Geely surpasses BYD, how big is Li Shufu's ambition?

BT Finance

2024-05-15 07:00Posted on the official account of BT Finance in Beijing

Geely's founder, Li Shufu, has been in the limelight lately.

Recently, Li Shufu's partner Yu Minhong opened a unique online live broadcast, which did not directly praise Geely's car or live broadcast to bring goods, but told the bits and pieces of personal entrepreneurship along the way. This point may be influenced by Yu Minhong, at the beginning of the live broadcast, Yu Minhong did not bring goods in the live broadcast, but talked about topics such as education and cognition, which successfully attracted countless fans, which created the later Oriental Selection.

Li Shufu chose the "live broadcast debut" in Linhai, Taizhou, Zhejiang, the birthplace of the first Geely car and the first Geely school, which is the place where the dream of "building a good car affordable for the people" began, which has extraordinary implications. Previously, Li Shufu said, "A car is not a simple business that can be played with money, it must endure loneliness, withstand temptation, and require the precipitation of knowledge, experience and time." "It has become a human sobriety in the automobile circle. And he emphasized that "if China wants to move from a manufacturing country to a manufacturing power, it must master the core competitiveness of the manufacturing industry" is a piece of advice to the automobile circle. 

Then, in the first quarter of 2024, Geely surpassed BYD to become the world's 10th largest car company with a global market share of 3.5%, and a significant increase in the global market share of 3.1% in 2023, including 8% in China and 3% in Europe. According to the data, Geely Holding Group's sales volume in the first quarter of 2024 will be 738,400 units, a year-on-year increase of 44%. BYD's global market share fell from 3.5% in 2023 to 3.2%. In addition, among the top 20 auto brands, Chery Group, Changan Group and SAIC Group ranked first among them with a share of 3.0%, 2.6% and 1.7% respectively, and Geely Group ranked first among many shortlisted Chinese auto brands. 

Recently, Li Shufu's 9th listed company was born. On the evening of May 10, Geely's Zeekr Auto (NYSE:ZK) was listed on the NASDAQ. From its establishment to listing, it took 7 years for Tesla, 4 years, 6 years, and 5 years for Wei Xiaoli, and only 37 months for Zeekr, which refreshed the fastest listing record in the history of China's new energy vehicle companies, and also became the fourth Chinese new energy vehicle company to be listed on the U.S. stock market after Wei Xiaoli.

What makes Li Shufu even happier is that on the day of ZEEKR's listing, the stock price rose by as much as 35%. As of the close of trading on May 13, Geely Group's Hong Kong stocks closed at HK$9.940, with a total market value of HK$100 billion. However, Geely Group's Hong Kong stock price has fallen by more than 70% from its high of HK$35.830. 

Why is it listed in four folds of "bleeding"?

Among the four U.S.-listed new energy vehicle companies, the performance of the U.S. stock market on the first trading day was different, with the ideal share price rising the most, reaching 43.13%, with a market value of US$13.92 billion, Xpeng's stock price rising 41.47%, with a market value of US$14.96 billion, NIO's stock price falling 4.15%, with a market value of US$6.15 billion, and as the fourth listed new energy vehicle company in the U.S., Zeekr's stock price rose by 35% on the first trading day, with a market value of US$6.997 billion.

Among the four listed new energy vehicle companies, Xiaopeng has the highest market value on the first day of listing, followed by Ideal, Zeekr ranks third in market capitalization, and NIO has the lowest market capitalization. As of the close of the U.S. stock market on May 11, the market value of the three new energy vehicle companies listed in Wei Xiaoli has changed greatly, with the ideal market value of 28.32 billion US dollars ranking first, Weilai ranking second with a market value of 10.58 billion US dollars, Xiaopeng ranking third with a market value of 7.303 billion US dollars, and the new recruit ZEEKR ranking fourth. However, ZEEKR's listing is a "discounted" listing, and if calculated based on the valuation of the latest financing, ZEEKR's market value is as high as $13 billion, ranking second among the four U.S.-listed car companies. Based on the issue price, ZEEKR raised US$441 million in this IPO, creating the largest U.S. IPO since Didi's listing in June 2021.

As a new energy vehicle company that has only been established for a little more than 3 years, the performance of ZEEKR is actually amazing enough. In 2015, Li Shufu launched the "Blue Geely Action" plan, which is limited to five years, and by 2020, new energy vehicles will account for 90% of sales, but by 2020, Li Shufu's plan has not been realized, and only 5.2% has been completed.

This made Li Shufu, whose heart is higher than the sky, a little unbearable, and in 2021, he personally took command and established Zeekr, which focuses on new energy vehicles, this time Li Shufu did not set a specific sales ratio, and its purpose is mainly to enhance Geely's influence and market share in the field of new energy vehicles as soon as possible. For this reason, Li Shufu made a bloody investment, serving as the chairman of the board of directors, and An Conghui, president of Geely, as the CEO, which shows that Li Shufu has high hopes for Zeekrypton and has also made a heavy bet.

