Volvo expertise leads Geely to 126% profit jump on SUV success

23 March 2017

23 March 2017 Better product design alignment with consumer tastes and improved engineering since Geely’s 2010 purchase of Sweden’s Volvo has helped propel Geely to its biggest profit growth in eight years in 2016, with a 126% jump in profits to Rmb 5.1 billion (€687 million). This considerably beats even analysts’ already high expectations. Full year revenues rose 78% to Rmb 53.7 billion (€7.2 billion) on vehicle volume growth of 20.5%. The strong results are due to the launch of a suite of SUV models in 2016 (Boyue, GS and Vision) in China, with quality domestic brands leading those of foreign brands. Geely has capitalised on China getting on the SUV bandwagon, with surging demand of larger, higher margin cars in secondary cities, that are less concerned about congestion than Beijing, Shanghai and Shenzhen. Women are disproportionately higher buyers of the SUVs. Geely also benefitted from greater acceptance in China of its domestic Chinese brands, with Geely prices up 22%, although still behind foreign competitors. Its purchase of Volvo in 2010 helped Geely’s designs get more in line with consumer tastes, and allowed it to upgrade its offering and buy parts from a more global array of suppliers. Geely aims for 2017 auto sales of one million units, up 31% from last year. Geely, however, admitted its late 2016 sales were heavily influenced by a reduction in purchase tax subsidies in China for compact vehicles, from 50% to 25% from 2017. Meanwhile on the back of this domestic success, Geely has withdrawn its bid to acquire Malaysia’s struggling state automotive company Proton, Geely President An Conghui told South China Morning Post. While he did not elaborate as to why, Geely chairman Li Shufu indicated earlier this month that it was planning to abandon the bid due to Proton parent DRB-Hicom’s indecision regarding the partnership. This leaves PSA as the only publically known of the few remaining bidders. A potential problematic factor for PSA is the Malaysian government’s desire to keep a stake in Proton, although it is unclear whether it wants to retain control (a similar issue to the Renault-Nissan Aliiance’s France stake in Renault). Geely also owns maker of London’s iconic black cabs Manganese Bronze. It currently assembles the TX4 model in Shanghai for export to Britain, but has just opened a new electric black cab factory in Coventry, UK. Photograph courtesy of Volvo Car Corporation