"Natural Evolution": Volvo Shares Soar On Plans To Stop Funding Cash-Burning Polestar

Shares of electric-vehicle companies have been battered since the mid-point of 2022. The price war Tesla started about one year ago has made the environment even more challenging for EV automakers. 

On Thursday, Swedish automaker Volvo Car AB announced, "As a result, Volvo Cars will no longer provide further funding to Polestar." 

In an earnings report, Volvo said Polestar is "entering the next exciting phase of its journey with a strengthened business plan and cost actions." It said the parent company will concentrate on developing Volvo Cars.

The Swedish firm is mulling over a reduction of its 48% Polestar stake through distribution to its own shareholders. Chinese billionaire Li Shufu's affiliates control about 40% of Polestar, while Li holds a 79% stake in Volvo Car. 

"We are therefore evaluating a potential adjustment to Volvo Cars' shareholding in Polestar, including a distribution of shares to Volvo Cars shareholders. This may result in Geely Sweden Holdings becoming a significant new shareholder," Volvo continued.

Investors welcomed the move designed to stop the hemorrhaging of cash-burning Polestar that has damaged Volvo Car's share price. 

Shares in Volvo Car jumped as much as 30% on the news. Shares are still down 38% over the past year. 

In an interview on Thursday, Volvo Cars CEO Jim Rowan told CNBC's Silvia Amaro that today's announcement was a "natural evolution" in the relationship between the two automakers. 

"Obviously, we spun out Polestar as a separate company a long time ago, and since then we've been incubating and working with Polestar for a number of years," Rowan said.

"Now, Polestar ... they've have got a very exciting future ahead of them, they've moved from being a one-car company to a three-car company, they've got two brand new cars coming out very shortly, in fact in the first half of this year, and that's going to take them to a new growth trajectory."

Rowan pointed out it's the right time to reduce ownership in Polestar: 

"That allows us and Volvo as well to fully focus on our growth journey, especially some of the technology investments that we need to make in the next two-three years."

Volvo's attempt to disentangle itself from cash-burning Polestar underscores the harsh reality in the EV space. Also, Volvo cutting funding brings up viability concerns for Polestar.