In order to speed up the implementation of ZEEKR's new energy process, Li Shufu has successively transferred 51% of the equity of Ningbo Weirui and all the shares of CEVT to ZEEKR, the former is responsible for battery manufacturing, and the latter is responsible for the research and development of new energy vehicle architecture and software. More than 2 months after its establishment, the first ZEEKR 001 rolled off the assembly line, and it also set the fastest record for a single brand from establishment to mass production, which is directly related to the fact that ZEEKR is backed by Geely, ZEEKR itself is a car company born with a golden spoon, and Geely wants resources to resources to technology to technology.

Only one year after its establishment, Li Shufu put the IPO of ZEEKR on the agenda. In December 2022, Geely Group issued an announcement on the Hong Kong Stock Exchange, announcing that it proposed to spin off Zeekr Auto to make it an independent listing, and submitted a draft registration statement to the SEC for a possible initial public offering. To this end, ZEEKR has also carried out Series A financing. Enniu data shows that on February 13, 2023, ZEEKR completed Series A financing, with investors including Amnon Shashua (Senior Vice President of Intel), CATL, Yuexiu Industrial Fund, Ningbo Commerce Fund, State-owned Assets Xin'an, Hongshang Group, Bilibili, Boyu Investment, etc. The size of this round of financing reached $750 million, and the valuation has reached $13 billion. This valuation was later confirmed by Dai Qing, senior vice president and CFO of Geely Automobile Group, at Geely Automobile's 2023 interim results meeting.

Compared with the valuation of $13 billion at the beginning of 2023, its market capitalization is only $5.13 billion based on the issue price of ZEEKR, which is equivalent to a four-fold listing. However, compared with the other three new energy vehicle companies listed on the U.S. stock market, the outstanding shares issued by ZEEKR account for only 8.5% of the share capital, while Tesla, Weilai, Xpeng, and Ideal account for 87%, 66%, 64%, and 55% of the outstanding shares in the U.S. stock market respectively. This means that the control of the company is still firmly in the hands of Li Shufu, the actual controller of Geely Holding Group.

Li Shufu is playing a big game of chess?

For Li Shufu, who already has 8 listed companies, it is a "big bloodletting" to be in a hurry to list ZEEKR at a discount, and he also knows the benefits and disadvantages of discounted listing, why would he choose to go public in a hurry? This is related to the cutthroat competition in the new energy market. 

As we all know, new energy vehicles burn money, and Li Bin, the founder of Weilai, has publicly stated that he needs at least 20 billion yuan to enter the new energy vehicle track, in fact, Li Bin said that this amount is a bit conservative, after all, Weilai has lost more than 100 billion yuan and still failed to make a profit. With the layout of new energy by many car companies and the entry of new forces such as Nezha and Leap into the track, the competition has become more fierce, and many car companies have to seize market share by cutting prices. 

According to BT Finance statistics, 34 new energy models have chosen to reduce prices so far in 2024, of which more than half have a price reduction of more than 10%, and the highest price reduction has reached 22.2%. Since August last year, ZEEKR has also participated in the price reduction war, the price of ZEEKR 001 has dropped from 300,000-386,000 yuan to 269,000-329,000 yuan, and the starting price of new cars ZEEKR 007 and ZEEKR X is also 200,000 yuan. According to public data, ZEEKR has been established for three years, with net losses of 4.514 billion yuan, 7.655 billion yuan, and 8.264 billion yuan respectively, with a cumulative loss of more than 20 billion yuan in three years. 

Price reduction means that they need strong financial support to fight a price war, which is a battle that new energy vehicle companies have to fight, and once it does not fight, it means that all previous efforts may be in vain. Taking BYD, which sold more than 3 million vehicles globally last year, as an example, its R&D investment in the field of intelligence exceeded 100 billion yuan before it returned to the first place in global sales of new energy vehicles. The R&D investment of Ideal and Xpeng has increased significantly, and NIO has also invested more than 10 billion yuan in R&D for two consecutive years. Although ZEEKR is backed by Geely's big financiers, its own financial resources are hardly strong. 

According to the financial report data, as of the end of 2023, ZEEKR's cash flow is only 3.26 billion yuan (about 4.1 billion yuan including cash equivalents and restricted cash), which ranks downstream among many new energy vehicle companies. In the same period, Tesla's cash flow was as high as 210.3 billion yuan, making it the largest cash flow among new energy vehicle companies. BYD, Xiaomi and Ideal cash flow are more than 100 billion, Weilai and Xiaopeng cash flow in the same period are 57.3 billion yuan and 45.7 billion yuan respectively, and even the cash flow of Leap in the same period is as high as 7.11 billion yuan. 

