Volvo Group announced on Tuesday (June 24) that it will sell 70% of its subsidiary, Shandong Lingong Construction Machinery Co., Ltd., and acquire the European construction equipment supplier Swecon to refocus on its core brand. Analysts suggest that Volvo’s move highlights the impact of the Chinese real estate crisis on the construction industry.
According to Reuters, Volvo stated that it will sell its Construction Equipment (CE) division for 8 billion Swedish Krona (approximately $837 million) to a fund controlled by minority shareholders of Lingong Group.
In another statement, Volvo revealed that it will acquire the engineering consultancy company Swecon’s business in Sweden, Germany, and the Baltic region for 7 billion Swedish Krona (about $731 million).
Volvo is concentrating on high-end and more customer-centric brands, strengthening control over its European operations while gradually withdrawing from the mid-range market in China. The Chinese market is grappling with evolving consumer demands and global trade tensions.
Melker Jernberg, head of Volvo Construction Equipment, stated in a release regarding the Chinese transaction, “Amid intensifying competition, the need for transitioning to new technologies, and enhancing interactions with customers, we need to realign our focus.”
Volvo’s stock price rose by 2.3% in early trading.
Volvo Construction Equipment Division foresees that by 2024, the group’s revenue will account for 17% of the total revenue, with Shandong Lingong’s contribution rate approximately at 2%.
Prominent private wealth management firm Bernstein noted in a client report that with full ownership of Swecon, Volvo will be able to directly manage a substantial portion of its European construction equipment business.
Analysts point out that exiting Shandong Lingong reflects the broader challenges faced in operations within the sluggish Chinese construction market, while the Swecon acquisition strengthens Volvo’s control in Europe.
Increasing debt burdens faced by Chinese real estate developers have weighed down property prices, leading to a downturn in the construction industry and impacting the demand for heavy machinery.
For years, the real estate sector has been a primary driver of China’s economic growth, contributing a third to overall economic growth and fixed asset investment. However, following the collapse of China’s largest real estate developer, Evergrande, in 2021, the real estate industry began to decline. Subsequently, real estate’s contribution to economic growth has been negative. Property prices and transaction volumes have been declining for several years.
According to Kallanish data, China’s demand for steel in the construction industry shrunk by 10% in 2024.