On the 10th of November, Volvo announced the acquisition of Proterra Inc and Proterra Operating Company Inc, for a purchase price of $210M, after a successful bid on the company and their assets. This opportunity for Volvo resulted from Proterra undergoing a voluntary Chapter 11 Bankruptcy, which is a form of bankruptcy that allows a company to stay in Business whilst restructuring its obligations.
Proterra, founded in 2004, is an electric vehicle-focused company, known previously for being a leading electric transit bus manufacturer, but now specialising in battery and powertrain manufacturing. It has showcased its innovative nature in the past by collaborating with Komatsu on developing state-of-the-art battery electric LHDs, drills and Bolters, making the company desirable to any electrically focused manufacturers seeking to grow.
However, similar to many other small electric vehicle businesses’, they faced difficulties during and after the COVID-19 pandemic, as their supply chain issues heightened, caused by the widespread shift of working from home, and an inability to in-source transit systems for their electric buses after numerous lockdowns, when combined with rising interest rates chipping away at their profits, they filed Bankruptcy in early August. This led to Proterra auctioning itself off to potential acquirers.
Volvo’s acquisition of Proterra aligns well with its overarching business strategy. Firstly, it will support their pursuit of becoming a “fully electric car company by 2030”, aiding them in their goal of “increasing its sales share of fully electric cars to 50% by 2025”. Secondly, as the deal includes a “development centre for modules and packs in California and an assembly factory in South Carolina”, this will allow Volvo to facilitate its aim of increasing its US production, as the manufacturer aims to take advantage of the eye-watering $370bn of green subsidies which was included in Joe Biden’s Inflation Reduction Act.
Just a few days before announcing this acquisition, Volvo Cars CEO Jim Rowan told the Financial Times, concerning their goal of becoming a leading company within the electric car market, that they “need to add additional capacity in the second half of the decade to meet our growth ambitions beyond [2026], and we need to balance that region by region”, which largely explains Volvo’s decision to purchase Proterra.
Alastair Hayfield, Senior Research Director at Interact Analysis, commented that he was not surprised about this acquisition, as “Volvo Group has aggressively pursued an electrification strategy across all lines of its business – trucks, buses, off-highway and engines”, with this purchase enabling “Volvo to ‘go faster’ with its electrification strategy and give it a battery manufacturing facility to support its US operations”.
Whilst Volvo’s stock price rose by nearly 5% (as of November 16th) since the announcement of this acquisition, there is still some uncertainty surrounding this deal. This is partly due to Volvo needing approval from the US bankruptcy court to allow the transaction to take place; although, Volvo are still confident that this deal will still be processed by early 2024. However, a more significant source of tension surrounds Proterra’s contract agreements with their other customers such as Volvo’s rival Daimler Truck North America’s Thomas Built Buses and Freightliner Custom Chassis Corp; with a Volvo Group spokesman stating that “At this stage, it is too early to comment on any current or future business”. Despite these concerns, the broader perception of this deal is that both companies have received a good outcome.