Strong SUV sales power Geely to 126% jump in profits
Chinese automaker has used Volvo acquisition to upgrade its offering
A big bet on sport utility vehicles paid off for Chinese automaker Geely in 2016, as strong sales led to a 126 per cent increase in full-year net profits, to Rmb5.1bn, the company announced on Wednesday.
Geely shares closed up 5.8 per cent in Hong Kong following the announcement, which beat already high expectations. The median analyst estimate by Bloomberg had forecast profit growth of just above 100 per cent.
The group rolled out a number of SUV models last year, including the Boyue, GS, and Vision, to capitalise on customer enthusiasm for the larger, higher-margin cars in secondary cities. Geely said the SUVs were the key drivers of 50 per cent sales volume growth year on year and helped offset a fall in exports. Full-year revenues rose 78 per cent to Rmb53.7bn.
The overall proportion of SUVs in Geely’s total sales by volume jumped from 12 per cent in 2015 to 31 per cent in 2016, as it latched on to a trend across China that has seen SUV sales explode.
“They have gotten on the bandwagon of SUV demand” said Janet Lewis who covers the Asian automobile market for Macquarie Capital Securities in Tokyo. She added that buyers in cities outside of Beijing, Shanghai and Shenzhen are less concerned with traffic congestion and like larger roomier vehicles.
China‘s broader auto market has seen sales of SUVs as a percentage of total sales by volume rise to 39 per cent last year from 13 per cent in 2012. “SUVs have become a mainstream product in China” said Yale Zhang of Auto foresight in Shanghai, who added that women are the disproportionately high buyers of SUVs.
Geely has also benefited from greater domestic acceptance of Chinese brands and improved technology, which have allowed it to push up prices. Average selling prices charged by the automaker rose 22 per cent last year, though they were still below foreign competitors.
“Geely does relatively well on a quality basis versus other domestic producers” said Ms Lewis, noting that the leaders in Chinese SUV sales have been better quality domestic brands such as Geely, Great Wall, and Trumpchi, rather than foreign brands.
The company has used its 2010 acquisition of Volvo to upgrade its offering and buy parts from a more global array of suppliers.
Xing Lei, chief editor of China Automotive Review said “the acquisition of Volvo has helped Geely get more in line with consumers’ tastes.” Peter Horbury, formerly Volvo’s chief designer, now heads Geely’s design studios.
Geely also proposed a final dividend of HK$0.12 per share and set its automobile sales target for the 2017 financial year at 1m units, up 31 per cent from 2016.