Recently, Geely Auto's (00175.HK) series of integration moves have attracted market attention, reflecting that domestic auto industry giant Zhejiang Geely Holding Group (hereinafter referred to as "Geely Holding") has further accelerated its strategic transformation amid increasing competition in the new energy vehicle market.

Securities Star notes that while Geely Auto continued to deliver impressive sales figures in November, the company's new energy vehicle penetration rate is less than 50%, underperforming the broader market for several months. In comparison, its competitor BYD (002594.SZ) has won the sales crown for two consecutive years, widening the gap with Geely Auto.

Over the past few years, Geely Auto has been transitioning towards the new energy sector, but the results have fallen short of expectations. Amid the new energy wave, parent company Geely Holding is also facing a severe test, as its multi-brand strategy is gradually losing steam in the competition of the new energy market, forcing Geely Holding to reconsider its brand strategy and resource allocation. The ultimate effectiveness of this bold strategic focus and integration remains to be tested by the market.

01. Widening sales gap with competitors

Production and sales data show that Geely Auto sold a total of 250,100 vehicles in November, a year-on-year increase of 27%, of which 122,500 were new energy vehicles, accounting for about 48.95%. Over the January-November period, cumulative sales reached 1,966,500 vehicles, up approximately 31% year-on-year. Among them, cumulative new energy vehicle sales were 777,000, a year-on-year increase of about 91.72%, accounting for about 39.51%.

Given its strong sales performance in the first half of the year, Geely Auto adjusted its annual sales target from 1.9 million to 2 million vehicles in July. Currently, 98.33% of the target has been achieved in the first 11 months, requiring approximately 334,900 vehicles to be sold in December.

Despite the encouraging overall sales, hidden concerns remain. From July to October, the domestic retail penetration rate of new energy passenger vehicles in China exceeded 50% for four consecutive months. During these four months, Geely Auto's new energy vehicle penetration rates were 39.16%, 41.65%, 45.12%, and 47.96%, respectively. The China Passenger Car Association previously predicted that new energy passenger vehicle retail sales in November would reach 1.28 million units, with a penetration rate of about 53.3%. It is evident that Geely Auto's new energy vehicle penetration rate still needs to catch up with the broader market.

Securities Star notes that Geely Auto did not enter the new energy sector late. As early as 2015, Geely Auto announced its foray into the new energy vehicle market with the launch of the "Blue Action Plan," aiming for new energy vehicle sales to account for more than 90% of overall sales by 2020. However, this target was not met, with new energy vehicle sales accounting for only about 5% of total sales.

In 2021, Li Shufu, Chairman of Geely Holding, introduced the "Two Blue Action Plans." The first focused on energy-saving and new energy vehicles, including hybrids, plug-in hybrids, and extended-range plug-in hybrids. The second emphasized pure electric smart vehicles.

Despite continued efforts in new energy vehicles, sales have gradually been surpassed by peers. In 2022, BYD usurped Geely Auto's position as the top domestic brand for five consecutive years. In 2023, Geely Auto's sales increased by 18% year-on-year to 1,686,500 units, but still fell short of BYD's 3,024,400 units, further widening the gap between the two. Today, BYD, which focuses on new energy vehicles, has sold over 3,757,300 units from January to November, a year-on-year increase of 40.02%, nearly twice that of Geely Auto.

Gui Shengyue, CEO and Executive Director of Geely Auto, once stated that the core reason Geely Auto lost its top spot among domestic brands in the past two years was that the speed and layout of its overall transition to new energy vehicles did not gain market recognition.

In terms of performance, Geely Auto generated revenue of 167.684 billion yuan in the first three quarters of this year, a year-on-year increase of 36%, with a corresponding net profit attributable to shareholders of 13.053 billion yuan, a year-on-year increase of 358%. However, its new energy vehicle brand Zeekr (ZK.N, hereinafter referred to as "Zeekr Auto") incurred a cumulative net loss of 4.97 billion yuan in the first three quarters.

02. Initiating strategic 'contraction'

In fact, adhering to the strategy of 'more children mean better fighting,' Geely Holding, the parent company of Geely Auto, has continuously expanded its product portfolio. Currently, Geely Holding owns multiple automotive brands, including Geely, Lynk & Co, Proton, Geely Geometry, Volvo Cars, Polestar, Zeekr Auto, Lotus, LEVC, Radar, and the smart brand in collaboration with Mercedes-Benz. The multi-brand strategy allows Geely Holding's models to cover different markets ranging from economy to high-end luxury. Among them, the Geely Auto Group encompasses brands such as Geely, Lynk & Co, Emgrand, and Proton.

Geely's multi-brand strategy was once very effective, but as competition in new energy vehicles intensifies, Geely Holding's strategy is gradually losing its effectiveness. It is widely believed that brand duplication and internal competition are significant reasons for the subsequent weakness of the multi-brand strategy. Too many brands lead to scattered resources and a complex management system, which also increases the cost of coordination and communication between brands.

Indeed, under independent brand operations, Geely Auto has already experienced internal competition. For example, the first pure electric model launched by Lynk & Co this year has a highly overlapping price range with some models from Zeekr Auto, which focuses on pure electric vehicles. In fact, such intra-brand competition is not uncommon within Geely Holding. At the R&D level, independent R&D teams exist within Geely Research Institute, Zeekr Auto, Lotus, Volvo Cars, etc., making waste of resources and management chaos inevitable.

On the other hand, under the 'horse racing mechanism,' some brands have underperformed. For example, according to the data from Chezhubao, except for sales exceeding 8,000 units in January, Geely Geometry's sales fluctuated below 4,500 units for the rest of the year.

Under these circumstances, top-down changes within the group are imminent. Following the release of the 'Taizhou Declaration,' Geely Auto has continuously advanced multiple internal integration initiatives. On October 9, Geely Geometry was officially merged into the Geely Galaxy series, which was simultaneously upgraded to an independent new energy vehicle brand. With the integration of Geely Geometry, Geely Galaxy's product lineup will cover mainstream market demands ranging from A0-class to C-class vehicles, including sedans, SUVs, and MPVs. On October 21, Zhejiang Passenger Vehicle Company, an indirect wholly-owned subsidiary of Geely Auto, planned to acquire all equity of Ningbo Passenger Vehicle Company for 124 million yuan.

Next up are the highly anticipated Zeekr Auto and Lynk & Co. On November 14, Zeekr Auto acquired 20% and 30% equity stakes from Geely Holding and Volvo, respectively, for a total consideration of 9 billion yuan. Simultaneously, Zeekr Auto subscribed to an additional registered capital of 367 million yuan in Lynk & Co, thereby achieving controlling ownership of the latter. The majority of shares in both companies will be consolidated under Geely Auto. Geely Holding stated that the aim is to streamline equity relationships, reduce related-party transactions, eliminate horizontal competition, and promote deep integration and efficient fusion of internal resources.

Recently, media outlets have also reported that Geely Holding will merge its new energy pickup truck brand Radar into Geely Auto Group, making it a first-tier organization within the group.

Securities Star notes that with its complex system, Geely's transformation is not easy. Industry insiders analyze that overlapping products and vague market positioning within the Geely group, coupled with ineffective resource allocation, increase the complexity of integration. Each internal brand has its own independent R&D, sales, and distribution teams, posing a significant challenge in finding a balance between the two teams post-merger. Additionally, different brands have distinct perceptions and images among consumers, necessitating reconsideration of each brand's unique positioning post-integration. (This article was originally published on Securities Star, authored by Lu Wenyan)

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