Why has Volvo become a burden for Geely ?

On April 19th, Wei Jianjun, the founder of Great Wall Motors, reached 240km/h at his own Xushui test track at the age of 60. In fact, when Wei was 19 years old, his dream was to become a racing driver. When he was young, he drove a Soviet imported Lada and became a racing enthusiast in Baoding.

Car lovers know how to make good cars. By comparison, Geely boss Li Shufu, who once shouted "a car is just wheels and a sofa," has never publicly expressed his love for cars. Geely Automobile is just one investment among his countless businesses.

Early domestic cars had poor quality, with only cost-effectiveness and no quality price ratio: although the price was cheap, the quality and reliability were hard to describe. For example, in the early days, the BYD F3 was prone to poor chassis, and the "Chery Chery repair queue" became a bad joke. Great Wall Motors had high fuel consumption, while Geely had many minor oil leaks.

Afterwards, BYD improved its quality by learning from Toyota's lean production, while Chery and Great Wall solved the problem through independent research and development of three major components. Only Geely has chosen to invest in acquisitions and follow the path of introduction and absorption.

Afterwards, Geely launched many star models such as the Lynk&Co 01, Geely Star Yue, and Polestar 2, which use Volvo architecture. In particular, the Lynk&Co team's feat of winning six championships in five years on the TCR World Tour successfully established Geely's current position in the market.

But this time is different, the little sweet ten years ago has now become Mrs. Niu. Volvo has now become a burden for Geely. On April 21st, Geely reduced its stake in Volvo Group AB by approximately HKD 10 billion. Geely's announcement is also concise and to the point: the cash out transaction involves repaying bonds.

Previously, Geely had repeatedly reduced its stake in Volvo Cars. Since Volvo Cars went public in Sweden in 2021, Geely Holding has gone from holding 100% of Volvo Cars to reducing its stake to 78.7% in just three years.

Volvo has a car owner organization called the Volvo Life Miracle Club, which was first established in the United States. The members of the club are consumers who have survived major traffic accidents due to the protection of Volvo cars.

CNN reported that as of 2020, Volvo car owners had zero mortality rates. But later, a report from the Insurance Institute for Highway Safety (IIHS) in the United States showed that Volvo's flagship model XC60 (2014-2017 models) had the highest driver mortality rate among luxury SUVs in the same class included in the statistics, even higher than Honda and Toyota's SUVs.

This move shattered Volvo's safety myth in North America. In China, Volvo's sales are gradually declining.

The sluggish sales are just superficial, and there are at least three reasons why Geely has reduced its holdings of Volvo.

Volvo's price to quality ratio is too low

I am one of the first owners of the Lynk&Co 01. I bought it for Geely and Volvo back then. When I bought it, I found that the center console was uneven and the car body was rusty. We thought it was half the price of Volvo cars, so it's normal to have some minor problems. "Xiao Wang is an old owner of the Lynk&Co 01 and has been driving it for five years now. He introduced to the author that at the beginning, the car felt pretty good, with the chassis texture of Volvo, very sporty. But from the third year onwards, the car's engine froze and malfunctioned frequently, requiring repairs almost every month, and it couldn't be fixed. The most unbearable thing is the automatic start stop function of Lynk&Co, which cannot be automatically turned off. It has to be automatically turned off every time I get on the car, it's so annoying.

The assembly issues reported by Xiao Wang, such as car machine problems, are not only present in Lynk&Co, but are also common in the models jointly produced by Geely and Volvo. The Volvo brand itself has not escaped the curse of quality, like a dog skin ointment that lingers on.

Ten years ago, major car companies were promoting cost-effectiveness marketing, which simply means that at the same price point, whoever has faster speed and more configurations. Geely, on the other hand, relies on Volvo to take a unique approach and create a quality price ratio marketing strategy, with better safety, reliability, and more stable quality at the same price point. But now Volvo is facing a quality and reliability crisis, with a lower price to quality ratio.

J., an American automotive quality investigation agency D. The 2023 new car quality survey released by Power shows that Volvo ranks last in terms of quality.

Domestically, according to real user complaint information from Chezhiwang, multiple Volvo car owners have complained about paint quality issues in multiple areas such as the car doors, hood, and engine compartment. Some models even have quality problems such as severe oxidation of chrome plated parts and cracked sealing strips.

