Heading: Chuxing Bai Ren focuses on the evolution of the automotive travel industry chain

Author: Roomy

Wealth, dreams, and embarrassment – these are the three key words reflected in Geely’s first-half 2021 financial report.

During the media communication meeting on August 18th, Geely announced its goal of maintaining its market share as the top Chinese brand and achieving sales of 3.65 million vehicles (including Lynk & Co BEV) by 2025, of which smart electric vehicles will account for more than 30%. Lynk & Co BEV will achieve a top-three position in the high-end electric vehicle market, with sales reaching 650,000 units by 2025.

To be honest, these numbers are quite surprising. From the 1.53 million target for this year to 3.65 million vehicles in 2025, an additional 2 million vehicles would need to be produced in just four years.

Can Geely achieve its goals? It may be difficult as it is just as radical and challenging as Great Wall’s 4 million vehicle target.

Fuel vehicles remain the main sales force.

Two years ago, there were doubts about whether Geely’s infrastructure maturity was sufficient to support a 2 million vehicle sales system until now, and a definitive answer is yet to be seen.

Especially in such a big era of change, Geely, which cannot be considered a master of running multiple brands, has yet to solve the problem of overlapping models and repeated resources. As the model matrix expands, running multiple brands will only become a bigger problem. “Geely probably doesn’t even know how many brands and models it has,” insiders say. It may be possible to allocate different brands for different sub-markets and sales areas and implement a multi-brand strategy, but that would increase the challenge for the system and foundation.

Moreover, the replacement of electric cars by gasoline cars is a structural change, not an incremental process, but a “stock transfer” in the process of change. It will bring significant value transfer and growth, which can be seen in the U.S. market where Tesla’s sales surpassed BMW and Mercedes’s sales decline.

So where will Geely convert from in order to achieve the goal of more than 30% of smart electric vehicles and 650,000 units of Lynk & Co BEV? There are only two major areas, one being Geely and Lynk & Co’s existing consumers, and the other is to grab “inventory” from China’s 25 million vehicle market.In the automotive industry, everyone is snatching the opportunity of the remaining market share, and Geely is no exception. It formulated two “Blue Geely Action” plans in its electric vehicle strategy, aiming to take the lead in the global architecture-era car race, with Zeekrxie being the protagonist and the most advantageous resource within the Geely system, with high expectations from Li Shufu.

“65,000 units, this goal is based on the vast architecture and the comprehensive layout of the entire smart electric vehicle industry since the founding of Zeekrxie, we have great confidence and ability to achieve this goal.” Zeekrxie CEO An Conghui said.

As for the reputational crisis encountered by Zeekrxie and how to manage customer feedback as well as to tackle uncertainties such as multiple “autonomous driving” accidents related to companies such as Tesla and Nio, which raises questions about the credibility of “autonomous driving,” like a sword of Damocles, hangs over the head of every transformation-maker and forces the pace of transformation to be pragmatic, rather than overly ambitious. Geely is no exception.

Now let’s take a look at Geely’s current sales structure system.

In 2015, Geely launched the “Blue Geely Action” plan, with the goal of achieving a 90% or more proportion of new energy vehicles in the overall sales volume by 2020.

At that time, China’s new energy market had just crossed the threshold of 200,000 vehicles, with a penetration rate of only about 1% in the passenger car market. Setting such a goal at that time was nothing less than being ambitious.

Since then, aiming for a 90% sales share, Geely has made large investments in technology and architecture, from the development of hybrid models to the establishment of the Geometry brand, and worked hard to harvest the fruits. But what are the results achieved in the end?

Data from 2020 showed that the sales proportion of Geely’s new energy vehicle models was only 5.2%. In 2019, Geely’s new energy vehicle sales figure was 113,000 units, and this figure fell back to 68,000 units in 2020. It can be seen that the road to transformation was not as smooth as expected.

Nowadays, Geely’s strategy is upgraded again, with the “Blue Geely Action Plan 2” mainly carried out by the Zeekrxie brand. Recent public opinions indicate that Zeekrxie, which had high expectations, has encountered a difficult start, it will take time to test the intelligence transformation helping Geely, and more difficulties for Zeekrxie to overcome in the future due to the lack of chips than those demonstrated by Geely.# Sales Statistics of Geely in the First Half of the Year

Geely released its sales data for the first half of the year in this financial report. From January to June, total sales reached 630,237 vehicles, a year-on-year increase of about 19%. The overall sales structure showed that fuel vehicles remained the mainstay, accounting for as high as 95%. Meanwhile, in terms of the completion rate of the annual sales target of 1.53 million vehicles, the second half of the year will bear about 60% of the sales target, still needing to complete nearly 900,000 vehicles.

Due to the repeated outbreaks of the epidemic, the shortage of chip supply has intensified, and Zeekr (Geely’s high-end brand) has suspended orders. The main pressure of sales still falls on fuel vehicles in the second half of the year to achieve the target of 1.53 million vehicles, posing great pressure to Geely. Once the set sales target for this year is not achieved, the transformation progress and pace of Geely will inevitably encounter obstacles.

