Text / Sansheng

"Zeekr and Lynk&Co should have merged a long time ago. They often compete with each other, causing too much internal friction." A Beijing-based car dealer told Node Finance that he was not surprised by Geely's big move, believing it was an inevitable step for Geely to advance further in the fiercely competitive automotive market.

On November 14, the day before the Guangzhou Auto Show, Geely Holding announced that it would transfer a 20% stake in Lynk&Co to Zeekr for 3.6 billion yuan. At the same time, Volvo will transfer a 30% stake in Lynk&Co to Zeekr for 5.4 billion yuan, expected to be completed in the first quarter of next year. After the transfer, Zeekr will subscribe for an additional registered capital of 367 million yuan in Lynk&Co.

In simple terms, Zeekr will invest 9.367 billion yuan to hold a 51% stake in Lynk&Co, achieving majority ownership. The valuation of Lynk&Co for this merger is approximately 18 billion yuan.

Both Zeekr and Lynk&Co are automotive sub-brands under the Geely Group. This merger marks the beginning of a major integration of Geely's internal corporate sub-brand business assets.

So, what is Geely's goal?

At this year's China EV 100 Forum (2024), An Conghui, CEO of Zeekr Intelligence Technology, bluntly stated: "Geely's development goal is to become the Volkswagen of the new energy era."

As everyone knows, Volkswagen, a traditional automaker, is renowned for its numerous brands. In comparison, Geely also has a considerable number of brands. With the rapid development of the new energy vehicle market, Geely stands at a historical crossroads.

"An elephant turns around," and Geely has decided to embark on its own new energy vehicle era.

01 Origin: The necessity of turning amidst "internal friction"

As early as 2015, Li Shufu launched an ambitious strategy named "Blue Action." The plan was for Geely's new energy vehicle sales to account for over 90% of its overall sales by 2020, which meant selling 1 million new energy vehicles.

Known for remarks like "A car is just four wheels and some sofas" and "Selling cars will be like selling watermelons in the future," Li Shufu earned the nickname "Car Crazy" early on. When he proposed the "Blue Action" plan, it also stirred up significant attention within the industry.

However, five years later, the proportion of new energy vehicles in Geely's sales remained unsatisfactory. In response, at the end of February 2021, Li Shufu conducted a review during an internal meeting speech.

He believed that "this is not a strategic direction error or a failure in strategic execution, but rather a lack of maturity in historical timing and the non-formation of external strategic conditions."

Li Shufu quickly introduced an upgraded version of the "Blue Action" with a clearer layout. It consisted of two routes: one focused on energy-saving and new energy vehicles, including hybrid and plug-in hybrid vehicles; the other focused on pure electric smart cars, forming a new pure electric vehicle company.

Thus, Zeekr was born.

In fact, Zeekr originated from Lynk&Co's electric vehicle business group, tracing back to the latter's pure electric concept car, Lynk&Co Zero. However, in September 2021, Zeekr began operating independently, becoming a sub-brand alongside Lynk&Co under Geely, with Lynk&Co Zero transformed into Zeekr 001.

The original "son" became a "brother," creating some awkwardness in Lynk&Co's hierarchy. Of course, this is not important for corporate development. What truly matters is that it also initiated the "mutual boxing" between Lynk&Co and Zeekr.

For Lynk&Co, the pure electric market is also an important source of sales, and once entering, it will inevitably compete with Zeekr. Lynk&Co's first pure electric product, the Z10, overlaps significantly with Zeekr's flagship product, the 001, in terms of product positioning, configuration, price, etc.

This situation is not uncommon in the "internal friction" among Geely's many brands. For example, in terms of research and development, Geely Research Institute, Zeekr, Lotus, Volvo, etc., all have independent R&D teams, inevitably leading to resource waste and management confusion.

During Geely Auto's third-quarter earnings conference call in 2024, Gui Shengyue, CEO of Geely Holding, stated that if Zeekr and Lynk&Co were not integrated, it would inevitably lead to internal contradictions in horizontal competition, criticized by the outside world, with repeated investments and overlapping expenses in R&D, architecture, sales, and other aspects for both parties.

