Geely profit beats estimates amid reshuffle, sector scrutiny

[HONG KONG] Geely Automobile Holdings’ first-half profit beat estimates as sales soared and the carmaker sought to reduce costs, even as the wider Chinese auto industry faces regulatory scrutiny over a long-running price war.

The results incorporate a change in accounting policy, announced in April, that’s been applied retrospectively. Under the new method, net income dropped 14 per cent from a year earlier to 9.3 billion yuan (S$1.7 billion) in the six months ended Jun 30. That compares with the 7.6 billion yuan expected by analysts.

Revenue climbed 27 per cent to 150.3 billion yuan, the Hong Kong-listed arm of billionaire Li Shufu’s auto empire said on Thursday.

Vehicle deliveries rose 47 per cent in the first half to 1.4 million units. The robust start to the year prompted Geely in July to lift its full-year target to three million cars from 2.7 million.

Geely has sought to streamline its sprawling network of businesses as it looks to take on the likes of BYD, China’s best-selling carmaker. That includes taking the US-listed premium electric vehicle brand Zeekr private, after which Zeekr chief executive officer Andy An will become the CEO for the wider Geely group.

The acquisition of Lynk&Co by Zeekr, which included a partial payment of 6.4 billion yuan, saw total borrowings surge 162 per cent to 19.9 billion yuan as at the end of June compared with December last year.

The Hangzhou-based company’s consolidation efforts are starting to show results, and it’s narrowing the gap in sales with BYD in the China market. Not including seasonal fluctuations due to Chinese New Year holidays, the difference of 61,000 vehicles between the two carmakers’ domestic deliveries in July is the smallest in about three years. BYD’s overall sales grew 33 per cent in the first six months of this year.

Meanwhile, Chinese car manufacturers are facing heightened scrutiny from authorities over the industry’s long-running price war that’s squeezing margins across the entire auto supply chain. The sector is also facing the winding down of a national trade-in subsidy, with the combination of factors likely to weigh on sales.

Still, analysts are optimistic for Geely’s performance in the second half of the year, with upcoming product launches such as the hybrid A7 sedan from mass market brand Galaxy and the luxury hybrid 9X sport utility vehicle from Zeekr likely to continue to drive volumes. BLOOMBERG