How Geely quietly built a far-reaching European footprint

The old guard of European automakers now has a new member of the club, one that has focused on electrification, forward-looking technology and manufacturing efficiency.

No, it's not Tesla. 

The automaker that is quietly disrupting Europe's auto market is Geely, the Chinese conglomerate founded by the multibillionaire Eric Li that now owns or collaborates with more than a dozen companies that do business here.

In doing so, Geely has created a web of interdependent enterprises that it hopes will lay the foundation for a vertically integrated mobility business that engages with a variety of partners.

Hangzhou, China-based Zhejiang Geely Holding Group is the umbrella company for Li's expanding empire, with four business divisions: passenger vehicles, commercial vehicles, technology and mobility services. Revenue in 2021 was $47.2 billion, with 2.2 million vehicles sold, according to Geely.

Starting with the 2010 acquisition of Volvo Cars from Ford Motor for $1.8 billion, Geely's vehicle brands (see chart, below) linked to Europe include Polestar, Lynk & CO, the London Electric Vehicle Company and Smart (through a joint venture with Mercedes-Benz). 

Suppliers include ECARX, which provides automotive intelligence products such as central computing and autonomous driving systems; Aurobay, a new company that will develop and sell internal-combustion powertrains; and Zenseact, Volvo Cars' software subsidiary. Geely also owns the storied Italian motorcycle brand Benelli.

Geely holds significant stakes in Mercedes-Benz (nearly 10 percent), and truck makers AB Volvo and Daimler. Just this year, it acquired 35 percent of Renault Group's South Korean business, notably an underutilized assembly plant in Busan. Associated collaborations include Renault and Lotus on electric sports cars, and Mercedes and Volvo on internal-combustion engines.

It has now entered the ride-hailing market, with its CaoCao-branded electric London Taxis zipping around Paris in a test program ahead of a planned expansion in more European cities.   

That's not even to mention Geely's holdings in Volocopter, the German aerospace company that hopes to deploy flying taxis within two years in Paris, or Denmark's Saxo Bank, or a strategic cooperation with self-driving pioneers Waymo and Mobileye. Or StaRides, a premium ride-hailing joint venture launched in China with Mercedes in 2019. Or a battery-swap joint venture in China.

And just last week in China, Geely's Geespace subsidiary launched nine self-designed low-orbit satellites to provide navigation for self-driving cars. Eventually, Geely says, more than 200 will be deployed. 

"The link to Volvo has been a critical platform to a wider entry," said Peter Wells, director of the Center for Automotive Industry Research at the University of Cardiff in Wales.

Geely executives are very clear about the benefits of what might appear from the outside to be a confusing tangle of cross-holdings and obligations.

"We believe that only through scale effects and the pooling of joint resources can we make better products for end users," Zhejiang Geely Holding CEO Daniel Li said last week at an automotive event in Germany.

"We also believe that the future of the automotive industry is one that is built upon shared synergies and cross-industry partnerships," Li added, according to remarks provided by Geely. "In this new era of ultimate disruption, no automotive brand can afford to go it alone, we must look to co-innovation of technologies, sharing of information and pooling resources to create a sustainable future."

Experts say Geely has moved quickly and decisively to adapt its business to trends such as electrification, subscription ownership and self-driving cars.

"It is a fascinating company, in that they seem prepared to take an alternative look at various aspects" of the automotive business, said Ian Fletcher, principal analyst at IHS Markit. "Very few automotive executives are also founders, so he [Eric Li] must have a directional instinct how the business will thrive and grow."

Fletcher cited Aurobay, which hopes to sell small hybrid-ready internal combustion engines to companies outside the Geely orbit, as a prime example. Legacy automakers have been grappling with the question of how to manage the phaseout of combustion engines in favor of battery-electric cars, and such spinoffs have been proposed as one solution.

"That was a really clever move to do that ahead of other companies," Fletcher said of Aurobay. "At some point the ICE (internal combustion engine) will get phased out, and it would be a negative on Volvo's and Geely's books, so spinning it out as an independent business -- if they can continue to develop these engines to Euro 7 (emissions rules) or future stricter Chinese regulations -- you can then sell these engines to your rivals."

That agility has been a Geely hallmark since the Volvo acquisition, a supplier source close to the company told Automotive News Europe.

"Geely's entrepreneurship encouraged Volvo to take a number of big decisions such as opening multiple factories in China," the source said. "Geely was much more willing to fast track decisions like this than Volvo's previous owner." 

Geely's agility can also be seen in the relaunch of Smart, a money-losing brand under full Daimler control. The first product for Europe is the #1, a compact full-electric SUV with segment-topping range that may be able to undercut the competition on price because it will be built in China.

"Their launch vehicle is at the heart of what is popular in Europe and China, the C [compact] SUV segment," Fletcher said, with a midsize SUV on the way. Daimler would not have built that vehicle, he said, because it could have cannibalized its own products. 

In the Geely origin story, the young Li Shufu (who now goes by Eric Li outside of China) founded a refrigerator parts company in 1986 in Zhejiang province.

Li entered the mobility business with motorcycles in 1994, then founded Geely Auto in 1997, with the first small cars coming off the production line a year later. By 2002, Geely was in the top 10 in domestic sales in China. 

The holding company was established a year later and in 2005 Zhejiang Geely was listed on the Hong Kong Stock Exchange. International expansion started in 2006 with the purchase of a stake in Manganese Bronze, which built the classic London taxis.

