It’s said that Li Shufu thinks Geely’s market value is undervalued and wants to become a new force in the electric vehicle industry through OEM business

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Tencent technology news on February 11, sources from inside Geely Group said that, like many others in the industry, Li Shufu, chairman of the company, was annoyed by the soaring market value of electric vehicle manufacturers such as Tesla and Weilai automobile.
The news also said that for most of the past year, Li Shufu has been thinking about how to make Geely Group, which owns 9.7% shares of Volvo cars and Daimler, occupy a considerable share of China’s booming electric vehicle market, while increasing the company’s share price.
The result: a series of partnerships announced last month exposed Geely’s intention to position itself as an OEM manufacturer of electric vehicles and beyond assembly services in China, while providing engineering and development expertise. An executive of Geely Group revealed: “the chairman’s attitude towards OEM is very clear: he readily accepts and actively pursues OEM.”
Outsourcing the manufacturing business of some vehicle models through OEM transaction is very common in the automotive industry, but Geely Group’s plan is the most active attempt for automobile manufacturers to establish OEM business so far. Among the four deals announced by Geely Group, a joint venture with Foxconn in Taiwan to provide OEM manufacturing of electric vehicles is the most important, according to people familiar with the matter. Geely’s subsequent deal to make mass market electric vehicles for the troubled Los Angeles start-up Faraday will be the responsibility of a joint venture with Foxconn.
Geely, China’s largest private car maker, has also reached an agreement with Baidu to make intelligent electric vehicles for the Internet giant, with the first model to be launched next year. In addition, Geely Group is working with Tencent to develop intelligent vehicle control and automatic driving technology. So far, Geely Group and Li Shufu have not commented on the report.
Advantages and disadvantages
Geely Group has launched several electric vehicles to the market, and launched a new electric vehicle platform in September last year, with a development cost of 18 billion yuan (about 2.8 billion US dollars).
However, sources from Geely Group said that after two consecutive years of declining sales, Li Shufu began to believe that Geely Group’s approach was too traditional and began to actively establish a partnership with “big technology”. In this process, Li Shufu, who retired from the background in 2017 and 2018, began to participate more actively in the management of the group.
Geely Group’s change is not without objection. At the company’s management meeting, some raised concerns that any significant shift to OEM could make Geely a secondary partner in its relationship with technology companies and cause it to lose its advantage as an independent car manufacturer, people familiar with the matter said.
At the same time, Geely Group is also cautious about choosing Faraday as the first customer of the joint venture with Foxconn in the future, because the start-up has a record of over commitment and slow development. But people familiar with the matter said Mr. Li ignored the internal concerns. The future deal with Faraday was not recognized by the market. As a result, the share price of Geely motor, the flagship subsidiary of Geely Group, fell about 16% in the four days after the news.
On the bright side, however, these deals may solve the long-term underutilization problem of Geely’s factories. Geely, for example, can produce more than 2 million cars a year, but only about 1.3 million will be sold in 2020. The deals could also help Geely make the most of its platform, which focuses on electric vehicles. The platform is now open source and can be used for small to large cars, even light commercial vehicles.
However, the scale of Geely’s OEM manufacturing is still uncertain, and the company has no internal digital goals to achieve, people familiar with the matter said. “Basically, it’s not clear how many customers we will have in the next few years,” the source said.
Li Shufu also plans to make Geely’s second listing on China Science and technology innovation board this year to consolidate Geely’s financial foundation. Geely, which is listed in Hong Kong, has a market value of about $37 billion and its share price has risen more than 12 per cent so far this year. Sources from within Geely Group said Li was not satisfied with the result. He once compared the market value of Geely Automobile with Tesla’s more than $800 billion and that of Weilai automobile’s $98 billion, which sold less than 44000 electric vehicles last year. People familiar with the matter said Geely had considered investing in Weilai at present.
Analysts pointed out that Geely’s new deal is bold and could save the company a lot of time and money in developing and launching electric vehicles, but it also has risks. Tu Le, an analyst at Sino auto insights, a Chinese auto consulting company, said: “it is a challenge for the management of any company to integrate a major partner in any field. Therefore, it seems to be a considerable requirement for the management team to successfully launch all partner projects at one time. ” (compiled by Tencent technology / Wuji)