Geely: Global strategy after Volvo acquisition
A Volvo PHV/EV and new factories for Geely brands in Shaanxi are among its plans
Zhejiang Geely Holding Group Co., Ltd. changed its management policy starting in 2007 from low-end vehicles that put emphasis on low-price and sales volume to mid-size highend vehicles that emphasize safety and product quality. Geely took a stake in and started joint production and sales with UK-based MBH (Manganese Bronze Holdings PLC), and acquired Australia-based major transmission manufacturer, DSI (Drivetrain Systems International Holding Pty. Ltd.), and also acquired Volvo Car (hereinafter called Volvo) from Ford in 2010. By acquiring world-class technology, with a slogan of high-quality and safety, Geely aims to operate in China and worldwide and expand business of its own brand vehicles globally.
At the end of 2011, the ownership of Geely's own-brand passenger cars in China exceeded 2.2 million units. Between 2008 and 2011, the growth rate of own-brand passenger cars sales including production volume of overseas knockdown (CKD/SKD) and export of vehicles shrank substantially (from up 48.4% year-on-year in 2009, to 26.5% in 2010, and further to 4.0% in 2011). In 2012, the entire sales volume increased due to rapid growth of exports, while sales of vehicles made in China showed a slight sluggishness in China. In 2012, Geely sold 480,000 units, which are up from the initial plan at the beginning of the year of 460,000; among the sales volume, exports and sales from overseas knockdown (KD) production are estimated to increase by 20,000 units from the initial plan at the beginning of the year to 100,000 units.
Geely says that it will increase its global sales target from about 480,000 units in 2012 to 2 million units, more than three times, in 2015 (it is unknown whether the target figure includes Volvo's target sales volume or not). Among them, Geely will boost domestic sales in China from about 380,000 units in 2012 to 700,000 units in 2015 and exports of vehicles made in China and sales of vehicles made abroad from about 100,000 units in 2012 to 1.3 million units.
Geely executives backtracked on its remarks on the 2015 global sales target of 2 million units; they initially said that exports of vehicles made in China and vehicles made abroad would account for two thirds of the targeted sales volume, which was changed to account for 50%. This shows the difficulty of achieving the target.
The following summarizes the medium-term business plan each of Geely's own-brand business and its subsidiary, Volvo, technological alliance and preparation of production and sales network in China including expansion of production facilities, and the latest activities including model plans.
Equipment on new European models (2): PSA, Renault, GM, Ford, and Volvo (Oct. 2012)
Beijing Motor Show 2012 (1): eight emerging Chinese OEMs (May 2012)
Geely's own brand business: To strengthen an alliance with Volvo and to talk about acquisition of UK-based Aston Martin/MBH
Medium-term plan for Geely's own-brand business
|Business policy||* To pursue safety and high-quality and to become "Volvo in China". To put emphasis on the building of a brand that emphasizes safety. Including compact cars (what is called "economy type"), Geely aims to win four-star or higher rating (80% of them will be five-star) in C-NCAP (China New Car Assessment Programme) for all its newly-developed models. Geely will introduce Volvo's automotive technology for vehicle safety, powertrain, new-energy, and vehicle platform into its own-brand vehicles (In March 2012, Geely signed a contract on technical alliance with Volvo).|
|Sales target||* 2012: 460,000 units of vehicles made in China → 480,000 units (revised upward by 20,000) Among them, export 80,000 → more than 100,000 * 2015: 2 million units globally (world share: about 2.5%) Of which: sales volume in China 700,000 (including about 300,000 AT models), export and sales of vehicles made outside China 1.3 million units. (Note) The 2015 sales target in China of Volvo, which became the subsidiary of Geely, is 200,000 units, but it is unknown whether these figures are included in the above 2 million units or not. To establish 15 overseas production facilities by 2015. It is unknown whether Volvo is included or not. (Note) As of the end of June 2012, Geely operates knockdown (KD) production in overseas facilities in Russia, Ukraine, Indonesia, Taiwan, Sri Lanka, and Egypt. At the end of June 2012, Geely started building a KD plant in Uruguay as a production facility in Latin America.|
|Dealers network||* Sales network (dealers) for three brands - Gleagle, Emgrand, and Englon: Total 800 dealers (May 2012) → 900 (August 2012) → 1,000 （-2013) Among them, "4S"(*Note) dealers: 480 (May 2012) → 500 (December 2012)|
|Model plan||* To build a brand lineup that puts emphasis on safety.|
