China's Automaker Geely Hit By Market Headwinds

The logo of Chinese carmaker Geely Auto is pictured at the second media day for the Shanghai auto show in Shanghai
(Photo: REUTERS/Aly Song)

China's Geely Automobile Holdings Ltd reported a net profit of $568.5 million or 4.01 billion yuan, 40 percent down from its 6.67 billion yuan net profit in the same period last year.

The auto company reported total revenue of 47.56 billion yuan, also down from the 53.71 billion yuan in the same period in 2018. The subsidiary of Zhejiang Geely Holding Corp sold 651,680 vehicles from January to June this year, down 15 percent from what it sold last year.

On the other hand, Geely said its retail sales had a slight year over year growth of 6.5 percent from 6.3 percent during the same period last year. The company said it now plans to launch at least eight new or revamped models this year or early in 2020.

In its announcement, the company identified several factors behind its lackluster results. One was the waning consumer confidence amid the ongoing trade dispute with the United States. The announcement also pointed to change to China VI emission standards as a contributing factor to its earnings decline. 

Overall, there is growing uncertainty in the country's automobile industry, Geely's statement said. Despite the market headwinds, however, the automaker said it sustained the production of high-quality vehicles. As a result, Geely's average selling price has improved in line with the high-end product sales increase. This only goes to say that Geely's strategic re-alignment has successfully stabilized growth along with market challenges, the company said.

"In the future, in the face of global economic downturn and automotive industry cycle adjustment, the Group will continue adhering to a clear and firm development direction, implement a new round of systematic strategic re-alignment, and continue promoting high-quality development," Geely's statement reads.

Indeed, despite its 40 percent slump for the first half of 2019, investors' support of its stock is unwavering. Its shares were up 4.0 percent as of publication, days after the company's announcement on August 21. On the other hand, shares of BYD, China's largest EV carmaker, dropped 5.7 percent in the same day even after reporting a 204 percent increase in the first half of 2019.

Market observers said investors remained optimistic since Geely has $9 billion stakes in German luxury-car maker, Daimler. The company now holds about 9.7 percent of Daimler.

Geely's foray into foreign territory is a strong indication that Chinese companies know how to choose strong foreign brands they can invest in. This is according to Rachel Miu, an analyst at DBS Group Holdings Ltd. Other Chinese auto brands diversifying in the European market include Guangzhou Automobile Group Co., Great Wall Motor Co., and Zotye Automobile Co.

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