☀️☕️ Volvo’s Polestar Drives to China

📊 Also: US Commercial Property hurting banks; Yields fall; Mag7 all UP; Apple’s huge services; AWS grows; Zuck’s Divi; euro inflation slows, Paytm crashes 🎓 SPACs

📈 Market Roundup [02-Feb-24]

US large-cap S&P 500 closed 1.25% UP ▲

Tech-heavy Nasdaq Composite closed 1.3% UP ▲

Pan European STOXX Europe 600 closed 0.37% DOWN 🔻

HK/China's Hang Seng Index closed 0.52% UP ▲

Japan's broad TOPIX closed 0.67% DOWN 🔻

📝 Focus

  • Volvo’s Polestar Drives to China

📊 In the Markets

  • US Commercial Property hurting banks; Yields fall; Mag7 all UP; Apple’s huge services; AWS grows; Zuck’s Divi; euro inflation slows, Paytm crashes

📖 MoneyFitt Explains

  • 🎓 SPACs

💸 Personal Finance Corner

📝 Focus

Volvo’s Polestar Drives to China

Volvo, the parent company of subscale Swedish luxury EV maker Polestar, is transferring a big portion of its 48% stake in the company to its own parent company, Zhejiang Geely of China, which will give it full operational and financial support. The main purpose is for Volvo to cease providing funding to Polestar, though the two companies will continue to collaborate on research and development, manufacturing and sales.

Polestar was originally acquired by Volvo in 2015 to be its high-performance EV business, but since then, Volvo’s own in-house EV (including hybrid) sales have taken off with plans to end production of internal combustion cars entirely by 2030. So now the distinction has blurred somewhat, particularly with Polestar struggling. It failed to meet 2023 delivery targets and recently announced cost-cutting with layoffs of 15% of its global workforce, though the launches of the Polestar 3 performance SUV and the Polestar 4 coupe are imminent.

Polestar started life as the Flash Engineering team in 1996, a Swedish Touring Car Championship racing outfit using its modified, ultra souped-up Volvos. Polestar now operates independently and has its own identity. Since its Nasdaq listing as PSNY via a $890mn SPAC deal in June 2022, the company's shares have pretty much never seen the light of day and are now down 86% from the first day’s closing price of $13.00. (Fellow EV SPACs like Lucid, Fisker and Nikola are doing worse.)

Polestar is drifting to its ultimate parent in China- Image credit: Tenor

..... ▷ The shakeout in the global electric vehicle industry is continuing apace, and Geely's takeover of loss-making Polestar from its Volvo subsidiary is just the latest example. 

Elon Musk spent big, and Tesla lost huge money before reaching its current dominant position at the top of the automotive world but did so when the competition was minimal and money was cheap.

But now, with interest rates much higher, slow-reacting legacy automakers are committing over $1.2 trillion to EVs by 2030… even with demand clearly exceeding supply with growth in demand rolling in the face of 100 or more Chinese EV makers churning out EVs by the boatload. 

The EV price war that Tesla and BYD kicked off last year has forced weaker EV makers, including the legacy automaking giants, to choose between selling fewer units or swallowing bigger losses, given that their economies of scale are nowhere near those of Tesla and BYD.

..... ▷ Volvo rallied 26% on the Polestar announcement, so investors now seem to be keener to see companies cutting back on EV spending. An even greater move was seen with a 50% rally since last November when GM scaled back EV spending (although a $10 billion share buyback plan helped.)

On the other hand, government-supported carmaker Renault rallied earlier in the week after some initial weakness when the French carmaker decided to ditch its plans to spin off its electric vehicle arm Ampere in a separate listing because interest in the IPO was very poor. 

So unless it’s merely a relief rally that Renault won’t be selling off too cheaply, investors seem a bit schizophrenic on how to treat EVs. (The planned US listing of Geely’s own premium EV brand Zeekr has been postponed, as has Volkswagen for its PowerCo battery business.)  