"Ammunition" shortage of ZEEKR, obviously needs more financial support, and with the current primary market investment environment, the possibility of ZEEKR to obtain large financing here is decreasing, combined with the increasingly fierce competition of new energy vehicles and the previous high valuation of the automaker continues to fall, the high valuation of the automaker may be unsustainable. Although ZEEKR's discounted listing at this time is a loss for investors, for ZEEKR, which cannot make its own blood in the short term and needs a lot of funds to deal with the competition, it can only choose to go public as soon as possible. 

"Capital player" Li Shufu

Li Shufu is an industrialist and a "capital player" who is good at using capital, as can be seen from Geely's "snake swallowing elephant" swallowing Volvo. The former "cattle herding baby" already owns the largest automobile group in China, and it has 9 listed companies in its hands, which is more than any car tycoon in the domestic automobile circle.

In 2005, Li Shufu's first listed company was born, and Geely Automobile was successfully listed on the Hong Kong Stock Exchange that year, taking it as the "base camp" Li Shufu started a crazy expansion, won Qianjiang Motorcycle in 2016, won the commercial vehicle company Valin Xingma (later renamed Hanma Technology) and Lifan Automobile in 2020, and successfully landed Volvo acquired in 2011 in the capital market of Stockholm, Sweden through capital operation in 2021.

2022 was another bumper year for Li Shufu, as Geely and Volvo's joint venture Polestar and ECARX, an automotive intelligence technology company, were listed on the US stock market in June and December, respectively. Before half of 2024 has passed, Li Shufu has won two more listed companies, the ultra-luxury car brand Lotus was listed on the U.S. stock market in February, and Zeekr was also listed on the U.S. stock market on May 10. Interestingly, Li Shufu holds 9 listed companies, but none of them are A-share listed companies.

However, Li Shufu's road to "capital" is far from over, and there are also long-distance cars and Cao Cao Travel, which have been rumored to be listed at any time. In addition to the 9 listed companies owned by himself, Li Shufu also invested in Mercedes-Benz's parent company Daimler, Aston Martin, Renault Korea and other companies, with its shareholding ratio, either the actual controller or the major shareholder, which holds 34% of the shares of Renault Group, holds 9.6% and 17% of the shares of Daimler Group and Eston Martin, and acquired the London Taxi Company in the United Kingdom, the American flying car company Terrafugia, and at present, Li Shufu's sub-brands have about 20. It is also the one with the most brands among the many domestic auto industry bigwigs.

Geely Group President An Conghui has repeatedly publicly stated that Geely wants to become a Volkswagen Group in the era of new energy vehicles, which is reflected in Geely's equity distribution of ZEEKR listing, according to the prospectus, after the listing of ZEEKR US stocks, Li Shufu holds 74.6% of the shares, An Conghui holds 2.8% of the shares, Li Shufu "bloodletting" listing, but firmly has control over ZEEKR. The Volkswagen Group, which An Conghui said, also has dozens of sub-brands, and Geely is somewhat similar to the Volkswagen Group in this regard, although Geely's current sales are far from being a rival to the Volkswagen Group.

In 2023, Geely's total annual sales will be 2.79 million units, of which Geely Automobile's annual sales will be 1.6865 million units, a year-on-year increase of 18%. And ZEEKR, which Li Shufu has high hopes for, will sell 119,000 units in 2023, almost entering the threshold of 10,000 units per month. As of the end of April 2024, ZEEKR has delivered more than 240,000 vehicles. Among them, the cumulative delivery volume from January to April this year was 50,000 units, a year-on-year increase of 111%.

It is worth mentioning that the gross profit margin of ZEEKR has increased year by year, and in 2021, 2022, and 2023, the gross profit margin of ZEEKR will be 1.8%, 4.7% and 15.0% respectively, which may be a major reason why ZEEKR is favored by investors. The substantial increase in gross profit margin also provided Li Shufu with confidence, and set a policy for ZEEKR to "sell 230,000 vehicles in 2024; Become the No. 1 Chinese pure electric brand with sales of more than 200,000 yuan; ZEEKR 007 surpasses Tesla Model 3 in sales, and strives to turn losses into profits in 2024. ". In 2025, Li Shufu set the sales volume at no less than 650,000 units, and the global market share of high-end smart electric vehicles will reach the top three in the industry.

After eating Volvo from the "snake swallowing the elephant", Geely has won the sales championship of its own brand cars for many years, becoming the leading domestic car manufacturer, and successfully listed the sub-brand Extreme Krypton in the United States after entering the new energy market.

Author | Dream Shaw

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