China’s Geely can save “several billion yuan” each year by taking its New York-listed subsidiary Zeekr private and “fully” integrating the luxury electric vehicle unit with its Hong Kong-listed mainstream car business, Daniel Li, chief executive of Geely Holding Group said on Thursday (our translation).
Speaking to investors during Geely’s first-quarter earnings conference, the company’s management explained the reasons behind its bold, abrupt plan to take Zeekr private after just one year of listing in New York, calling it the “ultimate solution” to fully restructure Geely’s business operations.
“We must move away from having a fragmented, disorganized brand portfolio to the deep integration of our resources, gathering all together in one strong fist. Only then will we have a chance to succeed in the fiercely competitive market,” said Gui Shengyue, CEO of Hong Kong-listed Geely Auto.
Why it matters: Geely has been shifting its focus from expansion and broadening its restructuring effort for months with its “Taizhou declaration” cost-cutting plan issued (in Chinese) in September. This was followed by the merger between Zeekr and Lynk & Co revealed in November and completed early this year.
Geely Auto on Thursday posted impressive first-quarter numbers, with sales exceeding 703,800 units, representing a 48% growth from a year earlier, and net profit up 264% to nearly RMB 5.7 billion ($788 million). Zeekr also narrowed losses by 60% year-on-year with an improved gross margin of 19.1% in the three months ended March 31, although vehicle deliveries from January to April fell short of expectations.
READ MORE: Despite taking Zeekr private, Geely emphasizes willingness to cooperate with global capital markets
Details: Li said that a further“several billion yuan” will be saved annually with Geely’s launch of a joint purchasing mechanism for its various marques, while it expects significant cost reduction in manufacturing and some supporting functions such as finance and human resources.
The move will minimize communication barriers, address conflicts of interest, and create synergies between Zeekr and Geely Auto, currently two separate, independent public-listed entities, and achieve greater benefits following the recent merger between Zeekr and Lynk & Co, Gui said.
Its four major brands will be more clearly differentiated. Besides Zeekr, Lynk & Co targets the upper mass EV segment, Galaxy remains its focus of expansion in a broader mainstream EV market, and the Star Series provides energy-efficient, intelligent gas-powered cars, according to Geely.
Once Geely Auto completes Zeekr’s privatization, it will become the flagship public-listed entity of Geely Holding Group, which includes all of its wholly-owned car brands. Meanwhile, Geely has no plans to acquire other non-wholly owned brands, such as Smart, Polestar, and Lotus, Gui added.
Context: Geely Auto is one of the few Chinese automakers to see strong growth in both revenue and profit in recent months, along with BYD which reported revenue of RMB 170.4 billion and net profit of almost RMB 9.2 billion in the past quarter. SAIC and Changan registered a slight revenue decline but double-digit profit growth during the period, while Great Wall Motor and GAC saw lackluster first-quarter performance.
