Volvo CEO explains why Geely merger was canceled

Volvo’s and Geely’s positive momentum would have been negatively affected by all of the internal challenges that are part of any merger, Volvo CEO Hakan Samuelsson said. He explained why he believes it’s better that the sister brands cooperate more closely on electrification, software and autonomous driving solutions in an interview with Automotive News Europe Managing Editor Douglas A. Bolduc.

What were the key factors that led you to change your mind on the merger?
First of all, we didn’t really change our mind. What became clear was that Volvo and Geely are two of the fastest growing car brands in the world. We have to be very careful not to disturb that focus on top-line growth, that focus on people being proud of their brand and maintaining that momentum. That became more and more obvious because you know what happens when you merge. There are internal discussions about organization. Who will lead this or that? How do you bring the sales organization together? This is often a disaster. That is one very important point.

Where there any other factors?
The second is the synergies. A year ago we thought of synergies related to hardware platforms, common components and such. What has happened is that we are finding that the most important synergies are more related to software and technology development. Perhaps we could have a common computing platform or a common software stack or we could develop a common Auto Pilot [for semi and full-autonomous driving]. We have learned that these are more important synergies than having common hardware components, especially when it comes to quality.

Why is that?
If you don’t have high-quality software and you can’t reach a high volume with it, that can lead to a lot of issues. Common software is more important than common hardware. After looking at this, we decided the best solution was to have two stand-alone companies that cooperate in the specific areas. In the future it is more important to be fast, to bring out better cars with new features, faster to the customers and not being boxed into some kind of a hardware structure. That is why this is a more powerful combination.

What are the potential financial benefits from cooperating more closely on electrification, software and autonomous-driving technology?
They are so important but they are difficult to measure. If you are focused on hardware, then you could say, “OK, now I buy twice the volume of this shock absorber and I get 8 percent cost saving.” It is very easy to measure. But if the synergies mean you will get something such as the Auto Pilot to market six months faster than expected and it’s better than if you did it alone, how do you value that? Unfortunately, I cannot quantify that as easily as with something more traditional.

It has been estimated that Volvo could be valued in the range of $8.1 billion to $11.6 billion. Did you determine Volvo’s value during this process and was this amount too high to ask Geely’s shareholders to pay?
The valuation only matters on the day that someone is ready to pay. That being said, if you are bringing something in, then you have to determine the valuation and that could lead to endless discussions. But if you keep the companies separate, they can be evaluated separately. I think the capital markets see that as an advantage.

Automakers such as Lucid and Fisker have recently generated a lot of interest from investors. Does Volvo want to tap into this?
Being a fast transformer and going into electrification is obviously attractive to investors and customers. We want to do that, but we are not striving to improve the valuation of our company. We are striving to transform to be more electric. If we would hypothetically want to be on the market, this transition would be good for our valuation. But while being present on the market is an option for us, we have no plans to do so at the moment.