..... ▷ Chinese multinational automotive company Geely Holding acquired Volvo Cars from Ford in 2010 and also owns 8.2% (with 15.6% voting rights) of Volvo Group, which houses the truck and bus businesses.

Geely Holding owns multiple brands, including: Geely Auto, its main brand, Volvo Cars, Polestar, and Zeekr, 51% of Lotus, the sportscar and engineering Brit firm (but not the F1 team) bought in 2017 when it acquired 49.9% of Proton of Malaysia, iconic London taxi maker London Electric Vehicle Company (LEVC) and Smart, a 50-50 JV with Mercedes-Benz since 2019.

Lotus: Half Chinese, Half Malaysian, All Drift - Image credit: Tenor

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

US stocks rebounded Thursday as investors focused on upcoming high-profile earnings and Friday's employment report following the Fed's rejection of early rate cut expectations. With all the Magnificent Seven up, Nasdaq led gains in a broad rally.

Amazon's shares surged nearly 10% in after-market trading following fourth-quarter results beat and a return to strong growth at AWS, while Meta jumped 14% jump after a beat and its first-ever dividend along with an additional $50bn in share buybacks. But Apple slipped 2% despite beating earnings and revenue estimates due to a 13% drop in China sales. But CEO Tim Cook reported an “all-time revenue record in services”, with the number of active Apple devices surpassing 2.2bn.

But clouds are gathering with weakness in the US commercial property market as banks in the US, Asia, and Europe reveal mounting losses. New York Community Bancorp, which acquired distressed Signature Bank in last year’s mini-bank crisis, disclosed $185 million in losses on just two of its property loans, prompting a nearly 40% stock decline on Wednesday, followed by another 11% drop on Thursday. Aozora Bank and Deutsche Bank also warned about risks from their US real estate exposure. 

Worries about regional banks have sparked a Treasury bond rally, with yields falling to 3.82%, as investors fear lending constraints impacting US growth. US Treasury yields fell further on Thursday after data showed more than expected US initial jobless claims, suggesting weaker labour market conditions.

European stocks closed lower Thursday after the Bank of England kept interest rates steady and eurozone inflation data showed mixed results. The pan-European Stoxx 600 fell 0.5%, as preliminary eurozone inflation data for January indicated a slight easing in headline inflation. Volvo Cars drove to the top of the Stoxx 600 index movers list after announcing it would cease funding its subsidiary Polestar Automotive (above).

Hong Kong and Korea stocks rose, but Japan slid on Thursday. Paytm shares plummeted 20% in Mumbai as Indian regulators halted new deposits. China's private Caixin PMI indicated manufacturing growth for a third month, contrasting with official data showing a fourth consecutive contraction.

Actually Paytm got hit for 6- Image credit: Tenor

📖 MoneyFitt Explains


A Special Purpose Acquisition Company, or SPAC, is "a blank check" shell company that raises investor money in its IPO so it can buy an undefined private company and take it public that way.

Companies like it for being easier to do than a normal IPO. SPACs have existed for decades but became wildly popular during the COVID-19 lockdown as sponsors took advantage of naïve (or greedy) investors.

Sponsors get about 20% of the SPAC for next to no money, along with 5% of the value of the deal.

Investors get SPAC shares with warrants, the right to buy more shares later at a fixed price. When a deal comes, shareholders can vote on it, and if they still don't like it, they can get their money back. If the SPAC doesn't buy anything within two years, sponsors must return the IPO money to investors.

The incentive is very much for the SPAC sponsors to buy just anything at any price because of their low entry price (20% for peanuts) rather than to give the money back to investors, even if the price of the acquisition is too high (they get a share of proceeds, remember), as long as they can spin a tale to their investors that it's worth voting to go ahead with the deal. 

A can of worms to say the least. (See 23andMe, Faraday Future, Babylon, GRAB etc.)

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