(Corrects typographical error in chairman’s name, paragraph 1)
By Yilei Sun and Brenda Goh
HANGZHOU, China/SHANGHAI, Feb 11 (Reuters) – Like manyothers in his industry, Geely Chairman Li Shufu has been irkedby skyrocketing valuations for electric car manufacturers suchas Tesla Inc and Nio Inc, sources at theChinese automaker say.
Getting Geely, which owns Volvo Cars and 9.7% of Daimler AG, to a place where it too may claim a sizeable chunkof China’s burgeoning electric car market and burnish its shareprice at the same time, has preoccupied Li for much of the pastyear, they added.
The result: a flurry of tie-ups unveiled last month that laybare Geely’s intention to position itself as the go-to contractmanufacturer for electric vehicles in China and beyond -assembly services that will also offer up its engineering anddevelopment expertise.
“The chairman’s attitude towards contract manufacturing isclear: he is embracing it and actively pursuing it,” a Geelyexecutive told Reuters.
Outsourcing production of some models through originalequipment manufacturing (OEM) deals is common in the autoindustry, but Geely’s plans represent the most aggressiveattempt yet by an automaker to build up a contract manufacturingbusiness.
Of the four deals announced, a venture with Taiwan’s Foxconnto provide electric vehicle (EV) contractmanufacturing, is the most important, said the sources, who werenot authorised to speak to media and declined to be identified.
A subsequent agreement to build mass-market electricvehicles for embattled Los Angeles-based startup Faraday Futurewould be handled by the venture with Foxconn.
Geely, which is China’s largest privately owned automaker,has also made a separate pact to make smart electric cars forinternet giant Baidu Inc, with the first model due tobe launched next year. In addition, it is joining hands withTencent Holdings Ltd on smart car control andautonomous driving technology.
Geely declined to comment for this article or make Liavailable for comment.
PROS AND CONS
Geely has several electric car models on the market and inSeptember launched a brand new EV-focused platform, developed ata cost of 18 billion yuan ($2.8 billion).
But amid a two-year slump in sales, Li became convincedGeely was being too conventional in its approach and beganpushing for an aggressive adoption of “Big Tech” partnerships,sources said. In doing so, Li returned to a more active runningof the group after stepping back somewhat in 2017 and 2018.
The shift did not come without some opposition. Atmanagement meetings, some people raised concerns that any bigshift to contract manufacturing could make Geely a lesserpartner in its relationships with tech firms and cause it tolose its edge as an independent automaker, senior sources said.
Caution was also expressed about picking Faraday Future asthe first client for the venture with Foxconn, as the startuphas a track record of over-promising and slow progress indevelopment.
Li dismissed those concerns, they added.
The deal with Faraday was not well received by the marketwith shares in its main unit, Geely Automobile,sliding some 16% over four days in the wake of the news.
On the plus side, however, the deals could address chronicunder-utilisation at Geely plants. For example, GeelyAutomobile, which houses its Geely brand cars, is capable ofbuilding more than 2 million vehicles a year but sold only some1.3 million in 2020.
The deals could also help Geely get the most out of theEV-focused platform, which is now open-sourced and can be usedfor small to large cars and even light commercial vehicles.
That said, just how big contract manufacturing will becomefor Geely is uncertain and the company has no internal numericaltargets to meet at the moment, the sources said.
“Basically, it’s unclear now how many clients we will havein the coming years,” said one source.
Li is also planning to shore up Geely’s financial base witha secondary listing for Geely Automobile on the mainland’s STARboard this year. Its Hong Kong listing values the unit at $37billion, with shares having risen over 12% so far this year.
That, sources say, has been a deeply unsatisfactory state ofaffairs for Li who compares it to the $800 billion-plusvaluation for Tesla and the $98 billion valuation for Nio, whichsold less than 44,000 cars last year.
Geely had looked at investing in Nio previously, sourceshave said.
Analysts describe the rush of new deals as bold, potentiallyallowing Geely to save much time and money in developing andlaunching electric cars. At the same time, there are risks.
“Integrating one major partner is challenging enough for anycompany’s management regardless of the sector, so asking themanagement team to successfully launch all of them seemingly allat once is a pretty big ask,” said Tu Le, analyst at Sino AutoInsights.
($1 = 6.4558 Chinese yuan)(Reporting by Yilei Sun and Brenda Goh; Editing by Joseph Whiteand Edwina Gibbs)