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International Relations

China's Geely set to tackle mainstream European market

Owner of Volvo Cars to announce strategy by end of the month

A Geely Automobile showroom in Beijing.   © Reuters

HONG KONG -- China's homegrown auto maker Zhejiang Geely Holding Group is set to tackle the mainstream European market, following years of preparation and a new-found confidence about driving onto foreign turf. Despite owning Sweden's Volvo Cars, and after its chairman Li Shufu recently acquired close to a 10% stake in Daimler of Germany, it currently sells 99% of its cars in its home market of mainland China. 

An Conghui, president of Zhejiang Geely and executive director of its Hong Kong-listed subsidiary Geely Automobile Holdings, said during the latter's earnings briefing on Wednesday that "at the end of this month, we will disclose our Europe strategy." He added that the company was intending to "enter the advanced European market," marking a "fundamental change" for its overseas operations.

When asked after the press conference about plans in other major markets like North America, An said the company was not yet ready to talk about any plans in the U.S. Whether U.S. President Donald Trump's tough stance on China, such as blocking acquisition deals, has affected the plan in North America, An said, "we run a company, and do not get involved in politics."

In 2017, Geely sold 1.247 million cars, a stellar 63% increase from the year before, but 1.235 million sales, more than 99% of the total, were in mainland China. The brand has a small overseas market, but only in less developed countries, such as Belarus, Sri Lanka, Egypt, Sudan, Cuba and Argentina.

The company, however, has explained that the cutback in its overseas exposure over recent years was intentional, due not only to robust demand at home but because it was reorganizing itself until it felt ready to switch course.

An Conghui, president of Zhejiang Geely Holding Group and executive director of its listed subsidiary Geely Automobile Holdings, announced on March 21 that the company was set to tackle the mainstream European market. (Photo by Kenji Kawase)

An himself told the media at an earnings briefing back in August 2016 that a decline in overseas auto sales had not meant that Geely branded cars were fading from the global market. "On the contrary, we have been trying to build up a presence in the last two years," he stressed at the time, highlighting the company's continued efforts to prepare the right products, services and branding abroad.

On Wednesday An called for patience regarding the details of its latest strategy, until the announcement which is expected to be made in Europe within the next 10 days. However, he did say that the new strategy "will not be a simple export and SKD (semi-knock down, a model where parts are exported and reassembled somewhere else), but a localization model," suggesting that full-fledged production will be done on the ground. This could suggest the recent start of operations at its factory in Belarus to be part of the strategy.

Following the acquisition of Volvo Cars in 2010, Geely has capitalized on this relationship and launched a new auto brand -- Lynk & Co. -- which incorporates the design and technological know-how of the Swedish company. The new branded cars are produced by a joint venture that is 50% held by Geely Automobile, 20% by its parent, and 30% by Volvo Cars. Sales of the vehicles kicked off in China during the final quarter of last year, and they are likely to be marketed in Europe as well.

In terms of its overseas moves, Geely also acquired a 49.9% stake in Malaysian carmaker Proton Holdings from the country's conglomerate DRB-Hicom last year. But An denied speculation about further foreign acquisitions, saying that the company's mission and responsibility now were to focus all efforts on implementing the strategy and plan laid out though its series of acquisitions.

The latest financial results for 2017 announced on Wednesday reflected robust sales in mainland China. Hong Kong-listed Geely Automobile's revenue reached 92.76 billion yuan ($14.65 billion), growing by 73% from the year before, while net profit attributable to shareholders more than doubled to 10.63 billion yuan.

However, the stock market response was somewhat harsh, with the company's share price falling sharply in afternoon trading in Hong Kong immediately following the disclosure. The shares closed at 25.80 Hong Kong dollars, a 6.2% dip from the day before, far outpacing the 0.4% drop in the benchmark Hang Seng Index which closed at 31,1414.52.

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