In 2010, Geely stepped into the top rank of automakers by buying Volvo Cars from Ford Motor for $1.8 billion. By most accounts, the marriage has been a success, offering Geely a European foothold and Volvo a much-needed infusion of resources, without overbearing interference from the new owners, analysts and those close to the Swedish automaker say.

"Geely has allowed Volvo to do what it is good at, which was develop vehicles," the supplier source said. "This allowed Volvo to grow its business. Geely left Volvo alone and let them to do their job, which was the opposite style of Volvo's previous owner [Ford Motor]."

Fletcher of IHS Markit said that approach had allowed Geely to enter Europe with little friction.

"Geely seems to be very good at having a soft relationship with their partners and companies they do M&A activity with," he said. "With those it takes over, it seems to be keen to let the company develop what is good at."

Geely has acted as a "white knight" in its M&A activity, Fletcher suggested, buying into companies such as Lotus with a strong brand, but that may have been undercapitalized or underperforming. He said Geely has given Lotus "the framework to pursue the Porsche model," with high-performance electric sports cars to be developed at its historic home in Hethel, England, and more profitable SUVs for the Chinese market developed there under the Lotus Technology banner.

"There are two spurs, the traditional Lotus cars, [building] the Emira and future BEV sports car, and Lotus Technology, in which you use the Lotus name to produce the cars that will bring in the cash -- coupes, sedans, SUVs," he said.

To realize Lotus Technology's ambitions -- it reportedly plans to sell 90,000 electric cars a year by 2028 and build them in a new factory in Wuhan, China. Geely is hoping to float the unit on the public markets in the next two years. Such an offering could value it at $7 billion to $8 billion.

Lotus Tech is just one of a number of units that Geely is hoping to launch on the markets.

Li's strategy, according to analysts and experts, appears to be to build up the companies to a certain level, then seek a public listing to drive further outside investment. In addition to Lotus Tech, Geely is also considering a listing for its commercial vehicles operation. 

But Geely's plans could be delayed or derailed by especially volatile market conditions right now.

Volvo Cars' IPO last autumn got off to a rocky start after the automaker cut the size of its offering by 20 percent, to $2.3 billion, following investors' worry that Zhejiang Geely Holding could retain control over the majority of voting rights. 

The listing on Oct. 29 was priced at the bottom of the range, giving Volvo an enterprise value of about $20 billion. Even so, the listing was one of the largest deals in Europe last year. 

Polestar announced last September that it will go public this year via a reverse merger with a special purpose acquisition company, or SPAC, Gores Guggenheim. The estimated enterprise value of Polestar is more than $20 billion, and the deal could generate $1 billion in cash. But since then the SPAC market has cooled considerably, and shares in EV makers have lost a significant chunk of value this year.

Gores Guggenheim shareholders are now scheduled to vote on the deal on June 22, after it was pushed back from May 27. Still, analysts say that Polestar's track record of solid growth and the Volvo/Geely connections give it an edge over pure-EV startups.

In the most recent move, ECARX said in late May that it would go public via a reverse merger with a SPAC for an enterprise value of $3.5 billion. But analysts have pointed out that ECARX's revenue targets depend on it tripling sales to non-Geely companies by 2024.

"The absence of a detailed historical breakdown of the company's sales by end-customer type makes it harder to judge how easy it will be to pivot," Katrina Hamlin wrote on Reuters BreakingViews.

As a Chinese company, Geely is subject to an unusual level of scrutiny, given concerns about data protection, China's human rights record and connections between the government and companies. 

"There are a whole bunch of issues around governance and transparency, and the relationship between the state," the University of Cardiff's Wells said of Chinese companies in general. "We have seen that certain high-profile companies or people in China can be targeted by the state for political reasons, with quite profound effects."

Geely has pledged to be as transparent as possible as it becomes more international. "Geely Holding is often considered a dark horse in the automotive industry; however, I can say that we are an open book," Daniel Li recently told the German forum.

Geely does not offer any particular concerns on that front, analysts say, noting that foreign automakers have been working with Chinese companies for decades, and in turn companies such as BAIC (Mercedes) and Dongfeng (PSA Group) have held significant stakes in some of those companies. 

Wells noted that, unlike other Chinese newcomers, Geely had entered the European market through brands seen as traditionally European, such as Volvo, Lotus and Smart.

"That has been quite a shrewd move," he said. "It takes a long time to build a brand presence in Europe."

Geely has also kept much design and engineering work within Europe, and respected Ford and Volvo veteran Peter Horbury has overseen Geely's design since 2011.

Analysts say it is very difficult to say how large the company could become, largely because many of its businesses have enormous potential that cannot be quantified yet.

Volvo, Geely's largest brand, is targeting sales of 1.2 million (up from about 700,000 in 2021) by 2025, while Polestar is aiming for 290,000 by that year, and Smart 150,000 by then.

Fletcher of IHS believes Geely could grow by 50 percent by 2027, but he added that the company has enormous upside potential for several reasons, partly because it has a "top-to-bottom" lineup, from motorcycles to mainstream compact cars to premium SUVs, and partly because so many initiatives have just been launched.

"They have done so many things in the last five to seven years, so the potential for growth is absolutely huge. But in the midterm to long term, it's got to be about profits to invest in the business," he said. 

"They will continue to grow," he said. "It just depends on the rate of their trajectory."