The world’s second and third richest car billionaires have been experiencing very contrasting years.
On one side is America’s Elon Musk, who ranks second on the Forbes rich list behind BMW’s Susanne Klatten. In recent months, he has lurched from one crisis to the next. They include smoking marijuana on a US radio show to inflammatory tweets, including one where he said he was taking Tesla private. Musk’s delisting tweet led to an investigation by US regulators. At the weekend he settled the case with the SEC by paying a fine of $20 million and stepping down as Tesla’s chairman.
Less liable to tweet is the world’s third richest auto-related billionaire, Li Shufu, founder of Chinese car producer Geely. His ambitions to turn the Zhejiang-based company into a global giant continue apace.
In the past 12 months, Geely’s parent became Daimler’s single biggest shareholder following a similar move when it became Volvo Trucks largest shareholder.
During the first eight months of the year, Geely’s domestic car sales rose 41% year-on-year, giving it bragging rights as China’s third biggest car seller (behind GM and Volkswagen). By comparison the broader sedan and SUV markets managed just single-digit growth over the same period.
Geely also beat analysts’ expectations when it revealed that first half profits had risen 54% year-on-year to Rmb6.67 billion ($971 million).
And while it is well known that Tesla’s stock price has been as erratic as its founder, it’s perhaps more surprising that Geely’s robust numbers have not led to a more bullish share price performance.
In fact since January the price of Geely’s Hong Kong-listed shares has almost halved, compared with a 12% drop in the Hang Seng Index. Part of the reason for the plunge may have been its formerly stellar performance – at the turn of the year it was trading at an all-time high – and the sheer pace of its ascent in 2017. The slide certainly blindsided many financial analysts who were confidently predicting plenty of upside in January. Since then sentiment towards the whole Chinese auto sector has deteriorated. Other overseas listed Chinese car firms are also down, with Great Wall Motor off by about a third year-to-date too.
China’s passenger car association, the CPCA, is pretty gloomy about the short-term outlook. It recently cut its 2018 sales growth forecast from 4% to zero, citing cost of living pressures that are hurting consumer sentiment (see WiC425 for more on this theme). It also noted that domestic manufacturers are starting to increase their discounts, led by Great Wall and Geely.
Geely’s suppliers are not happy with the company, which has publicly said that it will shed 30% of them as it moves up the value chain and gives more business to fewer auto-parts manufacturers. One outcome was that when the company’s first half results were reported on WeChat, the news became widely forwarded (attaining the 100K-plus popularity distinction). The reason the article went viral was reader curiosity at the number of parts suppliers posting derogatory statements about Geely in the comments section. “Geely is only doing well because it’s bleeding us dry,” was one lament, with another supplier complaining that Geely made it cut its price by 5% every year, according to ifeng.com.
Others accused Geely of putting its smaller suppliers into financial stress by delaying contract payments.
Geely insiders riposted to Sohu.com that they detected an orchestrated campaign behind the comments, and 21CN Business Herald reported Geely had requested its parts makers delete their criticisms from major portals.
The company remains confident that it will hit its 1.58 million unit sales target for this year, and Sohu.com suggests it has a larger 1.7 million unit internal goal. Moody’s believes Geely will achieve sales of 1.9 million by 2019 putting it on a par with global comparables.
Meanwhile management may think that its growing output will give it the whip hand in dealing with Geely’s discontented supply chain. It has revealed plans for a new Ningbo-based factory that will increase car production by 250,000 cars a year.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.