Therefore, the difficulty for Geely to achieve 3.65 million vehicles is not inferior to Great Wall Motors’ 4 million vehicles, and even if there is room to adjust the sales target by 350,000 vehicles, it does not necessarily mean that Geely is “humbly” compared to Great Wall.

Geely Needs More Money

As Wei Jianjun, the head of Great Wall Motors, once said, “To achieve real overtaking, it can only be done within three to five years. And, there is only one opportunity.”

Carrying dreams, whether the times can bear them, no one knows the final answer. Whether it is Volkswagen, striding towards smart cars, or Detroit, which is desperately catching up with the “first-mover advantage,” they are all competing with this intelligent era.

The cruelty of reality lies in the fact that knocking down the wall does not mean welcoming a new world.

Previously, an American Tesla owner said, “As Musk said: If you buy a gasoline car at this time, it is like buying a horse when cars were launched.” From a literal perspective, there are only two words of difference between fuel vehicles and electric vehicles, but the huge gap between them is like that between carriages and cars, requiring the technology and era to leap.

The era has clearly indicated that in the future, the profits of the entire automobile industry will be dominated by software and travel service revenues. Therefore, this is also the root cause of the “excessive promotion” of autonomous driving. “Those who lag behind will be hit. No one wants to seize the opportunity.” After these several accidents, a certain enterprise’s R&D engineers hope that the trend of autonomous driving can “slow down” a little bit.

But does anyone want to slow down?

Throughout the frenzied electrification and intelligence, no traditional automaker wants to be Nokia, the one that was replaced by Apple.Although Geely has expressed its desire to pursue high-quality transformation, the strategic pace in the past two years still shows that Geely continues to implement a multi-brand, multi-product line strategy, ranking “multiproduct launch” as the top priority in future revenue growth.

In the first half of the year, Geely’s revenue reached RMB 45 billion, a year-on-year increase of 22%, with sales of cars and related services generating RMB 39.312 billion in revenue for Geely, a year-on-year increase of 16%, accounting for 87% of total revenue.

Car sales still remain the main source of revenue and profit. However, compared with last year, research and related technological support services have appeared for the first time, with revenue from this business segment reaching RMB 447 million and revenue from intellectual property licensing reaching RMB 637 million.

Revenue from sources other than car sales accounts for 13% of total revenue, indicating Geely’s accelerated push in electrification and intelligence in the past two years, which will only continue to speed up in the future.

Geely Automobile Group CEO An Conghui clearly stated that Geely will gradually launch the fourth generation of the Emperor under the BMA architecture and the Lynk & Co 09 under the SPA architecture. By 2024, Geely’s main products will all be transferred to the CMA/BMA/SPA architecture, gradually eliminating low-priced and outdated products.

In the second half of 2021, Geely will focus on smart and intelligent new energy vehicles for launch. In the future, new energy versions will be launched simultaneously with internal combustion engine versions when new products are introduced, and there will be six models launched for mass production within three years of extreme mass micro-deployment.

How to make users perceive products’ changes most quickly is Geely’s new task, but it hopes to learn more quickly. Concerns have already been revealed in the financial report.

Although revenue is increasing, Geely’s net profit margin is decreasing. For Geely, which still relies mainly on traditional gasoline-powered cars, profitability is still not optimistic under the trend of electrification.

In the first half of 2021, Geely Automobile’s net profit margin was less than 6%, compared to 8.4% in 2019. While sales are continuing to rise, the high cost of research and development has also weighed heavily on Geely, and annual depreciation and amortization expenses are still increasing, further increasing Geely’s resource pressure.

Roughly speaking, over the past ten years, Geely Holding Group has invested more than RMB 100 billion in research and development, mainly focusing on 48V, hybrid, pure electric, and fuel cell technologies, as well as centralized electronic and electrical architecture intelligence research, autonomous driving technology research and industrialization, and accelerating layout.According to Geely’s plan for the proportion of electric vehicle sales in 2025, R&D investment remains a huge expense. Although Geely Automobile’s total cash level reached 19.92 billion yuan as of June 30th, cash flow can still be considered abundant.

However, in the first half of this year, R&D expenses increased by nearly 600 million yuan compared to the same period last year, reaching 2.3046 billion yuan. At the same time, this year is also a big year for Geely’s products, as it is in the process of transitioning from the “3.0 boutique car era” to the “4.0 comprehensive architecture system car-making era”, and Geely will need to spend money in many areas.

Having money is a prerequisite for competing in the era of intelligence. Whether it is the core technology closed loop based on chip + operating system + application algorithm + data construction, or the software-defined car, it requires a large amount of capital backing.

Moreover, in order to support Geely’s dream of 3.65 million vehicles, it is also urgent to stabilize the gasoline vehicle route.

Speaking of which, we have to return to the old topic that all traditional car companies are facing, how to seek a profit balance in new businesses based on traditional businesses, “leading success in one aspect to another success”?

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.