The quality price ratio of Volvo is too low, "a 2023 XC60 owner told the author. Volvo's current problems are all caused by exchanging price for quantity. I picked up the car last year, and at that time, the 4S store offered a discount of up to 100000 yuan. The cost-effectiveness is very high. With a torque of 350 and a power of 184 kilowatts (250 horsepower), its performance is very good at the same price. However, after picking up the car, minor problems continue to occur, such as the start stop battery breaking down within 2 years, paint bubbles, steering wheel noise, and deviation. The air conditioning evaporator leaks. Although the price is low, Volvo is still a luxury brand, and the quality is really not commendable. It feels like they are cutting corners to lower the price

Geely doesn't want to give Volvo a blood transfusion anymore

Feng Dan, CEO of Polaris China, once admitted, "Although Polaris has been in China for five years, we have neither quality nor brand in the Chinese market. This is some of the detours we have taken and also some of the tuition we have paid

In February of this year, Zhejiang Geely Holding Group announced that Volvo would stop providing funding to Polestar Motors.

If Volvo were still called Rich Car as before, perhaps the wealthy would still be willing to buy it, but now this is definitely not possible, "Baidu engineer Haidong analyzed. Geely acquired Volvo's two major assets, the brand and the car research and development platform. Jixing's inability to sell indicates that consumers do not recognize this brand. Just like Honda's high-end brand Acura died violently in China back then. High end terminal brands are not good, which hinders the high-end transformation of the parent brand and will even drag down the sales of the parent brand. It is not worth the loss, so it is better to cut through the chaos quickly.

After all, Volvo's SPA platform was a technology architecture from 10 years ago, and it was indeed advanced at that time, such as the function of wheel protection in collisions. Later, we cooperated with Geely on the CMA platform, and now the wheel protection function is also available in many cars under Geely's umbrella. The main problem is that the SPA architecture was developed for large SUVs at that time, but Geely mainly produces small SUVs and sedans. It is difficult to adapt to the domestic market environment without upgrading the architecture. Only a few large SUVs are sold in China? China is dominated by small SUVs and sedans, "said Haidong.

Data shows that as of 2017, in order to upgrade from Volvo SPA architecture to CMA architecture, Geely spent 12 billion yuan, and the landlord did not have any surplus food. Therefore, when developing the pure electric platform Haohan Platform, although Geely's promotion was based on cooperation with Volvo, it can be said to be fully independent and deeply researched in terms of software and intelligence.

It can be seen that after ten years of digestion and absorption, Geely has basically completed the process of replacing Volvo's brand and technology platform, and Geely has become synonymous with safety in domestic cars. A few days ago, it was heard that Zhou Hongyi was going to sell Mercedes Benz for domestic new energy. Jike drove a Jike 009 directly to the 360 headquarters building and specifically introduced the dual A-pillar design of this car to Zhou Hongyi. And this design is exactly the same as the Volvo EM90.

At present, Volvo's sales are sluggish, which is the fundamental reason for Geely's reduction in holdings, from blood production to blood transfusion.

Always changing the shell, always feeling refreshed

Volvo's traditional engine chassis and gearbox technology is no longer an advantage. Geely will rely on its independent pure electric hybrid platform to dominate the world in the future.

In 2023, Volvo recalled a total of 4103 new models, including V60, V90CC, and XC90, for the 2023 model year. The reason for the recall is due to unstable compatibility between the software and hardware of the brake control module.

The software and hardware are incompatible, which exposes the shortcomings of Volvo's software level, which cannot be compensated for by hardware technology advantages such as engine, chassis, and gearbox. In terms of software and intelligence, domestic manufacturers are strong points.

In 2022, Geely acquired Meizu in order to build a connected car ecosystem. In 2023, the Lynk&Co 08 will be equipped with a Meizu car infotainment system. This year, Polestar Motors released the Polestar phone, based on the high-end Meizu smartphone Meizu 21.

Li Shufu mentioned, "Geely's current focus on automotive business can form a good synergy with its mobile phone business, for example, at the software level, Geely believes that these two can empower each other

At the software level, Volvo does not have the ability to provide a blood transfusion for Geely, while in terms of electric and plug-in hybrid, Geely is a savior for Volvo.

