Achilles heel behind Geely’s sales and stock price plunging

(Source: Lishi Finance)

After the high performance in 2018, Geely began to decline rapidly in 2019. With the decline in sales, Geely's share price has plummeted from HK$29.8 per share at the end of 2017 to HK$13.34 per share on the most recent trading day, and the market value has dropped from the highest point of HK$250 billion to HK$120 billion. The slump in sales and the sharp fall in stock prices reflect the Achilles heel of Geely’s lack of “high-quality, high-volume models”. The author believes that Geely should abandon the "car tactics", no longer use the sales volume as the core KPI indicator, but pay more attention to the number of products with monthly sales above 20,000 units.

2018 is Geely’s year.

According to Geely's 2018 financial report, Geely sold a total of 1.5 million vehicles in 2018, a 20% increase from 2017, when China's auto industry experienced negative growth for the first time. Total revenue for the full year of 2018 increased by 15% to RMB 106.6 billion, and net profit increased by 18% from RMB 10.74 billion in 2017 to RMB 12.67 billion. Regardless of sales, revenue and profit, Geely has surpassed its old rival Great Wall Motor.

But what does not match the good performance is that Geely has been left out in the capital market in 2018. As of the most recent trading day, Geely's share price has plummeted from HK$29.8 per share at the end of 2017 to HK$13.34 per share, and the market value has dropped from the highest point of HK$250 billion to HK$120 billion.

Investors in the capital market are extremely keen. Although Geely's performance in 2018 is gratifying, investors have been keenly aware of the potential risks of Geely. After entering 2019, Geely's sales fell sharply as predicted.

1

According to the latest ranking of Chinese automakers released by third-party data agencies in May 2019, Chinese automakers have shown completely different performance.

Among the top 15 Chinese automakers in sales, only seven automakers such as SAIC-GM, GAC Honda, FAW Toyota, Dongfeng Honda, GAC Toyota, BMW Brilliance and Beijing Benz maintained their year-on-year sales growth. In particular, the Japanese joint-venture car companies represented by Honda performed well, and GAC Honda and Dongfeng Honda also achieved sales growth of 34.2% and 41% respectively.

The remaining eight car companies have experienced different levels of sales decline. Among them, FAW-Volkswagen, Dongfeng Nissan, Great Wall Motor and Beijing Hyundai have all fallen within 10%, and SAIC Volkswagen and SAIC passenger cars have fallen within 20%.

What is surprising is that Geely’s sales in May 2019 fell by more than 30% over the same period last year. The decline in sales in May was not a special case. Geely also fell 19% year-on-year in April. According to the sales data from January to May 2019, the total sales volume of Geely was 560,800 units, a decrease of about 12% compared with the same period of last year. It only completed 37% of the annual sales target of 1.51 million in 2019.

As can be seen from the above data, Geely is facing tremendous pressure. On the one hand, Germany, the United States, Japan and South Korea and other joint ventures to explore the medium- and low-end market, their strong performance impact on Geely, leading to the retreat of Geely. On the other hand, Geely Automobile's biggest competitor in domestic car companies, Great Wall Motor, also showed its ability to withstand the pressure of Geely Automobile in the face of competition from joint ventures.

2

To understand what is going on in Geely, we need to know more about its specific performance in various market segments such as SUVs, sedans, MPVs, pickups and NEVs.

SUV is a must for all car companies in recent years. The performance in the SUV segment determines the true competitive strength of each car company to a certain extent.

From the list of domestic SUV sales in May 2019, we can see that, among the Chinese-developed brands, Great Wall Motor's Haval H6 ranks first in sales of all SUV models with a volume of 25,523 units, and it is far ahead of other models. Among the joint venture car companies, SAIC Volkswagen’s Tiguan and Tharu, Dongfeng Nissan’s X-Trail and Qashqai occupied the other four seats in the top five.

The BoYue, Geely's main model in the SUV segment, ranked 7th, and the sales of 13527 units were only about one-half of the sales of the Haval H6. Regardless of the average product price and user reputation, Geely’s Bo Yue is clearly in the back position in the top ten models.

In addition to the leading strength of Haval H6 and Tiguan, Tharu, X-Trail, Qashqai, Rav4, CRV and other joint venture models, Geely also faces competition from other Chinese-developed brands in the SUV segment, for example, SAIC Roewe RX5, GAC Trumpchi GS4, SAIC MG ZS, Changan CS35, Changan CS75 and Haval F7 also have good selling performance.

In sedan segment, Great Wall Motors is currently giving up strategically. This should have become a chance for Geely to take the lead in this market, but it is far from meeting expectations. At present, the Chinese sedan market is still monopolized by joint ventures. Geely only has the Emgrand positioned in the low-end market, ranking 9th. In sales, it even lags behind the SAIC Roewe i5, which is also a self-owned brand car company.

Even if the joint ventures don't pay much attention to the MPV segment, Geely's Jiaji is only ranked fourth with 4,164 units of sales, and the difference between SAIC-GM-Wuling and Buick GL8, which ranks first and second, is also obvious. At the same time, it is also behind the Song Max of BYD, a Chinese-developed brand car company.

