Sudden changes in China's luxury auto market landscape

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I don't know if you've noticed, but under the onslaught of China's emerging auto brands like Lynk & Co, Li Xiang One, NIO, Zeekr, Huawei, and Xiaomi, China's luxury auto market is no longer the exclusive domain of traditional luxury brands like BMW, Benz, and Audi (BBA).

Yes, China's luxury auto market is starting to have a place for Chinese auto brands. This is not only a victory for the aforementioned Chinese luxury auto brands but also a great victory for the entire Chinese auto industry.

Of course, it must be pointed out that we are still far behind in the global luxury auto market. Therefore, challenging BBA in the global auto market will be the ultimate mission for all Chinese luxury auto brands.

Fortunately, Geely has already taken action.

More accurately, it is Geely's two luxury auto brands, Lynk & Co and Zeekr, that have taken action. Unlike fighting alone in the past, this time they have chosen strategic integration and joined forces to become China's BBA in the era of new energy vehicles.

The strategic integration has significance in the industry because both Lynk & Co and Zeekr are leading Chinese luxury auto brands, and their product technology routes are highly complementary, setting the stage for a future where '1+1>2'.

Currently, the only Chinese luxury auto company that can challenge BBA globally may be the Zeekr Technology Group formed by the strategic integration of Zeekr and Lynk & Co. It is estimated that Zeekr Technology Group's sales will exceed 500,000 units this year, with future annual sales reaching the millions.

Starting with the 'Taizhou Declaration'

Due to the increasingly competitive industry environment and the urgent need to reshape its own system, in September this year, Geely Holding Group officially released the 'Taizhou Declaration,' clearly stating that it will further clarify the positioning of each brand and streamline equity relationships.

According to Geely, this initiative will reduce conflicts of interest and duplicative investments among the group's major auto brands.

Shortly after the release of the 'Taizhou Declaration,' on November 14, details of Geely's brand integration action plan began to be disclosed to the public.

First, Geely Holding issued a press release. In summary, to implement the strategy of the 'Taizhou Declaration,' Geely Holding optimized the equity of Zeekr, Lynk & Co, and Volvo.

Simply put, Zeekr acquired Volvo's equity in Lynk & Co, making Zeekr the majority shareholder with a 51% stake. Zeekr, previously seen as the 'direct line' of Lynk & Co, has now directly become its largest shareholder.

Geely Holding Group transferred an 11.3% stake in Zeekr to Geely Auto Holdings, increasing Geely Auto Holdings' shareholding in Zeekr to 62.8%. Meanwhile, the remaining 49% equity of Lynk & Co is also held by Geely Auto Holdings.

Zeekr's 51% stake in Lynk & Co and the establishment of Zeekr Technology Group aim to strengthen the relationship between Geely Auto Holdings, Zeekr, and Lynk & Co.

Therefore, in the eyes of industry insiders, Geely, aiming to become 'China's Volkswagen,' strategically integrated Zeekr and Lynk & Co into Zeekr Technology Group with the goal of creating 'China's Audi.'

It is certain that the formation of Zeekr Technology Group by Zeekr and Lynk & Co is not a simple operation of transferring assets from one hand to the other but a strategic brand integration at a higher dimension.

Why should they become one?

The fierce competition in the new energy vehicle industry has been accelerating over the past two years. Just like in a real war, when the battle is half over, it's no longer about who has the most advanced technology or tactical thinking but who can afford to keep fighting!

In a war of attrition, 'resources' are the core.

In a war between countries, it's about who can maintain combat effectiveness to the end and who has enough troops to deploy on the battlefield; in a war between auto companies, it's about who has the funds. Funds are versatile for auto companies, essential for research and development, manufacturing, and channel expansion...

So where do funds come from? Four words: 'increase income and reduce expenditure.' Selling cars to provide profits and revenue for auto companies is 'increasing income'; internal cost reduction and efficiency enhancement within auto companies, doing more with less, is 'reducing expenditure.'

The strategic integration of Zeekr and Lynk & Co aims to improve operational efficiency in the highly competitive market.

The establishment of Zeekr Technology Group by Zeekr and Lynk & Co can pool their advantageous resources to generate more efficient scale effects.

Simply put, the barriers between companies have been broken down. Zeekr's safety technology can empower Lynk & Co, and Lynk & Co's sports handling characteristics can also empower Zeekr, allowing the technologies of the two brands to be circulated and coordinated rather than operated independently.

At the same time, within the company, various resources can be systematically digested to produce various technologies, and there is a complete supply chain and manufacturing business. The scale effect can further reduce the cost per vehicle and increase market competitiveness.

Officials estimate that after the integration, combined procurement will reduce BOM costs by 5%-8%, increase capacity utilization by 3%-5%, reduce R&D investment by 10%-20% through R&D collaboration, and reduce functional support department expenses by 10%-20% through organizational optimization.

