Geely Auto: European access through Renault matters more than component sales   

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Some people collect cars. Chinese billionaire Eric Li Shufu, founder of Geely Auto, accumulates commercial relationships with foreign carmakers. Already he controls Volvo Cars and has interests in Mercedes, Lotus and Aston Martin among others. Add Renault to the list of partners.

Li’s Geely Automobile Holdings and France’s Renault on Tuesday signed a joint venture to make hybrid powertrains and internal combustion engines. But this JV is more than a component deal with a European carmaker. It presages Geely’s efforts to expand its electric vehicles overseas.

The joint venture targets annual sales of €15bn, not far from total Geely Auto Holdings revenues. It will produce up to 5mn engines and transmissions annually using existing capacity. Geely, via its subsidiary Aurobay Holding, will hold a third of the joint venture. Half goes to Renault and the remaining stake to Geely Holding subsidiary GHPT. Saudi Aramco is pondering a separate investment.

Geely Auto could use a sales boost. Its shares are down nearly a fifth in the past six months. A local price war in both petrol- and battery-powered cars has hurt sentiment. Geely has suffered four years of declining operating margins.

That explains Geely’s focus on its all-electric Zeekr premium brand. Volumes have risen sharply, with 71,000 vehicles sold in China last year. Zeekr already offers three models just two years after its launch.

That fast start enabled Zeekr to raise $750mn from investors including battery maker Contemporary Amperex Technology at a valuation of $13bn in February. That compares with the $12.5bn market value of Hong Kong-listed Geely Automobile Holdings.

The move into Europe is ahead of a US listing, for which Zeekr confidentially filed last year. Zeekr has begun taking pre-orders for its cars in Sweden and the Netherlands. Geely provides a vanguard for other Chinese automakers keen to export China’s new-found electric vehicle expertise overseas.