|* Vehicle: <2013> Englon brand: SC5/SX7, Emgrand brand: EX8/EV8, Gleagle brand: GX5, and others <2015> To build a lineup of 15 models including derivative models that are based on its five own technologies.|
|* Engine: To prepare six engine platforms including diesel model (displacement: 1.0 to 3.5-liter). To increasingly use 1.0/1.3/1.5/1.8-liter turbo engine in new models starting in 2013.|
|* Transmission: To prepare a full lineup of MTs/ATs. To increasingly use an AT made by Australia-based DSI in Geely's own-brand models starting in 2013.|
|Development structure||* To use Volvo's automotive technology to the fullest (In March 2012, Geely signed a contract with Volvo on the alliance for the automotive technology including joint development of standardized technology).|
|* Geely has an automotive safety laboratory, which is the only provincial-class laboratory of this kind in Zhejiang province (the 1st-stage construction was completed in 2012). The laboratory has already had test capability for collision safety standards (Euro-NCAP/C-NCAP) and for laws and regulations on vehicles. Geely's own GTSM (Geely Total Safety Management) is employed.|
Source: Geely's press releases and various media reports. *Note: "4S" represents Sale，Spare part, Service, and Survey. "4S" dealers have these four functions.
Geely signed a contract with Volvo on technology transfer, accelerating global business development of its own brands
|Geely will utilize the automotive technology of Volvo in the fields of vehicle platform, Powertrain, vehicle safety, and new energy in the future in order to develop high-end vehicles under its own brand. By using Volvo's high technology, Geely aims to improve product quality and to expand exports and overseas market, thus accelerating the globalization of its Group's own-brand vehicle business.|
|To achieve this target, Geely and Volvo signed MoU on their alliance including technological transfer in March 2012. The two companies will jointly develop a platform for compact eco cars and its technology, high-performance compact engine and its technology, and standardized technology for new-energy vehicles including EVs/HVs/PHVs.|
|In December 2012, the two companies were also reported to have reached an agreement on the transfer of some of Volvo's automotive technologies that Volvo is scheduled to stop using within a few years to Geely. Among them, Volvo's technology for a midsize-car platform and interior air cleaning (filter) and its control technology are included.|
Geely is considering acquisition of UK-based Aston Martin
|In December 2012, Geely was reported to be talking with UK-based Aston Martin about its acquisition. Geely is planning to adopt the same way as it did for the acquisition of Volvo. Currently, Toyota, which is also aiming to acquire Aston martin, is regarded as Geely's main competitor.|
Geely is currently talking with UK-based MBH about the acquisition of its 80% share
|In December 2012, Geely announced that it was talking with UK-based MBH (Manganese Bronze Holdings PLC), which commenced Creditor Protection proceedings in October 2012, through Geely Automobile Holdings Ltd., which is Geely's subsidiary listed on the Hong Kong stock exchange, about the acquisition of up to 80% share of MBH. Details are unknown.|
|Geely has already had a 19.97% share of MBH. In 2006, the two companies established a joint venture in Shanghai and began local production of London taxi (Englon TX4), small-lot production of which is continued. Under the contract on their alliance, MBH procures automotive parts including bodies from Geely. Geely markets MBH's London taxi (Englon TX4) in China and other markets in Asia.|
Geely reached an agreement with Taiwan-based Foxconn/UMC in the filed of parts for new-energy vehicles
|In January 2011, Geely was said to have reached a broad agreement with Taiwan-based Foxconn (Foxconn Electronics Inc.), a major contract manufacturer of electronic products, and Taiwan-based UMC (United Microelectronics Corp.), world's second-largest contract manufacturer of semiconductors, in the filed of new-energy vehicles.|
|The three companies will jointly develop parts and other products to be used in Geely's new-energy vehicles including EVs/HVs. They also aim to develop vehicles of high value including constant connection to the Internet. Details on the progress at the end of 2012 are not made public.|
Geely's latest activities on the building of its own-brand vehicle business
At the end of 2012, Geely had production facilities in the following cities in China: Linhai/Ningbo (Beilun)/Luqiao/Cixi in Zhejiang province, Shanghai (Jinshan district), Xiangtan in Hunan province, Lanzhou in Gansu province, Jinan in Shandong province, and Chengdu in Sichuan province. It was reported, in March 2012, that the combined production capacity of these plants was 600,000 passenger cars and 600,000 units each of engines and transmissions per year.
