Profits are at a low but earnings are at a record high, and Geely ushered in a harvest period in 2022?
Text/Zeng Jia
On March 23, 2021, Geely Automobile Group Holdings Co., Ltd. (hereinafter referred to as [Geely Automobile] or [Geely]) released its 2021 financial report, and suddenly looked at it, there were many highlights in the financial report:
First of all, Geely Automobile's profitability has rebounded significantly, with revenue reaching a record high of 101.611 billion yuan, and gross profit margin increased by 1.1 percentage points year-on-year.
In terms of sales, Geely Automobile still firmly holds the five-year independent brand sales champion, approaching 1.33 million units.
Cash flow surged to $20.8 billion, including cash inflows from Extreme Krypton's pre-A round equity financing of $3.8 billion.
However, compared with the financial reports of previous years, there are many doubts, why the sales volume decreased by 170,000, but the revenue was the same as that of 18 years; why the revenue and cash flow hit a record high, but the net profit was a record low.
To answer these questions, you have to look at the financial report.
The car market is weak, and Geely's product optimization is seeking transformation
2018 is considered to be the turning point year in which Geely Automobile ended the first wave of dividends and shifted from high revenue and profit growth to slow growth.
Source: A knife to see the car
This year, car sales in China, the world's largest auto market, fell 3% year-on-year, the first decline in 20 years. This means that with the fading of China's demographic dividend and the transformation of economic policies, China's auto market has shifted from an incremental market to a stock market.
Geely Automobile's previous "starting" strategy of focusing on affordable models and letting profits occupy market share was not used in the case of a weak auto market.
In 2018, when the increment of China's fuel vehicle market was weak, the sales of new energy vehicles were all the way up. In December 2021, the market penetration rate of new energy vehicles has reached 19.1%, and the penetration rate of the passenger car market has reached 20.6%.
The superposition of the two undoubtedly means that Geely Automobile must not only transform into a high-end market, but also enter the new energy market.
Geely Automobile has chosen two lines and a first-line road, that is, to adjust the product portfolio: electric vehicles aim at high-end brands, existing brands push hybrid models to transition to the market; fuel vehicles retain the advantages of economic models at the same time, into high-end models.
As Song Jun, sales manager of Geely brand, said: "In 2021, compared with 2020, the number of products will be reduced, but the products will be more towards high-quality development." "What does it mean to go to high-quality development? Let's move on to the earnings report.
Improve quality and quantity, Geely's profit secret
After 2018, Geely Automobile under the double challenge directly skipped the slow cycle period of revenue and profit micro-growth, and the level of revenue, profit and net cash went all the way down, until this year, there was a jump in data. Although the profit continues to decline, this is inseparable from Geely's research and development investment, which is not discussed here.
In terms of sales, Geely Automobile did win the sales championship of China's passenger car independent brands for five consecutive years, but after 2018, sales showed a downward trend year by year, until 2021, which increased by 0.6 percentage points year-on-year.
Looking only at mainland sales, from 2018 to 2021, it has experienced four consecutive years of sales decline, but the decline rate has decreased from 12% in 2019 to 2.8% in 21 years, gradually slowing down.
It is worth noting that compared with the 18 years when revenue was basically flat, Geely's sales in 21 years decreased by 173,000 units.
The decline in sales and the peak level of revenue first corroborate the quality of Geely Automobile and the price increase:
Fuel models have been adjusted from affordable models of 100,000 and below to 150,000 and above, and hybrid models have greatly pushed new models to the price range of about 150,000; the new energy market is directly aimed at the price point of more than 150,000.
This can be clearly shown in the price chart of some of Geely's currently sold models:
At the same time as the price point is raised, Geely Automobile's more important move is to optimize the brand portfolio.
Optimize the brand portfolio and work together to break through
Optimize the brand portfolio, that is, highlight the competitiveness of the brand and increase the product differentiation of different brands.
This is especially important for large groups such as Geely, which are constantly engaged in mergers and acquisitions. For example, when geely was talked about a few years ago, who can say exactly how many brands it has and cooperates with: Geely, Geometry, Lynk & Co, Lotus, Volvo, Proton, Maple Leaf...
I believe that geely's annual financial report reporter also has a deep understanding, because since 19 years, the financial report PPT has changed the original model sales statistics to the sales statistics of the three major brands of geometry, Geely and Lynk & Co.
Now, Geely's main brand portfolio is much clearer:
For fuel vehicles and hybrid models, Geely retains some price models with market advantages of 100,000 and below, such as Envision and Emgrand; pushes the original brand of new hybrid new energy models as a transition, such as Jiaji, Emgrand, and Borui to impact the market of about 150,000, to create a star brand of the Chinese star series to break through upwards.
Here to supplement the 21-year performance of the Geely China Star series: represented by Xingrui and Xingyue L, the total annual sales volume exceeded 200,000 vehicles, and the average price reached 160,000 yuan.
Needless to say, Lynk & Co has been leading the way in Geely Automobile's landing in the mid-to-high-end market. In 2021, Geely Automobile will get 22.9% of the total revenue with a sales ratio of 16.6%, all models will fully enter the market of more than 150,000 yuan, and the SPA-based Lynk & Co 09 has entered the luxury car price range.
In terms of electric vehicles, Extreme Kr is a sword move, but the performance is good, as Extreme Kr CEO An Conghui said, the average price of Extreme Kr in 2021 remains at 335,000 yuan / unit, landing on the high-end electric vehicle market.
The road is in research and development, and technology licensing has become a new revenue growth point
Solving the problem of reverse growth in revenue and sales, the doubts in this financial report are the decline in gross margin and net profit.
This point is actually the common difficulties of car companies, the early stage of electrification research and development costs a lot, look at the new forces that are still losing money, Weilai has lost nearly 38 billion.
This may also be the reason why Geely Automobile has significantly increased its cash flow this year.
"Technology is the first competitiveness" in this era of software-defined car manufacturing is more and more obvious, "the layout of new energy technology, the Internet of Vehicles, automatic driving, low-orbit satellites, on-board chips, operating systems and other businesses, to strengthen the technology ecosystem, to create a technology moat", as Geely said to create a technology ecosystem, not to mention that it will consume several 38 billion.
However, technology research and development can also bring new profit growth points to car companies, with the news that the smart cockpit chip SE1000 is about to be mass-produced, Geely's 2021 financial report, research and development and intellectual property income increased by 245% year-on-year, only to see the research and development revenue increased by 336% year-on-year.
Geely Fang said that in 2022, it has "opened the era of 4.0 architecture car manufacturing and formed a modular architecture ecology composed of BMA, CMA, SPA and SEA".
Can the ecological molding of the electrification platform reverse the continuous decline in net profit in the past four years, and will this year become a turning point year for the double growth of Geely Automobile's revenue and profit? Everything is still unknown, just see how Geely will behave.