Automakers Geely, Volvo to merge and list
As if to underline the more dynamic and entrepreneurial nature of private sector firms, Geely Auto Group in China is set to create what many are describing as China’s first global car maker.
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Part of China’s big three private car manufacturers, along with Great Wall and BYD, Geely is small compared to China’s big, state-backed carmakers, like Shanghai Automotive, Beijing Automotive, Dongfeng Motors, Changan Auto, First Auto Works and Guangzhou Automotive, most of whom also operate joint ventures with Western carmakers like General Motors, Ford, Volkswagen, BMW, Toyota, etc.
But Geely is not without ambition.
In 2010, it spent U.S. $1.8 billion buying the struggling Volvo car division from Ford and then went on to invest a further U.S. $8 billion completely revamping the car maker’s model range. The owners left Volvo to operate more or less autonomously and were rewarded by rising sales.
Today, Volvo is predicting 2020 sales of 800,000 cars and SUVs, but it continues to struggle against other luxury brands, such as Mercedes and BMW, where scale gives significant cost advantages.
Some 18 months ago, Volvo tried to list independently, but the idea was dropped in the face of low investor valuations. Now-owner Geely has announced the Volvo and Geely brands will merge to be listed in Hong Kong and Stockholm, the Financial Times reports.
The deal would unify the bulk of Geely Chairman Li Shufu’s growing stable of automotive brands and investments to create a company worth some $30 billion — on par with Ford, AutomotiveNewsEurope wrote this past week, adding the new company’s combined annual shipments would surpass 2 million, rivaling shipments of BMW-branded cars.
Under Li Shufu, Geely has acquired not just Volvo but start-up Lynk & Co and electric Polestar, London black cab maker LEVC, Malaysia’s Proton and Britain’s sports car brand Lotus.
Geely’s new energy brand Geometry may also be included in the deal, the article reports. Geely sold 1.36 million cars in 2019 amid a difficult year for Chinese carmakers and aims to sell 1.4 million cars this year. Volvo sold just over 700,000 cars last year, but its sales of its XC40 and production at its new U.S. plant are going well.
Geely has a current market value of about $16 billion on the Hong Kong market, while Volvo targeted a range of $16 billion to $32 billion before it dropped its IPO plans, Autonews reports, suggesting the combined valuation of U.S. $30 billion is not unrealistic.
Geely shares rose on the news, as positive assessments were made of the opportunity to merge Geely and Volvo’s integration of components, platforms and technology, especially as the merged company moves into autonomous driving and electrification. Chinese car companies are gradually making their way into Western markets; as with Japanese and South Korean brands before them, it takes time and has to overcome considerable negative consumer sentiment.
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Geely has the advantage it can brand under the established Volvo marque. While it lacks some of its larger Chinese brethren’s scale, it makes up for it in smart investing and nimble strategic positioning.
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