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Sunday, Oct 25, 2020

Chinese automobiles tycoon Li Shufu to merge Geely with Volvo in first step towards creating a global carmaking powerhouse

Chinese automobiles tycoon Li Shufu to merge Geely with Volvo in first step towards creating a global carmaking powerhouse

Talks with Volvo about a merger at preliminary stage, Geely Automobile tells Hong Kong exchange. The combined entity could list either in Hong Kong or Stockholm
Chinese automobiles tycoon Li Shufu plans to merge Geely Automobile Holdings, the Hong Kong-listed unit of his company, Zhejiang Geely Holding Group, with Volvo Cars, which he acquired from Ford Motors in 2010, in a move that will create a global car manufacturing powerhouse.

Geely Automobile Holdings said in a filing to the Hong Kong stock exchange on Monday evening that it was in preliminary talks with Volvo about a merger, and that the combined entity could list either in Hong Kong or Stockholm.

Shares of the company jumped 5.7 per cent to HK$14.48 in afternoon trade on Tuesday. “It will be a significant step ahead for Geely Group to chase a globalised network of development, production and sales,” said Sun Zhidong, analyst at Great Wall Securities in Shanghai. “The merger paves the way for synergy among its different brands.”

Zhejiang Geely Holding owns Geely Automobile Holdings and Volvo, which it acquired for about US$1.8 billion. The merger will place five brands, including Chinese electric premium brand Polestar and premium car brand Lynk, under one management. The fifth brand will be British sports carmaker Lotus, in which Zhejiang Geely Holding acquired a majority stake in 2017.

Zhejiang Geely Holding also owns a 49.9 per cent stake in Malaysia’s Proto, as well as a 9.7 per cent stake in Daimler, the German manufacturer of Mercedes-Benz cars, acquired two years ago.

The proposed merger comes at a time when global carmakers are pursuing alliances amid an electrification drive in the industry. Last year, industry giants Ford and Volkswagen formed an alliance to build vehicles ranging from pickup trucks and commercial vehicles to electric cars.

The merger will also come amid a decline in sales in the Chinese car market, the world’s largest. Sales fell for a second consecutive year in 2019, as an economic slowdown deterred consumers from splashing out on big-ticket items. Sales of passenger cars, including sedans, sport utility vehicles, minivans and multipurpose vehicles, fell 7.5 per cent year on year to 21.04 million units last year, according to the China Passenger Car Association.

Geely Automobile Holdings sold 1.36 million units in 2019, down 9.3 per cent year on year. Volvo, however, sold 700,000 cars last year, an increase of 9.8 per cent.

The coronavirus outbreak is expected to further dent sales, as millions of people stay at home to prevent the spread of the illness.

“It is certain that the overall auto market outlook for 2020 is weak, but Geely, with its leading position in manufacturing technique and brand awareness, could be among the top beneficiaries when buying interest among drivers recovers,” said Peter Chen, an engineer with car component maker TRW.

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