TSLA - Volvo Brings Chinese-Built EX30 Battery-Electric SUV To U.S. To Attract 'Mainstream' Buyers

2023-11-07 19:16:08 ET

Summary

• Chinese entrepreneur Li Shufu is pursuing global scale in the battery-electric vehicle market through his empire of interlocking companies and brands.
• His latest foray is the Volvo EX30, a small and affordable battery-electric vehicle that will be available in the U.S. starting at $36,000.
• Volvo's move toward becoming a "full electric" brand by 2030 and the success of other Geely-owned brands like Zeekr and Lynk & Co. highlight Li's innovative approach.
• Volvo shares represent significant risk due to the unpredictability of Li’s and Geely’s growth strategy.

Give Chinese entrepreneur Li Shufu high marks for creativity, innovation – and staying below the radar of shareholders – as he pursues global scale in the battery-electric vehicle market. His empire of interlocking companies and brands is marching forward on several fronts, piquing the curiosity of potential investors who may be forgiven if they can’t quite visualize a prudent way to get in on the action.

Li’s latest foray is the Volvo EX30, a nifty small and affordable battery-electric that soon will be available in Volvo dealerships in the U.S. at a relatively moderate price – starting at $36,000. Volvo (VLVOF) (VLVCY), known as a Swedish brand, actually is a public company controlled via majority ownership by Li through his China-based Zhejiang Geely Holding Group investment fund.

Below radar

More or less unknown in the West, Li, a self-made billionaire via his Chinese company Geely, bought Volvo from Ford Motor Co. ( F ) in 2010 for $1.8 billion – mere peanuts, in automotive terms. He invested heavily in Volvo over the next decade to develop new internal combustion models until March 2021, when the company announced it intended to be a “full electric” brand by 2030. The same year Geely listed Volvo as a public company trading on the Stockholm exchange (and on the Nasdaq as an ADR), with Geely maintaining majority ownership.

Geely owns or controls additional automotive brands. Zeekr, founded in 2021, developed the BEV-focused Sustainable Experience Architecture ((SEA)), the platform for the Zeekr 001 model, as well as the Volvo EX30. Another brand in the Geely universe is Lynk & Co., founded in Sweden in 2016, which has sold more than 800,000 vehicles since its launch. Polestar, another series of BEV models in the Geely family and part-owned by Volvo Cars, originally was a Volvo performance brand. The Polestar 2 currently is built in China and sells online in 27 markets in the U.S., Europe and Asia-Pacific.

EX30, which comes with two battery sizes, offers up to a 275-mile range and can be charged on a DC fast charger to 80% of charge from 10% of charge in less than 27 minutes, the company says. Acceleration with the more powerful battery is a very speedy 3.4 seconds from 0 to 60 miles per hour.

For the U.S. market, only the larger and more powerful battery is offered. It's a 69 Kwh NMC (nickel-manganese-cobalt) device, which provides 275-mile range for the rear-wheel-drive model and 265 miles of range for the all-wheel-drive model.

Presumably, buyers of EX30 will not qualify for a $7,500 incentive under the federal Inflation Reduction Act (IRA) provided for battery-electrics. But those who lease the car might qualify for all or part of the incentive, based on later provisions of the law covering commercial lessors.

Touch screen advantage

Like Tesla, EX30 features a large touch-screen to the right of the steering wheel through which most functions can be controlled. (Knobs, buttons and other controls are more or less non-existent.) Many of the materials used for the interior are recycled and recyclable in keeping with the car’s theme of environmental friendliness and carbon neutrality.

Volvo calls EX30 its “smallest SUV.” Others might fairly call it a hatchback. The distinction is unimportant. The vehicle’s significance is its reception by mainstream buyers who won’t likely complain about the selling price since it's quite a bit lower than the $47,899 average transaction price reported in September for a new vehicle in the U.S.

I had a chance to drive a pre-production version of the EX30 for less than an hour and found it to be quiet, comfortable and well-mannered on rough as well as smooth pavement. The main questions for new-car buyers considering a BEV will relate to infrastructure: Are there chargers at my place of work? Do I wish to install a Level 2 charger in my garage? Do I have access to a gasoline-powered or gas-electric hybrid vehicle for longer trips?

Tesla ( TSLA ) also has plans to reach consumers looking for a less expensive BEV. Last March, CEO Elon Musk said the company will manufacture a “lower cost” Tesla at a new $5 billion assembly plant in Monterrey, Mexico, that is yet to be built. Tesla said the new model, with a range of more than 200 miles and a 0-60 acceleration of less than six seconds, will be based on a next-generation platform that will feature lower battery cost and a 50% reduction in cell manufacturing cost.

Never cheap

In an interview this week on CNBC, Deutsche Bank auto industry analyst Emmanuel Rosner said:

Automakers have not cracked the economics to make electric vehicles affordable, and it is unlikely that they will in the short-term.

Primarily, Rosner was speaking of incumbent automakers, rather than Tesla or the Chinese.

“It could take several years until [affordable] models come out,” said Rosner, “and this is going to continue to put tremendous pressure both on the earnings, but also probably on the stock prices.”

All of which would seem to draw positive attention to the Geely enterprise and, specifically, to Volvo Cars and its new EX30 – plus any other models so far not announced that might be designed for the SEA architecture.

A potential entry point might be VLVOF (ordinary shares) or VLVCY (ADRs). The company’s financials tell an interesting story: $31.6 billion of revenue in 2022, producing $1.49 billion of net income, up from $31.2 billion of revenue, producing $1.39 billion of net income the previous year.

The price chart for the shares since the IPO indicate decline and volatility. Trading volume is extremely weak.

However, the shares are very thinly traded for a reason – probably because the majority are controlled by Li, who might for reasons of strategy or business radically and suddenly realign manufacturing, sales, personnel or marketing among the many entities he controls. In other words, he has a free hand to run the companies as he sees fit within legal confines – and not particularly for the benefit of few Volvo shareholders who possess little leverage.

Hence, it makes little sense to risk any capital on Volvo Car stock unless and until Li spells out the future of the company and commits to a plan that could result in long-term shareholder benefit.

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