In order to achieve the 2015 global sales target of 2 million units, Geely will expand these existing plants and is also considering building new plants for passenger cars under its own brands in Baoji, Shaanxi province and Qinzhou, Guangxi.
Preparation of production
Cixi plant: to boost production capacity from 120,000 to 220,000 units a year through 2nd-stage construction
|In August 2012, Geely announced that it would increase vehicle production capacity of its Cixi plant (Hangzhou Bay plant) through a 2nd-stage construction from the current 120,000 units (2 shifts) to 220,000 units a year. The Cixi plant started operations in April 2011, producing Emgrand models including the EC7 series. The engine plant within the same site will also boost production capacity by 400,000 units to 520,000 units a year. With this move, the financial amount of production will increase from 11.5 billion RMB to 25 billion RMB per year.|
Lanzhou plant: to boost production capacity from 50,000 to 120,000 units through expansion of the plants and building of a new production line
|In August 2012, Geely has boosted production at its Lanzhou plant, Gansu province (Lanzhou Geely Automobile: Lanzhou Branch, Shanghai Maple Automobile). It has increased production capacity of its existing plant that produces the Gleagle CK (New CK) form the current 50,000 units to 100,000 units a year. In addition, it will build a new production line that is capable of producing 20,000 Gleagle/Emgrand models a year. With this move, the Lanzhou plant will boost production capacity from 50,000 units to 120,000 units a year.|
Geely considers the construction of a passenger car plant that is capable of producing 200,000 units a year in Baoji, Shaanxi province
|In December 2012, Geely was reported to have reached a basic agreement with the local government on the construction of a passenger car plant in the Western region of China (Baoji, Shaanxi province). The total investment in the construction is worth 6 billion RMB. The production capacity is about 200,000 units a year. Geely expects annual sales of about 30 billion RMB and pre-tax profit of 2.5 billion RMB.|
Geely constructs a passenger car plant with production capacity of 200,000 units a year, which also has an engine plant in Qinzhou, Guangxi
|In March 2012, it was announced that Geely was planning to build a passenger car plant that also has an engine plant in Qinzhou (a bonded area), Guangxi. Geely signed a related contract with the local government at the end of 2011. The new factory is scheduled to start operations in 2015 with the initial production capacity of 100,000 units a year, which it plans to increase to 200,000 units (200,000 engines). The new facility has a site area of 1.333 million square meters. Geely considers the plant to be an export plant of its Group.|
Production in Zhejiang province/Shanghai: Shanghai Maple Automobile is to be reorganized. Three plants in Zhejiang province will be moved within the Province
Jinshan plant, Shanghai: to transfer production of Haijing/Englon SC7 to the Xiangtan plant in Hunan
|In 2012, Geely suspended production at Shanghai Maple Automobile in Shanghai (Jinshan) and would spend two years upgrading and expanding it (a 3rd-stage construction). Details are not made public, but, in July 2012, the production line for the Maple/Haijing was transferred to the Xiangtan plant in Hunan province, and production/sales of the model (renamed as Englon SC7) was continued. Production of Shanghai Maple Automobile's "Hai" series passenger car other than Maple/Haijing was suspended.|
|Shanghai Maple Automobile is expected to resume operations in two years, in July 2014 or later. Although details are not made public, according to the announcements so far, the production capacity of the Shanghai plant will be boosted by 50,000 units through a 3rd-stage construction eventually to 200,000 units a year when combined with its existing production capacity.|
Three plants in Zhejiang province are to move to new sites within the Province
|In August 2012, Geely announced that it would expand its existing production facilities and would also move its three existing plants in Linhai, Luqiao, and Ningbo Beilun in Zhejiang province to new sites within the Province. The Linhai plant will be moved to Duqiao town, in Linhai, the Luqiao plant to Jiaojiang district, Taizhou, and the Ningbo Beilun plant to Chunxiao Town, Beilun District, respectively. The production capacity of new plants is not made public.|
Shifting its sales structure from the brand division to the regional division, Geely invests 120 million RMB in establishment of after-sales service sites and fostering of human resources
In June 2012, Geely announced that it had shifted its Group's marketing and sales business structure from the brand division structure (Gleagle, Emgrand, and Englon Division) to the regional division structure (Northern, Central, and Southern Division). Before this move, Geely also made a facelift to Geely/Maple models in order to integrate them into Gleagle/Emgrand/Englon brand. Geely, aiming to increase the number of its after-sales service sites by 20% a year, invests 120 million RMB between 2011 and 2013 in order to foster human resources for after-sales service (those in charge of consulting and repairs) and to establish after-sales service sites. In addition, Geely will increase the number of dealers for its three own brands (Gleagle, Emgrand, and Englon) from 800 in May 2012 (including about 480 "4S" dealers) to 1,000 by 2013. In December 2012, the number of "4S" dealers increased to about 500.
Model plan: Geely to focus on SUVs that it starts producing and selling in 2013 and to increase the rate of vehicles with ATs
Geely will enhance its product competitiveness worldwide through its alliance with Volvo including standardized technology such as platforms and safety technology.
Specifically, during the next three to five years from 2013, Geely and Volvo will share the platform of the GMC midsize model and a powertrain module, and will team up in the entire field of vehicles in order to promote standardization in product planning. Eying the global market, Geely intends to boost sales of its own brand models.
Geely will also focus on the field of SUVs, which is rapidly growing in China, starting in 2013. It will launch four SUVs - compact, midsize, and large - during the next three years through 2015.
Geely will further focus on AT models. In 2013, beginning with the introduction of its own 4-speed AT into existing models (Haijing/Vision) and of a 6-speed AT made by Australia-based DSI's Hunan (Xiangtan) joint venture plant into new models scheduled to be launched, Geely will increase the rate of sales of AT models in its entire sales volume in China from about 10% in December 2012 to about 40% (about 300,000 units) in 2015.
The production cost of DSI's 6-speed AT, which has been used in models including Ford/Chrysler/Ssangyong, has declined to about 10,000 RMB through local production at the Xiangtan plant.
(Reference) Australia-based transmission subsidiary, DSI: to accelerate building of an AT production structure in China
|In 2009, Geely made Australia-based major automatic transmission (AT) manufacturer, DSI, into its wholly-owned subsidiary. DSI is currently accelerating building of an AT production structure in Xiangtan (Hunan province)/ Jining (Shandong province)/ Chongqing, China.|
|The joint venture plant (Hunan Jisheng International Powertrain System Co., Ltd.) in Xiangtan started operations in June 2012. It started producing and supplying DSI's 6-speed AT to Geely's own brand models (such as GC7/GX7/EC8). The facility will boost production capacity from the current 100,000 units to 300,000 units a year in the future.|
|In June 2010, the construction of the Jining plant (Shandong Jining AT) began. It originally planned to start operations in June 2011, which was postponed until the end of 2012 or later. The factory plans to eventually have production capacity of 300,000 DSI's ATs a year.|
|In December 2011, DSI also started the construction of a joint transmission plant in Chongqing (Tongliang country) (Chongqing DSI Transmission) with a Geely's subsidiary in Chengdu. The production facility originally planned to start operations at the end of 2012, which was postponed until January 2013 or later. The total investment is worth about 800 million RMB (site area: about 102,700 square meters). The plant will eventually increase production capacity to 300,000 units a year including 7-speed DCT (sales of 3.6 billion RMB a year). DCT will also supply the product to OEMs other than Geely. It will initially produce high-torque ATs such as 6-speed ATs.|
Joint venture with Volvo: Geely to start building plants in Chengdu/Daqing/Hebei province and also to produce PHVs/EVs
Geely acquired Volvo Cars, which was then Ford's unprofitable business, on August 2, 2010. Geely has been turning it around and has also been pressing ahead with the building of a production structure in China.
