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Why Geely may be Tesla’s main China challenger in the near future

When Chinese automaker Geely bought Sweden’s Volvo in 2010, many people thought Geely chairman Li Shufu was crazy, or at least had bit off more than he could chew. Geely, after all, was an inexperienced company with a market share of less than 5% in China, and Li was most famous for his quip that a car is nothing more than “four wheels and two sofas.”

Geely’s first model, the Haoqing (“Ambition”) or HQ, was introduced in 1998 as the cheapest car available in a market dominated by low-price, no-frills automobiles. Now Geely is making a fortune making Volvos in China. In December it put 288 special edition XC60s up for sale on Alibaba’s online Tmall for RMB 429,900 ($68,000) and sold them all — in 75 seconds.

Now Li has personally acquired shares worth 9.69% of Germany’s Daimler, maker of Mercedes and Maybach luxury cars. Daimler also makes a wide variety of heavy trucks, and Li’s firm Geely has recently purchased an 8.2% stake in Volvo Trucks (carrying 15.6% of voting rights). Something is surely afoot, though exactly what will come of it is anyone’s guess.


What is certain is that Li Shufu, the “automobile maniac” of Taizhou, Zhejiang province, got the Chinese market right when he pushed hard to produce cheap mass-market cars in the 2000s, and he got it right again when he went upmarket in the 2010s. China’s passenger car sales peaked in 2013, but the market for upmarket SUVs kept booming.

China’s sales of traditional passenger sedans actually fell in 2017, by 2.5% according to industry statistics and by 2.8% according to official government statistics from the National Bureau of Statistics. Nearly 200 million of China’s 1.4 billion people now own cars. In a still-poor country of just 280 million licensed drivers, the market for cheap cars may be nearing saturation.

Meanwhile sales of upmarket SUVs continue to climb, though at a slower rate than in the early 2010s. After recording a compound annual sales growth rate of 45% per year over the period 2012-2016, growth in SUV sales slowed to “just” 13.3% in 2017. If sedan sales are any indication, this may be the beginning of the end for unit sales growth. But that doesn’t mean the Chinese market will stagnate.

Instead, it is electrifying. Sales of “new energy vehicles” (NEVs), which in China include any vehicle with a power cord (both plug-in hybrids and all-electric cars), are surging, from 482,000 in 2016 to 804,000 in 2017, according to official data from the National Bureau of Statistics. Industry data show that all-electric battery electric vehicle (BEV) sales totaled 468,000 cars and 198,000 trucks. That compares with just 200,000 BEV sales of all types in the U.S. in 2017.

When it comes to electric cars, Tesla tends to hog all the attention, but Geely may be making the running. In line with its efforts to reduce local air pollution, China heavily subsidizes sales of all-electric BEV cars, and starting in 2018 the subsidies increasingly target larger, more-capable cars. This is good news for Geely-owned Volvo, which from 2019 will only sell BEV and hybrid cars. It appears that Li Shufu may be once again running just ahead of the curve.

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Sydney-based globalization expert Salvatore Babones is available to speak on the Chinese economy (demographics, growth, technology), the Belt & Road Initiative, global trade networks, and Australia-China relations. Contact: