作者｜Eastland
Header image: Visual China
On April 26, 2024, Geely Automobile (HK: 00175) released its "2023 Annual Report", which showed that revenue was 179.2 billion, a year-on-year increase of 21.1%, net profit was 4.94 billion, a year-on-year increase of 6.1%, and the total sales volume of its brands was 1.687 million, a year-on-year increase of 17.7%.
In 2017, Geely became the first self-owned brand with sales exceeding one million, with a net profit of 10.74 billion yuan and a net profit margin of 11.6%.
In the following five years, Geely failed to meet the sales target announced at the beginning of the year, and its net profit margin fell again and again, falling below 3% in 2023, and in 2015, the official announcement of the "Blue Geely Action" proposed that the proportion of new energy vehicle sales should reach 90% by 2020.
Sales have not risen, profits have shrunk sharply, and the new energy vehicle business has made slow progress, which has become the "nightmare" of Li Shufu, the head of the family, and now he has woken up for two and a half years.
The first "nightmare" passed
In 2017, Geely Automobile's sales exceeded 1 million units for the first time, with annual sales of 1.28 million units, a year-on-year increase of 41.6%, exceeding the sales target of 1.1 million units.
In 2018, the sales volume exceeded 1.5 million, and the growth rate dropped to 17.3%. However, the company did not meet its sales target of 1.58 million units.
In 2019, Geely lowered its sales target to 1.36 million units, but sales in the first half of the year were only 650,000 units, a decrease of 15% year-on-year. As a result, annual sales were 1.362 million units, down 9.3% year-on-year.
From 2020 to 2022, Geely Automobile has not achieved its sales target for three consecutive years: 1.41 million units and 1.32 million units in 2020, 1.53 million units in 2021 and 1.328 million units, and 1.65 million units in 2022 and 1.43 million units actually sold.
In 2023, Geely's sales target remains unchanged at 1.65 million units, 15% higher than the actual sales in 2022.
The situation in the first half of 2023 is not optimistic, with declines of 2.4% and 2.8% in Q1 and Q2 respectively.
In the second half of the year, the situation reversed, with Q3 and Q4 increasing by 22.7% and 19.8% respectively. The annual sales volume reached 1,686,500 units, and after five years, the target sales set at the beginning of the year were finally achieved.
Geely has set a sales target of 1.9 million units in 2024. Sales in the first quarter reached 476,000 units, up 49.5% year-on-year, achieving 25% of the annual sales target (only 19.3% of the annual sales target in Q1 2023).
In particular, it is worth mentioning that in January 2024, Geely Automobile sold 213,000 vehicles, which not only set a new historical record, but also surpassed BYD to win the first "monthly championship" of Chinese car companies in 2024.
The nightmare of five consecutive years of not meeting the standard (2018-2022) is finally over.
The second "nightmare" may turn into a sweet dream
1) New energy pioneers among fuel vehicle companies
In 2015, when the "Blue Geely Initiative" was announced, the company set a target of "90% of NEV sales by 2020". As a result, NEV sales in 2019 were 113,000 units, accounting for only 8.3% of total sales, while in 2020 and 2021, NEV sales accounted for 5.2% and 6.2% respectively.
At the beginning of 2021, Operation Blue Geely was revised and divided into two sub-projects:
The first is to "focus on energy-saving vehicles", including fuel, hybrid, plug-in hybrid and extended range, which can be summed up as "no green card in Beijing";
The second is to "focus on intelligent pure electric vehicles".
The revised version does not give a target for the proportion of new energy vehicles, but Geely's attention is unprecedented. In 2022, NEV sales reached 354,000 units, accounting for 24.7% of the total.
In 2023, the sales volume of new energy vehicles will exceed 480,000 units, accounting for 28.7% (of which Q4 will reach 35.3%), surpassing GAC Aion by a slight advantage and ranking second in the country!
In Q1 2024, Geely's new energy vehicle sales will be 144,000 units, accounting for 30.3%. In comparison, SAIC Motor's NEV sales accounted for 25.2%, Great Wall Motor's sales accounted for 21.5%, Changan Automobile's sales accounted for 18.6%, and GAC's sales accounted for 16.3%.
Among the many fuel car companies, Geely's new energy vehicle business can be said to be the first.
2) The potential of "plug-and-mix".
In 2021, Geely sold 83,000 new energy vehicles, including 61,300 pure electric, 20,800 plug-in hybrid, and 636 gasoline-hybrid.
In 2022, the sales volume of pure electric, plug-in hybrid, and oil-hybrid will be 262,000 units, 66,500 units, and 26,000 units, respectively. Pure electric vehicles are still the absolute protagonist, with plug-in hybrid vehicle sales reaching 28,000 units in the third quarter, accounting for 23.3% of new energy vehicle sales;
In Q1 2023, plug-in hybrid vehicle sales will be low and then high, with 153,000 units sold annually, accounting for 31.6% of new energy vehicle sales;
In Q1 2024, plug-in hybrid sales will reach 59,000, a year-on-year increase of 1,152%, accounting for 41.1%.
Compared with pure electric vehicles, the hybrid (plug-in, extended range) route has three major advantages:
First, it is not restricted by the construction of charging piles, and car owners have no mileage anxiety, which is conducive to the rapid promotion of new energy vehicles;
The second is to let the huge stock capacity of fuel vehicles give full play to the "waste heat" to avoid waste. For example, after BYD stopped producing fuel vehicles, the production capacity of engines and transmissions still has a place to play.
Third, the consumption of lithium/nickel and other resources is only a fraction of that of pure electric vehicles.
In the past few years, Geely has not been resolute in promoting plug-in hybrid vehicles, mainly for two reasons:
First, it is uncertain about the user's acceptance of new energy vehicles, and which power mode has better market performance;
Second, there is concern about a change in the "green card policy" (i.e., the cancellation of the issuance of green license plates for plug-in hybrid vehicles).
It wasn't until BYD's plug-in hybrid and ideal range extension shined that Geely made up its mind.
Compared with traditional fuel car companies, Geely's transformation to new energy is faster, while "pure electric players" such as Tesla have no choice but to put their beaks on plug-in hybrid vehicles.
Wait-and-see misses the opportunity, but reduces the risk. It's not too late, the second "nightmare" has time to turn into a sweet dream.
The third "nightmare" has not yet woken up
1) The root cause of declining profitability
The blue line represents the gross profit (rate), the colored stacked column represents the expense (rate), and the blue submerged color can obtain the operating profit.
Geely is a leader among its own brands, but profitability has stagnated in recent years:
On the one hand, the gross profit margin fluctuated downward. In 2019, the gross profit was 16.9 billion yuan, with a gross profit margin of 17.4%, and in 2023, the gross profit increased to 27.4 billion yuan, but the gross profit margin decreased to 15.3%;
On the other hand, the expense ratio has not been diluted through revenue growth:
In 2019, the total expense ratio was 9.7%, of which the market expense ratio was 4.4% and the R&D expense ratio was 3.1%;
In 2023, the total expense ratio will increase to 13.3%, of which the market expense ratio will increase by 2.2 percentage points and the R&D expense ratio will increase by 1.3 percentage points.
In 2019, the gross profit margin was 7.7 percentage points higher than the total expense ratio, and in 2023, it will be only 2 percentage points.
The apparent reason for the decline in Geely's profitability is that the gross profit margin and expense ratio cannot rise, and the root cause is the slow growth of sales and the difficulty of achieving economies of scale.
2) Operating margin is no longer what it used to be
Compared with net profit after tax, the calculation of operating profit (excluding investment income, fair value changes, financial income and various impairments and write-downs) can more truly reflect the profitability of the enterprise by using gross profit minus expenses.
In 2018, Geely's operating profit soared to 13.2 billion yuan, with a profit margin of 12.4%;
In 2019, operating profit decreased by 44% to 7.5 billion, with a profit margin of 7.7%;
In 2022, the operating margin was only 1.7%;
In 2023, the operating profit will be 3.6 billion yuan, and the profit margin will be 2%. The situation has improved, but profitability is not the same as in 2018.
Geely Automobile has made great progress in sales and the proportion of new energy vehicles, which is gratifying, but the meager profit is worrying.
ZEEKR is moving towards a closed loop
In the "Blue Geely Action", the status of ZEEKR is very prominent, but Geely adopts the "horse racing" mechanism, with high, medium and low grades, sedans and SUVs, pure electric, extended range, plug-in hybrid, and battery swapping.
ZEEKR's advantages are its own battery and motor R&D and production capacity, as well as its R&D center in Sweden, which can be called "little BYD". It took the lead in independent listing, opened up financing channels, and increased the chances of winning the "horse race".
1) Not yet to stand out
ZEEKR's first product was the ZEEKR 001, with 199 units delivered in October 2021 and a total of 6,007 units delivered by the end of the year. It accounted for 1.5% of Geely Automobile's total sales in the fourth quarter and 16% of Geely's NEV sales.
ZEEKR's second product is the ZEEKR 009 (six-seater MPV), and deliveries will begin in November 2022.
In Q4 2022, ZEEKR's sales increased to 32,000 units, accounting for 7.3% of Geely's total sales and 28% of Geely's new energy vehicle sales.
ZEEKR's third product is the ZEEKR X (compact SUV), with deliveries starting in June 2023.
In Q4 2023, ZEEKR sold nearly 40,000 units, a year-on-year increase of 22.1%, accounting for 7.5% of Geely's total sales and 21% of Geely's new energy vehicle sales.
As of the end of March 2024, ZEEKR has delivered a total of 230,000 units in the 10 quarters, accounting for 5.7% of Geely's total sales and 22.5% of Geely's total NEV sales in the same period.
ZEEKR is a mid-to-high-end model that Geely has high hopes for, but its share of Geely's new energy vehicle sales hovers below a quarter, and it is not yet able to stand out. Galaxy and Lynk & Co have strong growth momentum, both of which show the potential of "Geely's No. 1 brand of new energy vehicles".
2) Gross profit per bike has soared
In 2021, ZEEKR will sell 6,000 vehicles, with an average price of 257,000 yuan, a cost of 252,000 yuan, and a gross profit of 4,700 yuan, with a gross profit margin of less than 2%;
In 2022, the sales volume of ZEEKR will increase to 72,000 units, the average price of a single vehicle will be 273,000 yuan, the cost of a single vehicle will be 261,000 yuan, the gross profit of a single vehicle will be 12,800 yuan, and the gross profit margin will be 4.7%;
In 2023, the sales volume of ZEEKR will be close to 120,000, the average price of a single vehicle will be 286,000, the cost of a single vehicle will be 243,000, and the gross profit of a single vehicle will be 42,800 yuan, with a gross profit margin of 15%.
Automobiles are a model of economies of scale, and the larger the scale of production and sales, the more significant the cost advantage. The surge in ZEEKR's gross profit is closely related to the growth of sales volume.
However, in 2023, ZEEKR's sales volume will only be 6.6% of Tesla's, and the gross profit margin will only be 2 percentage points lower than Tesla's, indicating that ZEEKR has borrowed the power of the group (Geely Automobile's sales will reach 1.687 million units in 2023).
3) Gross profit and expenses
Although backed by the group company, ZEEKR's gross profit margin is good, but due to its small scale, it cannot dilute R&D and administrative expenses.
In 2023, ZEEKR's gross profit will be 6.85 billion, marketing/administrative expenses will be 6.92 billion, higher than the gross profit, and R&D expenses will be 8.37 billion, with an expense ratio of 16.2%, 10 percentage points higher than BYD!
As the saying goes, "you get what you pay for", whether it is BYD, Tesla, Ideal, Xiaomi or Huawei Automobile, there is no sufficient R&D investment.
It is estimated that in 2024, BYD's R&D investment will exceed 40 billion yuan, which is unbeatable, Tesla will remain at about 4 billion US dollars, and other players will invest no less than 10 billion yuan in R&D to "stay on the table".
After the successful listing, ZEEKR's R&D expenses will exceed 10 billion, and it will not lag behind its competitors in terms of technology, and it is also in a relatively advantageous position in the "horse race" with Galaxy and Lynk & Co.
New energy vehicles are the general trend, and there is still no subsidy to seize the fuel vehicle market, and plug-in hybrid vehicles are promising...... It's not too late for Geely to finally see the situation and make up its mind.
*The above analysis is for reference only and does not constitute any investment advice
What are your doubts about the current investment market?
People who are changing and want to change the world are all in the Tiger Sniff APP