Local production of Volvo passenger cars will begin as early as in 2013. Geely aims to sell 200,000 units (180,000 vehicles made in China and 20,000 imported cars) and to take a 20% share of the high-end car market in China in 2015. It also plans to develop energy-efficient conventional engines in the short run and PHVs in the medium run, and then to produce EVs locally in China.
In order to achieve this target, Volvo and Geely started the construction of a passenger car plant of joint venture production companies in Chengdu, Sichuan province and Daqing, Heilongjiang province. They also began building an engine factory in Zhangjiakou, Hebei province (reported by multiple media). The Zhangjiakou engine plant is also reported to add production of passenger cars.
Geely's wholly-owned subsidiary, Volvo's medium-term business plan
|Management policy/strategy||* To pursue safety/cleanness. Aim to eliminate exhaust emissions and fatal and injury accidents in which Volvo vehicles are involved by 2020.|
|To enhance alliance with its parent company, Geely, in the field of technology.|
|* During the five years in 2013-2017, plan to invest USD11 billion in Volvo's global business.|
|Among them, concerning business in China, the investment is made in passenger car plants in Chengdu and Daqing, the Zhangjiakou engine plant, the building of Chinese headquarters and R&D center in Shanghai, and development of new products.|
|Sales target||* 2020: 800,000 units (more than 400,000 units are expected in 2012)|
|Model plan||* To introduce 10 new models during the next six years through 2018|
|* To put emphasis on S series (2/3box) and also to focus on XC series (SUV)/SAV series. To expand its model lineup from Volvo's current B/C/D segment to A/B/C/D segment. (In order to achieve this plan, Volvo will additionally launch a lowest-end and a highest-end model - an entry model (A-segment XC40 Cross Country) and a high-end model (D-segment XC90).|
|* To launch 60 series models (S60/V60/XC60) and also to additionally introduce V70/V40 series. To adopt the SPA (Scalable Product Architecture) platform in 2014 or later. To remodel the S80/XC90.|
Business in China
|Sales target||* 2015: to take a 20% share of the high-end car market, Sales volume of 200,000 units including export (breakdown: 180,000 vehicles made locally, 20,000 vehicles imported and sold) (Note) To export models made in China to emerging countries adjacent to China.|
|Model plan||* 2013: if all goes as planned, local production and sales of the S60L (long-wheelbase S60 sedan) and the XC60 (SUV) will begin. * 2014 or later: To launch a new model (New S80 is a likely candidate) with the SPA platform and the V60 PHV.|
|Sales structure||* Sales network (dealers): about 110 (at the end of June 2011) → 220 (2015)|
|Energy-efficient/ new-energy vehicle strategy||* Phase 1: To improve conventional engines Phase 2 (medium run): To produce a PHV (V60 is a likely candidate) locally Phase 3: To produce an EV locally In October 2012, the test-run of the C30 EV was under way in multiple countries including China.|
|Development structure||* Volvo's Shanghai R&D center employs more than 1,000 engineers (as of August 2012). Among them, slightly more than 70 engineers are sent from Sweden; they are mainly in charge of the development of EVs.|
|Procurement of parts||* 2013-2017: (1) To increase the local-content ratio of parts in China from the current 3% to 20% (2) to reduce procurement cost of core components by 20%.|
Source: Volvo's five-year business plan in China (2011-2015) (announced in February 2011) and various media reports.