Truly effective cost reduction will infuse fresh blood into the development of Zeekr and Lynk & Co and make Geely's overall development safer. At this point, we have to admire Geely's top management for their foresight, insight, and execution.

What will the 'new Zeekr' do?

In the past, people often grouped Lynk & Co and Zeekr together, referring to them as brothers. However, although both are part of the Geely system, after entering the new energy era, they inevitably faced internal friction due to belonging to different companies.

Lynk & Co, which started as a high-end fuel vehicle brand and has a market size exceeding 1 million units, naturally wanted a piece of the new energy intelligent vehicle market when it saw neighboring Zeekr in a rapid development phase.

Therefore, signs of competition between the two began to emerge this year. The most intuitive example is that after Zeekr launched the Zeekr 007, Lynk & Co also launched its first pure electric sedan, the Lynk & Co Z10.

The direct result of fighting among oneself is to create opportunities for competitors. Therefore, the strategic integration of the two brands has almost become inevitable. What surprised the outside world was how quickly the integration happened, demonstrating Geely's strong corrective ability.

After the strategic integration, the issue of internal friction between the two brands can be smoothly resolved. For example, in product planning, Zeekr can help Lynk & Co move upmarket by leveraging its operational experience in the luxury market; while Lynk & Co, with its successful experience in the plug-in hybrid market, can assist Zeekr in expanding its product line...

At the same time, there are also new plans for market construction after the integration. Currently, Zeekr and Lynk & Co have well-established sales and after-sales channels in first- and second-tier cities. Looking ahead, Zeekr and Lynk & Co will integrate into broader third-, fourth-, and fifth-tier cities.

Lynk & Co's after-sales system, 'Link & Serve,' will also fully serve Zeekr users.

At this point, the two will form a comprehensive complementarity, maximizing the synergistic effect of the large group.

Targeting annual sales of millions, surpassing BBA

After a detailed review of the integration of Zeekr and Lynk & Co, we can basically draw a conclusion: the integration of the two to form Zeekr Technology Group aims to create a large-scale high-end luxury new energy vehicle group.

If Geely is described as 'China's Volkswagen Group,' then the newly established Zeekr Technology Group by Zeekr and Lynk & Co can be seen as 'China's Audi.'

On the one hand, the two sides have achieved integration and coordination in technical resources and channel layout, pooling everyone's 'good stuff' to work together to create higher-end, higher-quality products.

Just like Audi has both Audi and Lamborghini brands. Through technology integration, they empower different high-end products, complementing each other's strengths and weaknesses, thus gaining strong competitiveness in the global high-end market.

On the other hand, Zeekr and Lynk & Co are strong enough on their own, and their combined efforts will be a model of a 'winners' alliance.'

In just three years of development, Zeekr has delivered over 390,000 new vehicles, with an average transaction price of around 300,000 yuan, firmly occupying the top spot among luxury pure electric Chinese brands.

As the first brand to break China's fuel vehicle price ceiling, Lynk & Co has sold over 1.31 million units in seven years and performed well in the European market.

Therefore, when combined, the two can not only achieve advancements in technology research and development and channel expansion but also directly reflect progress in sales.

In 2024, Lynk & Co's sales will exceed 280,000 units, and the combined annual sales of Zeekr and Lynk & Co are expected to reach 500,000 units. In the future, the Zeekr Technology Group, created through their cooperation, is expected to achieve annual sales of millions in the new energy market.

According to the integration plan of both sides, they will truly empower each other through resource sharing. The immediate result is more competitive and valuable products; the long-term result is continuous expansion of the brand and enterprise scale, realizing the continuous growth of Zeekr and Lynk & Co.

In the view of Electrek, in the short term, the 'new Zeekr' formed by Zeekr and Lynk & Co will compete with leading Chinese high-end auto brands like Li Auto, Huawei, and Xiaomi, becoming a new representative of Chinese luxury auto brands. In the long run, it will launch a fierce challenge to BBA in the global market, aiming to surpass them.

Closing Thoughts:

This integration can be described as a model of the strongest Chinese auto brands joining forces.

Among China's high-end auto brands, Zeekr + Lynk & Co is somewhat akin to bringing Messi and Ronaldo to the same team. Although their positions are different, they can advance and retreat under a unified tactical mindset, continuously creating threatening offensive opportunities.

Of course, during the integration process, Zeekr Technology Group also needs to unite the operating teams of the two brands to ensure the team is united as a whole, thereby ensuring stable and healthy development.

Currently, Zeekr and Lynk & Co have taken the first step towards collaboration. As for the future direction of Zeekr Technology Group, we will continue to pay close attention.