According to the sales data released by Volvo in 2023. In 2023, it sold a total of 170000 new cars in China, accounting for about a quarter of global sales and a year-on-year increase of 5%. Among them, the sales of new energy vehicles increased by 26% year-on-year.

Volvo also stated that 2024 is a crucial year for its electrification transformation, with the goal of becoming a pure electric luxury car company by 2030.

Taking the Volvo pure electric EM90 as an example, it can be basically seen as a shell replacement Extreme Krypton 009, with identical exterior and interior design. The hardware specifications of the intelligent driving solution are almost the same, and even the screen is of the same specification. The biggest difference is that the power output of the Volvo EM90 is half that of the Extreme Krypton 009, but the price is 230000 yuan more expensive.

Not only has Geely Volvo undergone a shell change, but recently Changan Mazda will be launched at the Beijing Auto Show, with the same shell change from Changan's self-developed Changan Shenlan SL03 and the new electric BMW MINI shell change from Great Wall Ora Haomao.

Domestic electric vehicles continue to lead in supply chain, intelligence, power batteries, motor and electronic control, and joint ventures and foreign brands have entered the electric vehicle market through shell and label replacement joint design, which is a helpless move. But the shell replacement version is even more expensive than the original version, making it difficult for consumers to choose: choosing a joint venture with brand face or choosing a low-key and practical domestic independent one, is a question, after all, their three electric systems are the same.

For Geely, the burden of Volvo, under the trend of electrification, consumers will obviously not buy it by simply exchanging Volvo for branded cars with Jike. After all, Volvo is a second tier luxury brand, and the brand premium itself is not high. In the field of electrification, there are no three electric and intelligent advantages, making it difficult to impress the younger generation of consumers who pursue individuality and performance.

Among domestic car companies, Geely may be the most similar to American car companies such as General Motors and Ford.

General Motors has acquired Buick, Cadillac, Chevrolet, and Oakland Automotive in its history, while Ford has acquired Mazda and Volvo.

During the acquisition period, Ford absorbed Mazda's engine technology and Volvo's chassis tuning technology, developed the C1 platform and CD3 platform, and launched multiple models such as the Volvo S40, Mazda 3, and Ford Mondeo, which can be basically understood as the same model being sold with shell and label changes.

Another case is the people's Wuling. But what people don't know is that for a long time, Wuling Hongguang and General Motors Buick Excelle used the same L2B engine. Even in Southeast Asia, South America and other regions, General Motors has replaced Wuling with Chevrolet's logo for sale.

Afterwards, Ford sold Mazda to Toyota and Volvo to Geely. At that time, some comments believed that General Motors was not only selling cars, but also an investment company. General Motors not only makes money by selling cars, but also earns investment returns by reselling equity in car companies.

In China, the one who can afford to invest in the automotive industry is Geely.

Unlike what the outside world sees, the real brands under Geely Automobile, such as Geely, Lynk&Co, Geometry, and Galaxy, do not have trademark rights or car manufacturing qualifications. Their trademarks and car manufacturing qualifications are authorized by affiliated companies for use by these brands.

For example, the major shareholder of Jike is Shanghai Huapu Guorun Automobile Co., Ltd. The major shareholder of Shanghai Puhua is Value Century, which is also a subsidiary of Geely Automobile. The production qualifications and brand of Geely Automobile are authorized by Geely Holding. Layered nesting of children is even more complex than palace drama.

Geely Holding itself is only an investment and financing institution and does not participate in automobile production and operation. The benefit of this is more convenient investment and financing, and it will not be involved in the automotive business, which is also the advantage of Geely's acquisition of Volvo and investment in Daimler at that time. But the disadvantage is that it deprives Geely Automobile of its full vehicle production qualification and makes it a car parts integrator. Lynk&Co and Jike, both under Geely Automobile, follow this model. The parent company holds the qualifications and brands, while the subsidiaries are only responsible for production, sales, and industrial chain integration.

Large territory, multiple brands, extensive involvement, and scattered distribution. Media person Zhao Xuan wrote in an article that the Geely model has alienated financial capital from industrial capital, leading to the expansion of Geely's holding assets, exceeding 640 billion yuan. But the investment landscape is complex and intricate, resulting in a disruption of financial balance and a gradual tightening of funds.