In the pickup segment, Great Wall Motor has an absolute advantage, leading the market with sales close to the total sales of the 2^nd to 4th. However, Geely is blank in this market.

In the context of the overall decline in China's fuel vehicle market, the performance of the NEV segment bears the future of various car companies. Geely's disadvantages are even more pronounced in this segment, where Chinese-developed car companies occupy a major market share.

According to the latest sales data of NEVs in May 2019 by the China Passenger Car Association (CPCA), BAIC EU Series, BYD Yuan EV, Roewe Ei5, JAC IEV 6E, Chery eQ, Ora R1, Emgrand EV, Passat 1.4 T PHEV, BYD e5 and BYD Qin Pro EV ranked were the top-10 of NEV sales.

Among them, the Beiqi EU series increased significantly in May, ranking first. The sales of Roewe Ei5 also exceeded 5,000 units in May, ranking third. In addition, Great Wall Motor's new Ora R1 ranks among the top six. Geely’s only finalist, the Emgrand EV, fell in May and only ranked the seventh place.

In terms of the performance in the segments of SUV, car, MPV, pickup and NEV, Geely did not have a leading model, and its leading sales volume is mainly based on the massive medium- and low-end models. According to Great Wall Motor's financial report, its total revenue in 2018 was 99.2 billion yuan, although it slightly lagged behind Geely, the 106.6-billion-yuan revenue of Geely was based on 1.5 million car sales, that is, average per The price of the car was only 71,000 yuan. The Great Wall Motor's 99.2 billion yuan is based on sales of 1.05 million vehicles, which means that the average price of each vehicle is close to 95,000 yuan, which is a big lead over Geely.

Therefore, only focusing on the quantity and lack of welcomed quality-oriented models is becoming the Achilles heel of Geely. This model will help boost sales during a certain period of time, but in the long run, it carries a huge risk. Judging from Geely's current product strategy, the company is not deeply aware of the potential high risks of doing so.

In the Internet era, companies in various industries have gradually abandoned the product strategy of pursuing multi-product models, but instead regard welcomed quality-oriented products as their core product strategy.

Behind the welcomed quality-oriented strategy is the change of the characteristics of information dissemination brought by the Internet era. In the era when the Internet is still not popular, brand communication is mainly driven by large-scale advertising investment, and enterprises choose multi-product tactics with uneven product quality to meet the price needs of different groups of people. And those products of poor quality are also due to the poor circulation of information among users, and will not form a negative reputation on a large scale.

However, in the Internet era, information circulation has become extremely transparent and smooth, and products that perform well will become popular products on the Internet because of the word-of-mouth communication. And those products that do not perform well will eventually be abandoned by consumers because of the negative reputation on the Internet. Therefore, more and more companies have gradually abandoned the strategy of multi-products, focusing on creating welcomed quality-oriented products.

In all walks of life, the most successful implementation of this strategy is the smartphone industry. The smartphone business leaders represented by Huawei, Xiaomi, OPPO and vivo all well implemented this strategy.

So is the automotive industry. Great Wall Motor's Fengjun makes its advantage in the pickup segment unstoppable. The Haval H6 has made Great Wall Motor a sudden rise in the SUV segment. The Haval F6, the Ora R1 and the WEY VV7 have also provided Great Wall Motor a promising future. Volkswagen's Passat, Magotan and Tiguan, Toyota's Camry, Highlander and Rav4, Honda's Accord, Fit and CRV made these joint ventures long-last. BYD, the leader in the field of new energy vehicles, has become synonymous with NEVs with its dynasty series.

However, none of Geely's models has become the top-3 in the industry.

3

The decline in sales and the plunge in stock prices are creating a very vicious circle within Geely.

According to the Hong Kong Stock Exchange's equity information, since April, a number of Geely’s executives including CEO and President An Conghui have intensively reduced their holdings of Geely stocks, resulting in a total reduction of 26.945 million shares, causing investors to panic. In addition, employees of Geely Hangzhou headquarters revealed that the company's information engineering center laid off about 300 people in February and March this year. At the same time, there are rumors that Geely has issued a mandatory car purchase program. Car purchase fees are deducted monthly from pre-tax income such as wages and bonuses, which is equivalent to a disguised salary reduction.

This series of negative news needs to be highly vigilant at the decision-making level, deeply reflecting on the roots behind the crisis, rather than finding reasons and excuses for these crises.

The reason why Geely can become a flagship company in China's self-owned brand is that it has many aspects to be commended. But the author believes that it is more valuable to understand the core issues behind its current predicament.

From the current point of view, Geely does not have any models in the industry to become the top three in sales, which is essentially the lack of product strength and brand power, but also related to its strategy.

The author believes that Geely should adjust its product strategy, and no longer regard the sales volume as the core KPI indicator, but the new quantity of products with monthly sales of more than 20,000 units.

When Geely can appear in the top three models in various sub-models, its resistance to the competition of joint ventures will also be greatly enhanced.

(Source: Lishi Finance/ Translaion: IIA)

(Source text: https://mp.weixin.qq.com/s/Mox2nli6-kTHBYjfZYHaew)