Volvo Cars will increase its stake in Polestar through debt-to-equity conversion.

Volvo Cars will increase its stake in electric vehicle manufacturer Polestar through an agreement that converts part of Volvo’s loan to Polestar into equity.

Polestar, jointly founded by Volvo Cars and Geely Holding, is an independent electric vehicle manufacturer. In 2022, the company went public on the Nasdaq through a merger with a special purpose acquisition company (SPAC).

Since going public, Polestar’s stock price has fallen 96%. Amid sluggish growth in the electric vehicle market and intensifying competition, the company has fallen into losses. Previously, Polestar had raised approximately $1 billion from Volvo.

According to the transaction plan announced on Tuesday, Volvo will convert $274 million of its $1 billion loan into equity, increasing its stake in Polestar from 9.8% to 19.9%.

After the deal is completed, Geely will also convert about $300 million of its debt into equity.

To prevent dilution of Volvo’s ownership, the Swedish automaker will then conduct a second, smaller debt-to-equity conversion of approximately $65 million, maintaining its stake in Polestar at 19.9%.

Volvo stated, “Volvo Cars has an important operational and commercial partnership with Polestar. This debt-to-equity conversion will strengthen Polestar’s balance sheet, which benefits both companies and helps ensure the continued success of their collaboration.”

These transactions will not have any immediate impact on short-term cash flow.