Latest activities on the preparation of production
A joint venture passenger car plant in Chengdu, Sichuan province: to start operations as early as in 2013 and to prepare production capacity of 120,000 units a year
|Volvo established with its parent company, Geely, a joint venture production company Chengdu Geely Volvo Car Co., Ltd. (tentative name), in Chengdu, Sichuan province in western China. The total investment is worth 4 billion RMB. They will build a joint venture plant that has stamping/welding/painting/assembly line. In August 2012, they won approval for its establishment from Ministry of Industry and Information Technology. They also expect to win approval for a production model from the government as early as at the end of 2012.|
|If all goes as planned, the joint venture plant will begin production in 2013. The initial production capacity is 30,000-50,000 units a year, which will be increased to 100,000 and further to 120,000 units. The XC60 SUV and the S60L sedan (S60 long-wheel-base model) are likely initial production models when operations begin.|
A joint venture passenger car plant in Daqing, Heilongjiang province: plan to produce 80,000 units in 2015
|Volvo also established a joint production company Daqing Geely Volvo Car Co., Ltd. (tentative name) with Geely and others in Daqing, Heilongjiang province. In June 2011, it won approval for the establishment of its plant from the Ministry of Environmental Protection of P.R.China, which is a pre-screening stage. The final approval by National Development and Reform Commission is expected to be given in the near future.|
|In the meantime, before the final approval, Volvo already started building the joint venture plant in Daqing (Hi-tech Development District) in October 2010. Operations will begin as early as in 2013 to start production.|
|The plant will have stamping/welding/painting/assembly facilities and an R&D center. The total investment is worth 4.576 billion RMB. The site area is 840,000 square meter. Production of three models - Volvo new high-end family car (model code: 113K), the XC60 mid-size highend SUV, and an MPV - will gradually begin as early as in 2013. The 2015 production target is 30,000, 40,000, and 10,000 units a year, respectively. The initial production capacity of the plant will be 80,000 units, which it plans to increase to 120,000 units.|
A joint venture engine plant in Hebei province: to build a production structure for 600,000 engines a year including export to emerging countries adjacent to China
|Volvo will build an engine plant in China. Zhangjiakou in Hebei province and Shanghai were reported to be likely candidate locations, but in July 2012, multiple media reported that Volvo's engine plant was under construction in Zhangjiakou, Hebei.|
|According to the report, the construction of the Zhangjiakou engine plant began in April 2011. The plant plans to eventually have production capacity of 600,000 units a year (The initial production capacity under Volvo's application of China project is 325,000 units a year). Although details including the time to start operations are not made public, the plant is slated to produce Volvo 1.3-liter to 2.5-liter engines (1.3-liter turbo, VEP/15P model). It will export the product also to emerging countries adjacent to China.|
|Volvo is also reported to be additionally building a production structure for passenger cars in the future.|
Geely's sales volume of passenger cars made in China (factory shipment basis, including exports)
|Model||Sales Volume (including export)|
|2008||2009||2010||2011||Jan.-Nov. 2011||Jan.-Nov. 2012|
|(Englon) King Kong||56,300||65,821||74,106||68,465||60,680||50,006|
(Figures included) Exports by model: Estimated to exceed 100,000 units in 2012
|Model||2008||2009||2010||2011||Jan.-Nov. 2011||Jan.-Nov. 2012|
|(Englon) King Kong||17,058||7,114||6,799||8,767||8,241||10,562|
(Reference) Changan Ford-Mazda's Chongqing plant (licensed production)
|Model||2008||2009||2010||2011||Jan.-Nov. 2011||Jan.-Nov. 2012|
(Note) The contract period of the licensed production for the S40 and the S80L will be terminated in 2015 and 2018, respectively.
Brand names in the parenthesis in the model column show models that were initially launched under Geely or Maple brand.
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