[Reuters Analysis] Geely is legacy carmakers’ electric poster child

HONG KONG, March 25 (Reuters Breakingviews) - Rivals from Ford Motor F.N to Stellantis STLAM.MI will be looking at Geely Automotive 0175.HK with envy. Last week, the $23 billion Chinese vehicle producer revealed its core earnings jumped 56% to 7.7 billion yuan ($1.1 billion) in 2024. That's courtesy of its gas guzzlers defying lacklustre demand in its home market. But the company run by Gui Shengyue is also pressing ahead unhindered with its EV brands like Zeekr ZK.N. It's turning into legacy carmakers' poster child for electrification.

Geely Auto delivered 1.3 million internal combustion engine-powered vehicles last year, nearly 9% more than in 2023, accounting for three-fifths of the company's total. That's despite sales of cars with these old-fashioned powertrains shrinking 11% in the People's Republic last year.

That's not a patch on growth in deliveries of Geely Auto's battery-powered models and hybrids. These nearly doubled in 2024 from the previous year to almost 900,000, boosted by Chinese drivers’ enthusiasm for electric cars and local brands. Since many of these new energy vehicles are still moving “towards profitability” according to management, fossil fuel-powered cars carried earnings.

By the end of next year, its flagship EV brand, Zeekr, is set to break even on a pre-tax basis, per analyst estimates gathered by Visible Alpha. Geely Auto itself reckons sales of electric cars will make up over half its total by then, too. That's the trajectory plenty of Western carmakers were hoping to follow: use profitable sales of gas guzzlers to finance the shift to EVs.

Yet U.S. and European peers are backpeddling their own transitions as global demand for battery-powered vehicles grows more slowly. Last year Stellantis temporarily suspended production of its fully electric Fiat 500; Ford lowered the share of annual capital spending dedicated to full EVs; and General Motors GM.N, Renault RENA.PA and Mercedes-Benz all tweaked or delayed targets for EV sales.

It's not as if Geely Auto is reaping outsize rewards: its pre-tax margin over the next couple of years is only likely to be around 5%, better than Ford, but below GM’s roughly 8% and Toyota’s 7203.T 13%, per analysts polled by Visible Alpha.

However, it has the benefit of being a major player in China, the world's largest car market where new energy vehicles now account for around half of all new sales. And shareholders give it more credit than Western rivals get. Geely Auto trades at 11.5 times estimated earnings for 2025, Visible Alpha data shows, roughly double the average multiple for a basket of legacy companies.

Ford, Stellantis and others can only wish for the same.

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CONTEXT NEWS

Geely Automobile’s net profit increased by 240% year-on-year to 16.8 billion yuan ($2.3 billion) in 2024, while revenue rose 34% to 2.2 billion yuan.

This included one-off gains of 9.1 billion yuan, without which earnings for the core business rose 56% year-on-year.

Geely Automobile is growing sales of gas guzzlers and electric cars