How Geely built an auto empire in Europe

The old guard of European automakers has a new member, one focused on electrification, forward-looking technology and manufacturing efficiency.

No, it's not Tesla.

The automaker that is quietly disrupting Europe's auto market is Geely, the Chinese conglomerate founded by billionaire Eric Li that now owns or collaborates with more than a dozen European companies.

In doing so, Li, who started his career making refrigerator parts, has created a web of interdependent enterprises that form the foundation of a vertically integrated mobility business that engages with a variety of partners.

Zhejiang Geely Holding Group, headquartered in Hangzhou, China, is the umbrella company for an expanding empire with four business divisions: passenger vehicles, commercial vehicles, technology and mobility services. Revenue in 2021 was $47.2 billion, with 2.2 million vehicles sold, according to Geely.

Starting with the 2010 acquisition of Volvo Cars from Ford Motor for $1.8 billion, Geely's vehicle brands include Polestar, Lynk & CO, Smart (through a joint venture with Mercedes-Benz), Lotus and the Europe-oriented London Electric Vehicle Co.

Geely-affiliated suppliers include ECARX, which provides automotive intelligence products such as central computing and autonomous-driving systems; Aurobay, a new company that will develop and sell internal-combustion powertrains; and Zenseact, Volvo Cars' software subsidiary. Geely also now owns a controlling interest in the storied Italian motorcycle brand Benelli.

Geely additionally holds sizable stakes in Mercedes-Benz (nearly 10 percent), and truckmakers AB Volvo and Daimler. Just this year, it acquired 35 percent of Renault Group's South Korean business, including the large, underutilized assembly plant in Busan. Related collaborations include Renault and Lotus on electric sports cars, and Mercedes and Volvo on internal-combustion engines.

And Geely has entered the ride-hailing market, with its CaoCao-branded electric London Taxis zipping around Paris in a test program ahead of a planned expansion in more European cities.

There's also Geely's holdings in Volocopter, the German aerospace company that hopes to deploy flying taxis within two years in Paris, or a strategic cooperation with self-driving pioneers Waymo and Mobileye. Or StaRides, a premium ride-hailing joint venture launched in China with Mercedes in 2019. Or a battery-swap joint venture in China.

This month in China, Geely's Geespace subsidiary launched nine self-designed low-orbit satellites to provide navigation for self-driving cars. Geely says that more than 200 eventually will be deployed.

"The link to Volvo has been a critical platform to a wider entry," said Peter Wells, director of the Center for Automotive Industry Research at Cardiff University in Wales.

Geely executives are clear about the benefits of what might appear from the outside to be a confusing tangle of cross-holdings and obligations. "We believe that only through scale effects and the pooling of joint resources can we make better products for end users," Zhejiang Geely Holding CEO Daniel Li, no relation to the founder, said this month at an automotive event in Germany.

"We also believe that the future of the automotive industry is one that is built upon shared synergies and cross-industry partnerships," Li added, according to remarks provided by Geely. "In this new era of ultimate disruption, no automotive brand can afford to go it alone. We must look to co-innovation of technologies, sharing of information and pooling resources to create a sustainable future."

Experts say Geely has moved quickly and decisively to adapt its business to trends such as electrification, subscription ownership and self-driving cars.

"It is a fascinating company, in that they seem prepared to take an alternative look at various aspects" of the automotive business, said Ian Fletcher, principal analyst at IHS Markit. "Very few automotive executives are also founders, so he [Eric Li] must have a directional instinct how the business will thrive and grow."

Fletcher cited Aurobay, which hopes to sell small hybrid-ready internal combustion engines to companies outside the Geely orbit, as a prime example. Legacy automakers have been grappling with the question of how to manage the phaseout of combustion engines in favor of battery-electric vehicles, and such spinoffs have been proposed as one solution.

"That was a really clever move to do that ahead of other companies," Fletcher said of Aurobay. "At some point the ICE [internal combustion engine] will get phased out, and it would be a negative on Volvo's and Geely's books. So spinning it out as an independent business — if they can continue to develop these engines to Euro 7 [emissions rules] or future stricter Chinese regulations — you can then sell these engines to your rivals."

That agility has been a Geely hallmark since the Volvo acquisition, a supplier source close to the company told Automotive News Europe.

"Geely's entrepreneurship encouraged Volvo to take a number of big decisions such as opening multiple factories in China," the source said.

Geely's agility can also be seen in the relaunch of Smart, a money-losing brand while under full Daimler control. The first product for Europe is the #1, a compact full-electric SUV with segment-topping range that may be able to undercut the competition on price because it will be built in China.

"Their launch vehicle is at the heart of what is popular in Europe and China — the C (compact) SUV segment," Fletcher said. A midsize SUV is on the way.

Li's strategy, according to analysts and experts, appears to be to build up the companies to a certain level, then seek a public listing to drive further outside investment. But Geely's plans could be delayed or derailed by especially volatile market conditions right now.

Volvo Cars' IPO last autumn got off to a rocky start after the automaker cut the size of its offering by 20 percent, to $2.3 billion, following investors' worry that Zhejiang Geely Holding could retain control over the majority of voting rights.

The listing on Oct. 29 was priced at the bottom of the range, giving Volvo an enterprise value of about $20 billion. Even so, the listing was one of the largest deals in Europe last year.

Polestar said last September that it will go public this year via a reverse merger with special purpose acquisition company Gores Guggenheim. The estimated enterprise value of Polestar is more than $20 billion, and the deal could generate $1 billion in cash. But since then the SPAC market has cooled considerably, and shares in EV makers have lost a significant chunk of value this year.

Gores Guggenheim shareholders are scheduled to vote on the deal on Wednesday, June 22, after it was pushed back from May 27. Still, analysts say Polestar's track record of solid growth and the Volvo/Geely connections give it an edge over full-EV startups.

As a Chinese company, Geely is also subject to an unusual level of scrutiny, given concerns about data protection, China's human rights record and connections between the government and companies.

"There are a whole bunch of issues around governance and transparency, and the relationship between the state," Cardiff University's Wells said of Chinese companies in general.

Geely has pledged to be as transparent as possible as it becomes more international. "Geely Holding is often considered a dark horse in the automotive industry; however, I can say that we are an open book," Daniel Li told the German forum.

Wells noted that, unlike other Chinese newcomers, Geely had entered the European market through brands seen as traditionally European, such as Volvo, Lotus and Smart.

"That has been quite a shrewd move," he said. "It takes a long time to build a brand presence in Europe."