"If this situation arises, Geely Auto's management would obviously be very foolish," said Gui Shengyue.

For Geely, integration and focus are already the general trend, but challenges cannot be ignored.

02 Meeting Challenges: "Elephants" Must Dance

The challenges here are first reflected in the tight timeline and heavy tasks, with many competitors not necessarily allowing Geely to turn calmly.

From the latest automotive market sales data, the penetration of new energy vehicles has exceeded 50%, and the market has entered a reshuffling phase, with domestic automakers feeling a strong sense of crisis.

In a company-wide letter in 2024, He Xiaopeng, Chairman of XPeng Motors, stated, "2024 is the first year of bloody competition for Chinese automotive brands and the first year of the elimination round."

Yu Chengdong, Chairman of Huawei Intelligent Automobile Solutions BU, even gave a specific timeline, "By 2030, there will be no more than five major players in the Chinese auto market."

Not only these two individuals, but the entire industry is now permeated with a serious sense of crisis. Everyone is desperately "competing," and at this time, if Geely wants to "operate" on itself, it must accelerate the pace.

In this regard, Geely is currently not daring to be lax.

On September 20, Geely Holding issued the "Taizhou Declaration," announcing the company's entry into a new phase of strategic transformation and approving five measures: "strategic focus, strategic integration, strategic collaboration, strategic robustness, and strategic talent."

On October 9, the Geometry brand was officially merged into Geely's Galaxy series, which was simultaneously upgraded into an independent new energy vehicle brand; on October 21, Zhejiang Passenger Vehicle, an indirectly wholly-owned subsidiary of Geely Auto, planned to acquire all equity of Ningbo Passenger Vehicle for 120 million yuan.

Immediately following were the big moves by Zeekr and Lynk&Co.

During the strategic expansion period, the global automotive industry was still in the windfall of incremental development, and mergers and acquisitions could be carried out more leisurely. However, the current situation is vastly different. The automotive industry has come to a crossroads of old and new, leaving Geely with a narrow time window for strategic integration.

The second challenge is the complexity of the Geely system, making it particularly difficult for an "elephant" to dance.

In fact, Geely should have ample experience in internal integration. In the 17 years since the issuance of the "Ningbo Declaration" in 2007, Geely has long pursued an expansion strategy, acquiring many brands, including international ones like Volvo from Sweden, Proton from Malaysia, and Lotus from the UK, in addition to becoming the largest shareholder of Daimler through shareholding.

Currently, Geely owns numerous brands, including Geely, Lynk&Co, Volvo, Lotus, Proton, Maple, Polestar, Geometry, Remote Auto, London Taxi, Hualing Xingma, Zeekr, and smart in collaboration with Mercedes-Benz. The difficulty of completing such a large-scale brand integration in a short period is conceivable.

Facing Geely's numerous brands, the aforementioned dealer once told Node Finance that it is difficult for ordinary people to sort out the relationships between Geely's various brands, and even he finds it somewhat confusing. In the era of new energy vehicles, the effectiveness of traditional automakers' "sea of cars" tactics is increasingly questioned. It's not about the quantity of models but their quality.

This is precisely why Geely is making a strategic shift. Being able to control such a large number of brands also indicates that Geely and Li Shufu possess strong management and integration capabilities. One of their most successful cases should be the integration of Volvo, achieving a "1+1>2" development effect.

Of course, the mergers and acquisitions at that time were vastly different from the current situation Geely faces. From the "Ningbo Declaration" 17 years ago to the current "Taizhou Declaration," whether Geely's successful experience still holds true needs to be verified by Zeekr and Lynk&Co.

As Geely's "ace" in new energy vehicles, whether Zeekr can successfully merge with Lynk&Co has become a "crucial battle" in Geely's strategic transformation.

So, can all this proceed smoothly?

03 Confidence: Focus on core brands and create blockbuster products

First, let's look at Geely's overall financial health. Even facing price wars and increasingly fierce industry competition, Geely Auto's financial performance throughout the year has not been significantly affected, showing steady progress with multiple data reaching historic highs.