The absolute scale of Geely's short/long-term loans and payable bonds has reached nearly 150 billion yuan. In recent years, its operating profit and net profit have been decreasing, which means that it will be difficult for Geely Holding to continue and maintain a tight balance of liquidity in the long term, "Zhao Xuan said.

Financial capital requires a much higher rate of return than automotive industry capital. The profit margin of the automotive industry is generally around 5%, and financial capital requires higher returns, but also brings greater risks.

The most typical case is the LeEco ecosystem, which used to have a market value of billions, but due to the overdue of a moderate financing loan from China Merchants Bank, the LeEco empire collapsed. In 2009, General Motors had to file for bankruptcy due to its out of control debt scale.

Geely Holding is far from losing control of its debt, mainly relying on the growth of its car sales. But the empiricism that relied on investment and acquisition to spread the pie in the past is now time for change. From this perspective, Geely's reduction of its holdings in Volvo and the return of funds to develop its own brand is a very good start for Geely to transform its development direction, and it is also a necessary step for it to gradually shift from financial capital to industrial capital.

In the era of electric vehicles, cost-effectiveness is more important than quality price ratio. Geely's marketing focus needs to change.

From the perspective of product marketing, cost-effectiveness is generally considered during the market development period. Consider the quality price ratio only in the mature stage. For example, in the early stages of the development of domestic smartphones, Xiaomi Meizu and even Huawei's early operator contract phones rarely exceeded 2000 yuan. And now they have launched high-end phones priced at 5000 yuan to improve quality.

The era of gasoline powered cars has developed for over 100 years, and in the mature stage of the market, promoting quality at the same price is correct. At that time, BYD was still producing the 39800 BYD F3, which had a great value for money. The Toyota Corolla of the same level can sell for 100000 units, but its sales are even better. The reason behind this is that Corolla has better quality, is more durable, and has a higher price to quality ratio. Although consumers spend more on car purchases, they worry less about maintenance and upkeep in the later stages, which is equivalent to indirectly saving money.

However, in the field of electric vehicles, the current penetration rate is only 30%. The car ownership is even more dismal. In 2023, the total number of motor vehicles in China will reach 435 million, while the number of new energy vehicles will only reach 20.41 million, accounting for only 5.5%. This indicates that the electric vehicle market is still in its development stage, and the first thing new energy vehicle companies need to do is to expand the electric vehicle market, rather than refining it.

Geely has tasted the sweetness of the quality price ratio model in the past. Now, Geely needs to change its mindset. After all, Geely is a teacher in terms of quality price ratio marketing, but Geely is a student in terms of cost-effectiveness. In fact, Geely has indeed done so. From Volvo's bone discount, to Geely's Lynk&Co, Extreme Krypton, Extreme Yue, and Galaxy's intensive release of new cars targeting Xiaomi Su7, the six major sects are besieging Guangmingding, and the cost-effectiveness war is about to erupt. If we can balance quality over price and performance, perhaps Geely's cars will sell better.

Finally, there is a detail that everyone needs to pay attention to. Last week, most netizens were analyzing the relationship between Jiyue and Baidu in the Jiyue incident. However, there are few comments on the true producer of Geely Automobile. This incident at least shows that Geely did not ride on this extremely high traffic, as if it is not its own.

As the fourth largest car company in China, Geely needs to learn to use manufacturing thinking to build an independent and controllable wholly-owned product line. The brand premium obtained through acquisition is ultimately a shortcut. Essentially, the market performance of its own independent brands such as Jike Lynk&Co has already surpassed that of acquired brands. This year is another year of price war, and we cannot rely on Nordic mythology to tell stories anymore.

In February of this year, facing the price war launched by BYD, Geely still surpassed BYD's sales and became the top domestic sales leader. Although there was a slight decline in March, it is still in the first tier. At the beginning of April, Geely announced a comprehensive subsidy of up to 45000 yuan.

It seems that lowering the price is simpler, rougher, and more effective than promoting Volvo's seat belts. The answer to this year's car market marketing has been announced, let's see how Geely will handle it next.