BYDDF - Geely Auto Powers On With The BEV Transition

2023-05-21 04:27:27 ET

Summary

• Geely Automobile Holdings April 2023 sales show a dramatic switch from hybrid (HEV and PHEV) to BEV in its electrified offerings.
• Curiously, Geely Auto is just getting started with Galaxy, a high-end electrified brand with its first release a PHEV; it plans 4 PHEV and 3 BEV Galaxy models.
• Geely Auto is a major Chinese manufacturer with a big push for exports; its export focus is different from what US investors might expect.
• Geely’s export plans focus on countries where Toyota has a clear hybrid vehicle focus; this might be interesting as Geely is pushing its Geometry C BEV.
• Geely Auto is interesting to get the pulse of the Chinese electric vehicle transition; it is more challenging for investors because of the complexity of its corporate structures.

I’ve dug into the complex ownership structure of Geely ( GELYY ) ( GELYF ) previously and little has changed in how it presents itself. Zhejiang Geely Holding Group proudly states that is one of the world’s top ten brands and its breadth and depth is truly remarkable. A glance at its manufacturing capacity at its Chinese 5G and Black Light Factories leaves little doubt that the Geely Group is a leader in car manufacture. However, investors should be cautious about where the boundaries lie between the Zhejiang Geely Holding Group and its subsidiary Hong Kong listed Geely Automobile Holdings Ltd. The complexity about the Geely Auto structure is also apparent in Geely’s aggressive programs in electrification of transport . Here I add more depth to the Geely Automobile Holdings story, with special emphasis on recent developments in its electrification journey.

Geely and the BEV transition

The electrification of transport is hotting up and China is the country driving the change. It is curious that Toyota ( TM ), the number one car maker in 2022, continues to promote hybrid vehicles and be reluctant to make the transition to the BEV (Battery Electric Vehicle), while a quite different picture is emerging in China.

To get the latest view as to where Geely Auto sales are going, I found Geely Auto sales figures for April 2023. These provided an astonishing picture of the balance between BEV, PHEV and HEV sales. Sales of conventional hybrids ((HEV)) were tiny in April and sales of PHEV were down dramatically, while BEV sales were massively increased.

Geely Auto Holdings unaudited sales figures for April 2023 (in comparison with April 2022) are as follows:

• Total April 2023 vehicle sales were 113,642 (versus 72,153 in April 2022) up 58% year on year.
• Fully electric vehicle (BEV) sales in April 2023 were 27,107 (versus 10,929 in April 2022) up 148% year on year.
• Plug-in hybrid (PHEV) sales in April 2023 were 2,767 (versus 3,189 in April 2022) down 13% year on year.
• Hybrid electric ((HEV)) sales in April 2023 were 16 (versus 1,518 in April 2022) down 99% year on year!!

Clearly there are three trends: firstly in April there was a dramatic increase in vehicles sold; secondly electrified vehicle sales dramatically outperformed their previous year’s April sales; and thirdly in terms of electrified vehicles the company essentially stopped selling HEVs, PHEV sales stalled and BEV sales dramatically increased.

The electrified vehicle sales included those for Geely’s mass market Geometry BEV, and sales from Lynk & Co, ZEEKR and Livan. In the case of 50% owned Link & Co and Livan, 100% of sales of these companies are included although the actual revenue recognised by Geely Auto is less than this. Geometry C accounted for 18,525 of the BEV sales. Note that the really big increased sales for BEVs were for Geometry (up 153% year on year for April) and ZEEKR (up 279% year on year for April).

I find these figures amazing, but it will be important to follow 2023 sales further, lest the April figures turn out not to represent the overall picture for 2023.

Geely remains a difficult company to understand

Whichever way one looks at the numbers, Geely is a major Chinese auto manufacturer although it flies below the radar as its markets are primarily China and a less studied global market (see below).

Geely Auto Group follows its privately owned parent Zhejiang Geely Holding Group in defining new advances with newly branded vehicles. And so it was in February of this year that Geely Auto announced the release of the first of 7 vehicles in its new high end, new energy Geely Galaxy series. The first model, Galaxy L7, is a PHEV. Three more hybrid Galaxy models will be released and 3 BEV (fully electric) models are planned, the first to be released later this year. These vehicles bristle with new innovations including a new battery safety system, the NordThor E-Hybrid 8848 powertrain, the Galaxy N-OS operating system and Geely’s “Space and Earth” intelligent drive capacity based on a network of satellites from parent company Zhejiang Geely Holdings. The way the Galaxy is promoted it seems to mirror how Toyota presents its vehicles as “Become Great for Happiness”.

