Morgan Stanley restored its rating on Hong Kong-listed Geely Auto, expecting the Chinese automaker to be able to weather macro and industry uncertainties. Intense competition in China’s new energy vehicle market, including battery cars and hybrid vehicles, is increasingly forcing automakers to lower prices and add features to survive. Many companies have launched overseas expansion strategies to tap new revenue streams, but rising trade tensions with the United States and, more recently, the European Union, have added to the challenges. “We believe Geely is a beneficiary of market consolidation,” Morgan Stanley Asia equity analyst Tim Hsiao and his team said in a report that resumed reporting on the stock on June 25. “Geely stated that its business in the EU is limited, except for Lynk & Co’s PHEV exports (which are currently not affected by the tariff increase) and Zeekr’s potential overseas expansion (which will start at a minimum level),” the report said. PHEV is the abbreviation for plug-in hybrid electric vehicle. Hangzhou-based Geely entered China’s auto industry in 1997 and is best known for its 2010 acquisition of Volvo. Morgan Stanley analysis shows Geely rose to third last year in terms of China market share from fourth for many years, behind a Volkswagen joint venture in the country. The analysis shows that BYD has been ranked first since 2022, up from 13th in 2021. In 2020, BYD launched the Blade battery, which many believe helped spark the company’s growth in electric vehicles. Geely announced on Thursday that it has developed its own rival lithium iron phosphate “Aegis Short Blade Battery”, which it claimed passed tests above industry standards and did not explode. The company also claims the new batteries will last 50 years, which could support second-hand sales. The company plans to first use the batteries in its own vehicles this year. Most of Geely’s cars are still traditional internal combustion engine vehicles. But Morgan Stanley analysts pointed out on Tuesday that the company has increased its share of new energy vehicles to 32% so far this year, higher than the 23% of peers such as Great Wall Motors. Geely’s “presence in the (new energy vehicle) market bodes well for its mid- to long-term domestic market position amid the new energy vehicle transformation trend and contributes to the long-term sustainability of profits,” the report said. Analysts It is expected that despite the slowdown in growth in the second half of this year, Geely’s overall sales will still grow by 22% this year. Zeekr and other EV brands typically release monthly delivery data around the end of each month. Geely announced its first-quarter results on Friday for the first time – Hong Kong rules do not require such frequent disclosures. Documents show quarterly revenue rose 56% year-on-year to 52.32 billion yuan ($7.2 billion). Profit attributable to shareholders more than doubled to RMB 1.56 billion compared with the same period last year. Geely shares closed down 1.2% at HK$8.79 (US$1.13) on Friday ahead of the earnings release. Morgan Stanley analysts on Tuesday set a price target of HK$11.20 (US$1.43), about 27% higher than Friday’s closing price. “Although profitability has fluctuated over the past 2-3 years due to (new energy vehicle) investments and one-time non-cash expenses, we believe there are good prospects for profit growth due to higher sales and possible reduction in losses from new energy vehicle enterprises,” Morgan Stanley’s report said. “We believe the company’s profitability will enable it to weather the current macroeconomic uncertainty,” the analysts said.
