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Weaker Earnings And More Complexity At Geely Hit The Stock

Apr. 01, 2021 9:57 AM ETGeely Automobile Holdings Limited (GELYY)GELYF
Stephen Simpson profile picture
Stephen Simpson


  • Geely had a rough 2020, with second half results well short of expectations, and the complex ties between Geely Auto and its parent company aren't getting any simpler.
  • Not merging Volvo into Geely Auto is a mixed outcome, Geely could use a luxury nameplate, but the cost savings from increased design and sourcing collaboration could still be meaningful.
  • The ZEEKR JV looks like an attempt to leverage market enthusiasm for EV pure-plays, but it does mean the loss of a high-potential new Lynk model to the new JV.
  • Geely shares have been quite weak since my last update, but 2021 is shaping up as a better year, the company continues to be poised for share gains in China's auto market, and the shares look undervalued.

It’s always complicated when it comes to Geely Automobile (OTCPK:GELYF) (OTCPK:GELYY), and I believe that complexity has had a negative impact on sentiment over the years. With the recent launch of yet another brand through a joint venture structure with parent company Geely Holding (“ParentCo”), it’s only getting worse, and the collaboration with the Volvo (OTCPK:VOLAF) brand, also owned by ParentCo, doesn’t really simplify matters either.

The earnings miss for the second half of the year doesn’t trouble me overly much, and I believe many investors will look at it as a “throwaway year” given the impact of the pandemic. I’m less excited about the ZEEKR venture, though, and while Geely continues to perform pretty well in China’s auto market, these latest moves raise fair questions about ParentCo prioritizing itself over Geely shareholders.

These shares have been exceptionally weak over the last month since my last update. While many other electric car plays sold off during that time, Geely hasn’t recovered to same extent so far. The valuation here is still attractive for long-term shareholders, but the complexity of the Geely-ParentCo relationship and the risks of self-dealing to the detriment of shareholders are risks to consider.

Volvo – No Merger, But Closer Collaboration

One of the potential drivers for Geely in 2021 is now resolved and off the table – ParentCo won’t be merging Volvo (which is owned at the ParentCo level, not by Geely Auto) with Geely. Instead, the two companies will be collaborating more closely on product sourcing and new product development.

I view this as a mixed development. Merging Volvo into Geely Auto would not only have simplified the corporate structure and some of the complicated financial arrangements between Geely and ParentCo, it would have also given Geely a strong three-tier brand platform, with Geely targeting budget car buyers, Lynk & Co (“Lynk”) targeting the

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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