Anticipating better 2H
We hosted a post-2021 annual results group conference call with the Geely management recently. Below are the key takeaways.
Sales volume improvement and better revenue mix are possible
Q: Can management breakdown the 2022 sales volume target by technology?
A: In 2022, Geely plans to derive some 20% of total sales from NEEV. By brands, Zeekr: 70k units; Geometry: 160k; Leishen PHEV: 100k; and about 30k from exiting PHEV models. There are also plans to roll out the 3 HEV model later this year, which should generate about 50k in sales volume.
Q: How confident is the company in being able to achieve the 1.65m unit sales target given the current challenging environment?
A: We are confident of achieving a 24% increase in sales volume, as we have straightened some of the supply issues; and new technology such as Zeekr and Leishen should support vehicle shipment. Hence, Geely is confident that Zeekr/Leishen/Geometry are going to achieve strong sales growth this year.
Q: Vehicle ASP increased about 8% in FY21. How much was attributable to new models and how much was due to raw material cost increases?
A: Generally, Geely fixed the vehicle selling prices for dealers. Yes, we were able to price higher for our new models and offer lower rebates to dealers to protect product margins. For example, our Xinyue L model was priced at Rmb160k when it launched in Jul 21 and Xinrui at an ASP of Rmb130k. We are moving the higher ASP range, compared to the previous segment, of around Rmb100k. From 2H, Leishen will have one new model each month to support sales.
Q: GP margin comparison between export sales and domestic operations?
A: It depends on the overseas markets. For example, Malaysia GP margin is higher than China. Other markets are slightly lower.
We estimate overseas to achieve 160k units this year (excluding Lynk’s 30k to western Europe). We are successful in Malaysia with Proton taking a market share of 20% since we entered that market in 2017.
Impact of chip shortage and rise in raw material costs
Q: How many auto chips are developed in-house and what is the self-sufficiency rate?
A: We focus on developing the advanced chips (such as MCU chips) to support infotainments, smart cockpit, autonomous driving, etc. The manufacturing activity will be outsourced.
Q: What is the impact of the geopolitical (Russia-Ukraine) conflict on raw materials and business?
A: We carry out spot trading of raw materials as well as lock in inventory (about two months of precious metals) to support our production. We noticed some volatility since 2H21 and have stockpiled some inventory.
Q: Can the company discuss the battery operations and the customer base?
A: We collaborate with CATL on battery cells and battery pack production. We also have a JV with Sunwoda (?????????????) on battery development and sales. Our parent is also in discussion with Funeng (????) about battery cell development. We currently supply the battery products to Volvo and Lynk & Co. The battery collaborations are important, especially for Zeekr’s EV development.
Zeekr business outlook expected to improve
Q: Zeekr derives revenue from two sources: Car sales and supply of auto components. Based on 8.4k unit sales in 2021, it managed to generate positive gross margins. In 2022, Zeekr targets a 70k volume shipment, hence, it should be favourable on the company, especially as we have good cost discipline.
Q: Any updates on the Zeekr business after last year’s operational issues?
A: We have incorporated the feedback from customers and upgraded the software to provide a better driving experience to car owners. A lot of the interface has been upgraded. However, due to the shortage of auto chips, our Jan-Feb sales were not good. We expect the operation to improve.
Q: Any update on ADAS development?
A: Different brands have different strategies. We focus on the camera function as part of the facilitation solutions and it will be developed in-house. We have entered into collaborations with Waymo and Mobileye for L4 development. Zeekr, being a high-end brand, will follow its parent’s ADAS development path.
Leading hybrid technology through Leishen Power
Q: What is Leishen Power’s strengths compared to its peers in the hybrid segment?
A: Leishen is one of the best in the hybrid market. It can achieve fuel savings of about 40%, meaning for a 1.8L vehicle, the fuel consumption is about 4.3L/100km, so this is a very good achievement. Also, Leishen covers not only PHEV and HEV but also the extended range hybrid. Leishen was developed with dedicated engine/transmissions and a battery pack. Hence, it offers a lot of flexibility, as it is on a modular platform.
Q: What percentage of your model fleet will incorporate with Leishen Power solutions?
A: Most of the China Star series (high-end segment) will carry the Leishen technology while Lynk & Co. is expected to reach 100% of its models by 2023.
Lynk & Co. business outlook
Q: Lynk suffered a decline in net profit, although revenue was flat in 2H. Net margins also declined. What are the reasons?
A: Lynk is developing its business (subscription and direct sales channel) in Europe. About 80,000 subscription accounts were secured in 2021 and over 10,000 vehicles were shipped. Therefore, net margins were affected. We expect 30,000 unit shipments for 2022. Lynk expanded into the B segment in 2H21 after the launch of the new model in Oct 21, leveraging on the Volvo platform. Hence, we expect 2022 would be better.
Financials
Q: We noticed selling expenses increased by 25%. What are the reasons?
A: The increase in selling expenses was due to the Zeekr sales network expansion. The company set up Zeekr Space and services centres (50 last year) and budgeted to have over 300 outlets this year.
Q: 2021 had an Rmb1.2bn share-based payment. Will this continue this year?
A: The Rmb1.2bn was a non-cash item. We expect this item to recur this year and expect it to narrow in 2023.
Q: What is the dividend policy this year?
A: We will maintain a 30% payout ratio for the long term. 2021 payout was 35% because of a record net cash level.