"With food in your hand, you have no fears in your heart," which can lay the foundation for Geely's confidence in making a strategic shift.

Of course, that's not enough. As mentioned earlier, Zeekr was actually internally incubated by Lynk&Co in 2021, and Lynk&Co was jointly established by Geely and Volvo in 2016. After this merger, it can be seen from the shareholding relationship that Volvo will exit the shareholder list of Lynk&Co, and Geely is determined to take majority ownership of Lynk&Co.

In terms of the purpose of the merger, both parties can fully leverage economies of scale, improve factory capacity utilization, and send an important signal: Lynk&Co will prioritize Zeekr as its core and not "block the way" for its own people.

In fact, it's not just Lynk&Co; any brand that causes trouble for Zeekr may face merger. According to media reports, An Conghui will succeed Shen Ziyu as Chairman of Polestar, which is considered an indication that Polestar will soon be merged into Zeekr, despite being a direct competitor.

From the current situation, Geely's strategic adjustment will revolve around the word "synergy." Each sub-brand has its positioning, shifting from competition to mutual empowerment, jointly exploring the market under the Geely banner.

An internal employee of Zeekr told Node Finance that after the merger of Zeekr and Lynk&Co, the brand positioning will be clearer. Zeekr will focus on the luxury technology brand, while Lynk&Co will cover the mid-to-high-end market.

In terms of channel construction, Lynk&Co will continue to maintain the dealer model, while Zeekr will primarily adopt a direct sales model. In the lower-tier markets, Lynk&Co has a considerable advantage, allowing Zeekr to quickly expand into third-, fourth-, and fifth-tier markets.

In terms of product planning, Zeekr sells mid-to-large vehicles, while Lynk&Co focuses on small-to-medium vehicles; Zeekr focuses on pure electric in the mid-size vehicle segment and hybrid in the large vehicle segment, while Lynk&Co focuses on pure electric in the small vehicle market and hybrid in the mid-size vehicle market.

In terms of technology research and development, An Conghui once used an example to illustrate his vision: in terms of machinery and architecture, minimize architectures and gradually move towards unification; in terms of cabin hardware, underlying software, and middleware, both parties should remain consistent.

According to his estimates, if the two achieve synergy, R&D investment can be reduced by at least 10%-20%; BOM costs can be reduced by at least 5%-8%; and their channels can also achieve a high degree of complementarity.

Of course, Geely still faces issues, such as ensuring sales growth during the transition. Here, "blockbuster" models are needed to hold the scene. Before this, Zeekr's flagship model was the Zeekr 001. Sales data shows that in the first three quarters of this year, Zeekr delivered a total of 143,000 vehicles, a year-on-year increase of 81%.

This excellent performance has, to a certain extent, gained more room for Geely's strategic shift. Moreover, the aforementioned dealer told Node Finance that he believes that after the 001, the Zeekr 7X is also expected to become a blockbuster model, with sales exceeding 10,000 units in October.

Beyond Zeekr, the layout of other new energy vehicle brands under Geely is also progressing.

For example, the Geely Galaxy series has successively launched three models within a year: Galaxy L7, Galaxy L6, and Galaxy E8, forming a product layout of pure electric and hybrid, sedans, and SUVs in the mainstream new energy market.

Another example is the merged Lynk&Co, which became the fastest Chinese premium auto brand to surpass the one million sales milestone in 2023, launching multiple new energy vehicle models equipped with plug-in hybrid technology, such as the Lynk&Co 09, Lynk&Co 08, and Lynk&Co 06.

Overall, with the support of "blockbusters" in the market, Geely will have much more ease in integrating Zeekr and Lynk&Co. With the issuance of the "Taizhou Declaration" and the integration of Zeekr and Lynk&Co, Geely is embarking on its strategic transformation path. Behind Geely's strategic focus lies a layout that connects the technological depth, breadth, and strategy behind its products.

Integration may inevitably bring pain, but as long as the initial break-in period is successfully navigated, the future development advantages of the entire Geely will be self-evident. For the future, Geely has more far-reaching plans. It remains to be seen what kind of Geely the astute and bold Li Shufu will recreate.