Given the way that the Geely brand is pushing full electrification (BEV), it will be interesting to see how it positions the Galaxy PHEV (hybrid) and BEV offerings. My take is that “you can’t have your cake and eat it too” …. with the era of cars with an ICE coming to an end, where does a PHEV fit? Is Geely trying to match Toyota’s hybrid focus without thinking about what this means? It seems like its approach with the Geometry C mass market BEV is a winning way to compete with Toyota. Why bother with a PHEV (which has an ICE) especially in a luxury range?

Geely has a different ex-China market focus

Our US-centric world view puts a lot of focus on US, Europe, Australia etc. Geely’s export sales focus is different , with emphasis on the Middle East, Africa, South and Central America, parts of Asia and Russia.

An example of Geely’s focus is Israel where it’s Geometry C BEV became the best selling car (first time for a BEV) in August 2022. With the 2023 release of the BYD ( BYDDF ) Atto 3 in Israel, this vehicle has quickly captured 42% of the Israeli BEV market in 2023, while the Geely Geometry C continues to do well with ~20% market share.

Geely family car companies

From its website Zhejiang Geely Holding Group indicates ownership of a host of car companies, including Geely Auto, Lynk & Co, ZEEKR, Geometry, Volvo Cars, Polestar, Lotus, London Electric Vehicle Company, Farizon Auto, RADAR AUTO, Cao Cao and other brands . I remain confused about ownership of Geometry, Lynk & Co and ZEEKR viz a viz Zhejiang Geely Holding Group and Geely Auto Holdings Ltd. I have the impression that Geely Auto Holdings owns Geometry, while it has a 50% stake in ZEEKR and Lynk & Co with Zhejiang Geely Holding Group owning the remaining 50%, but I might be wrong about this.

Volvo

This is perhaps the most confusing car company as Volvo cars is not owned by ( VLVLY ) (Volvo trucks) but instead it is owned by Zhejiang Geely Holding Group which is the unlisted parent vehicle of Geely Auto Holdings. These details are important because owning GELYF does not indicate a stake in Volvo cars, despite this being confused by just about everyone (including Seeking Alpha).

Zeekr IPO?

A Series A investment of $750 million valued Zeekr at $13 billion in late February 2023. The world’s number 1 lithium battery maker CATL continues to support Zeekr in the latest round. Is Zeekr still on track to IPO in the US?

Conclusion

Geely is an amazing business in the wheeled transport industry, but it is also complex. Unlike Tesla ( TSLA ), where you know what you are buying if you invest, the Hong Kong listed company Geely Auto Holdings is but a small part of the overall Zhejiang Geely Holding Group. You are definitely not buying a stake in Volvo which is owned by the Holding Group, but you are buying the Geely automobile brand, its BEV brand Geometry and a share of a number of other electric vehicle companies, one of which (Zeekr) is on the way to an IPO. The story is a bit opaque for me which might be why the share price has fallen 29% over the past year. Eric Sprague traversed the challenges of valuing Geely in a January 2023 article.

There is another angle on the Geely story that is worth following for investors interested in the huge transition as transport gets electrified. Chinese companies (especially BYD and Geely Auto) are not only aggressively electrifying (and that means BEVs not PHEVs) the biggest global car market (China), but they are also driving global exports of modern, quality vehicles at a price point substantially below the competition from Tesla (although that is changing) and Western ICE car makers transitioning to BEV. BYD is driving western markets (Europe, Australia, but not the US) as well as other global markets (Middle East, Asia, South America). Geely Auto international focus is the Middle East, Eastern Europe, parts of Asia and South America. The interesting thing about Geely’s focus is that it is entering markets that previously Toyota has dominated. Toyota sees its hybrids winning in those markets, but I wonder if Geely’s Geometry C BEV (or BYD’s Atto 3) might become a big problem for Toyota.

I am not a financial advisor but I follow closely the dramatic changes as wheeled transport gets electrified. Not only is the drive technology shifting from ICE to BEV, but the manufacturing focus is moving from the US, Europe and Japan to China. I hope that my commentary is of value to you and your financial advisor as you contemplate your transport investments.

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