A mooted initial public offering of Volkswagen’s battery unit, meanwhile, also looks some way off.
The wheels have not come off the EV market entirely. Sales growth in Europe is expected to come in at about 5 per cent in 2024 — a sharp slowdown from 2023’s 14 per cent growth, but hardly a crash. The market had simply overestimated the pace of change.
EU carmakers, traditionally plagued with vast conglomerate discounts, aimed to attract sky high valuations for their EV arms. The hope was to achieve those enjoyed by Tesla, which trades at more than 58 times forward earnings, and Vietnam’s VinFast. Now that the market’s enthusiasm has waned — shares in VinFast are down 85 per cent over the past six months — “unlocking value” through corporate action looks less attractive.
The strategic rationale for EV listings was always tenuous. Polestar, with sizeable investment needs and operationally reliant on Volvo and its Chinese parent Geely, was not an obvious candidate for a standalone equity story when it listed in 2022. Worse, Volvo retained 48 per cent. With the Swedish carmaker facing big EV-related capex needs of its own, a spin-off that hands Polestar to its ultimate shareholder Geely looks like a better plan. Volvo’s stock rose by about a quarter on Thursday.
At Renault, too, shareholders welcomed the decision to keep Ampere within the fold. Lex has argued that EVs will be a key pillar of the group’s value creation in future. But given Renault does not need capital to fund its transition, it is right to hold on to Ampere for the time being.
The slowing pace of EV adoption is good news for traditional European automakers, which have been slow to transition. Stellantis, which has taken a particularly cautious approach, has outperformed Tesla in the past 12 months. If the EV revolution takes longer to materialise legacy automakers should have more time to align themselves with their EV-focused peers.
