Investing in New Energy, Did Geely Automobile "Bet" Correctly?

Since Karl Benz created the world's first automobile in 1888, fuel-powered vehicles have "dominated" the global automotive market for over 200 years. However, in just the past few years, with the increasing emphasis on environmental protection and low-carbon issues by various countries, "electricity advancing and oil retreating" seems to have become an irreversible trend.

With the rise of new energy vehicles powered by lithium batteries, the survival space of traditional fuel vehicle giants has been significantly compressed. The most direct manifestation is in the capital market, where in the global automotive market value ranking, Tesla, ranked 1st, BYD, ranked 3rd, and Rivian, ranked 5th, are all new energy vehicle companies.

As the first private car company in China, Geely is also actively moving towards new energy vehicles and has proposed the "Geely Blue Action". However, why does Geely's founder, Li Shufu, now admit to the outside world that the plan has failed?

I. Li Shufu's "Geely Blue Action"

In 2015, Li Shufu announced the "Geely Blue Action," in which he made a bold layout for the future direction of Geely's kinetic energy development: by 2020, 90% of Geely's models would be new energy vehicles, with 35% being purely electric. Subsequently, Geely cooperated with technology giants such as Baidu, Foxconn, and Tencent, starting with solutions like distributed power systems and hydrogen fuel cells, to increase research and development in the field of new energy vehicles.

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So, how much has Li Shufu's "Geely Blue Action" been realized? In order to establish a foothold in the new energy vehicle market, Geely has successively launched high-end new energy models - Lynk & Co, and mid-range models - Geometry, but Geely's new energy vehicles have not won the favor of consumers.

In 2021, Geely Automobile's total sales volume was 1.328 million vehicles, winning the championship in domestic passenger car sales for five consecutive years. However, the sales volume of new energy vehicles was only 100,000, accounting for only 7.5%, which is far from the 90% target set by Li Shufu. In contrast, BYD, also a domestic car company, sold 590,000 new energy vehicles in 2021, accounting for more than 80% of the total sales volume, almost achieving the goal that Geely did not.

So, what is the problem with Geely? Was Li Shufu's goal set too high at that time, or is it that Geely's internal execution was not in place?

II. Volvo Assists Geely's New Energy TransitionLi Shufu once openly admitted: "The failure of 'Geely Blue Action' is not related to strategy or execution, but rather due to the immaturity of the timing." Li Shufu's statement indirectly acknowledged the issue of being too hasty in Geely's transition towards new energy. However, while Geely's own new energy vehicle (NEV) brand has been performing modestly, the acquired brands have shone brightly.

As early as 2010, Geely Holding Group acquired the Swedish automotive brand Volvo from Ford Motor Company for $1.8 billion, an acquisition later referred to by Geely Chairman Li Shufu as "a country boy pursuing a big star." Today, this "big star" acquired for $1.8 billion is helping Geely complete its new energy transition.

Recently, Volvo unveiled its all-new compact pure electric SUV, the XC40 Recharge P6 model. The P6 is equipped with a new power battery that offers a range of up to 529 km under CLTC conditions. Additionally, the P6, fitted with this battery, was tested in the Harbin test field at minus 30 degrees Celsius, remaining frozen for two days and nights, yet it could still start easily. To ensure battery temperature, the P6 battery contains 50 temperature sensors to monitor the battery's temperature in real-time. As a result, the Volvo P6 model has won over many consumers in high-latitude cold regions.

According to Volvo's financial report for 2021, the company's annual operating income reached 282 billion Swedish kronor, a 7% increase compared to the previous year, with a net profit of 20.3 billion Swedish kronor. Global sales also approached 699,000 units, a 5.6% increase compared to 2020. On a global scale, Volvo's main market is still in its "home" of Europe. However, this does not hinder its global popularity.

Facing the "chip shortage" of automotive-grade chips in 2021, Volvo decisively allocated the limited chips to the Recharge charging models. It is precisely this strategic adjustment that has led to rapid growth in the sales of Recharge models. Statistics show that the sales of Recharge models in 2021 increased by 64% year-on-year. This misallocation of chips was also a successful attempt at the electrification transformation of Volvo Cars.

III. Summary

In early February of this year, Volvo announced a collaboration with Volkswagen's battery company Northvolt to build a new battery factory in Sweden. It is expected that the factory's annual battery production capacity will reach 50 GWh, sufficient to meet the needs of 500,000 electric vehicles. Subsequently, Volvo announced that it will invest 10 billion Swedish kronor in the next few years in its Torslanda manufacturing plant in Sweden, in preparation for the production of the next generation of electric vehicles.

At the beginning of 2021, Volvo's Chief Technology Officer, Henrik, said, "The internal combustion engine will have no future; Volvo will become a pure electric vehicle company by 2030." It is unknown whether Henrik deliberately catered to the owner of the parent company, Li Shufu, but judging from the data and actions, at the critical juncture of Geely's transition to new energy, Volvo has made a successful demonstration for its parent company.