Volvo to stop funding Polestar, may sell its shares to China’s Geely

Volvo is preparing to cut financial ties with its own electric-car spin-off – and sell much of its 48 per cent share to parent company Geely – as Polestar misses its sales targets and continues to lose money.

Polestar was previously Volvo's performance-car division – similar to BMW M or Mercedes-AMG – until it was spun off to become an electric-car brand in 2017.

However in the years since it has been placed on a collision course with Volvo – which is now set to go electric by the end of the decade – and last year Polestar missed its sales target of 60,000 cars, itself slashed from a goal of 80,000 set at the start of the year.

Polestar says it requires about $US1.3 billion ($AU2 billion) in "expected external funding" to break even and pull it out of the red, but it will not come from Volvo.

MORE: Polestar and Volvo on a collision course as both target electric-car customers

The Swedish car maker has announced "full operational and financial support" for Polestar will be provided by Geely – the Chinese giant which owns most of Volvo – to allow Volvo to focus on its own electric-car rollout.

Volvo said in a media statement it is "evaluating a potential adjustment to [its] shareholding in Polestar, including a distribution of shares to Volvo Cars shareholders," which "may result in Geely Sweden Holdings becoming a significant new shareholder."

The next phase of Polestar's new-model roll-out has faced delays due to software needed for new, high-tech lidar sensors, and the company reported an operating loss of $US735 million ($AU1.1 billion) after the first nine months of 2023.

Last week Polestar announced it would lay off 450 employees – or 15 per cent of its global workforce – after an earlier 10 per cent cut in mid-2023.

Volvo says it will "extend the repayment period for the existing convertible loan [to Polestar] by 18 months to the end of 2028."

"Volvo Cars’ and Polestar’s strong operational collaboration across R&D, manufacturing, aftersales and commercial will continue to the benefit of both companies," Volvo said in a media release.

Reuters reports Volvo's decision to not commit any additional funding to Polestar saw its stock price rise by more than 30 per cent when markets opened overnight, Australian time.

The Polestar 3 large SUV is due in Australian showrooms in mid-2024 – a few months behind schedule – to be followed shortly after by the smaller Polestar 4.

Despite industry analysts warning of a sales decline – or stall – for electric cars in Europe and the US, Polestar expects to sell 155,000 to 165,000 vehicles in 2025 thanks to its broader model range, up from 54,600 in 2023.