Geely’s funding hopes clouded by Lotus share price collapse
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Two weeks after its shares began trading on the Nasdaq, Lotus Technology is down by two-thirds.
Yet far from being a surprise, the collapse has a familiar sensation for investors who bought into other businesses listed on global stock markets by China’s Geely. In recent years, the ambitious Chinese group has listed shares in Volvo Cars, Polestar and ECARX. All remain deeply under water.
The fall, if sustained, deals a hammer blow to one of China’s most ambitious auto groups, and raises questions over its future ability to tap public markets to raise funding as it pushes further into the expensive business of developing electric vehicles.
Shaun Rein, managing director of China Market Research Group, a Shanghai consultancy, said it was difficult to have a positive view of Geely’s outlook in the wake of the Lotus listing.
“They don’t have a strong strategy internationally or in China, they have too many overlapping brands that just don’t make sense,” he said.
The company burst on to the global stage with a 2010 deal to purchase Volvo Cars from Ford, kicking off a decade of expansion buying unloved international car brands including Lotus and taking stakes in Mercedes-Benz, Volvo trucks and Aston Martin.
Despite its dismal stock market record and increasing jitters about EV demand in western markets, the Chinese car group is doggedly pursuing public status for its other brands.
Geely has already filed documents for an IPO on Nasdaq for its new electric car brand Zeekr. At the same time it harbours stock market ambitions for a host of other businesses within its automotive portfolio, according to people familiar with its plans.
The share price performances of Volvo and EV brand Polestar already made it difficult to attract potential investors into Lotus, according to people familiar with the deal. Finding investors for Zeekr will be harder still if Lotus shares remain underwater for those who bought into the Spac.
The listings are more than just bragging rights for its ambitious founder Li Shufu, known internationally as Eric Li. As it grows outside of China, the company is having to jettison its historic reliance on domestic funding, and raise capital through western markets that are increasingly sceptical about Chinese businesses.
“They will need a lot of money,” admits one current director within the wider business.
This is particularly crucial as the business faces steep investment demands into electric cars, self-driving systems and software in the coming years.
Geely declined to comment for this article, but Daniel Li, chief executive of the Geely Holding Group, told the Future of the Car summit last May that “through the IPO of each individual brand, we can . . . get a good opportunity to provide a return to our investors”. However, he added the company did “not necessarily” need to list each entity it held.
That was all part of Geely’s long-term ambition, he said, to become a “top ten” global automotive participant and sell more than 4mn cars a year, something that would see it become larger than Nissan, Mercedes-Benz or Renault. Geely Holdings said it sold about 2.8mn vehicles across its brands last year.
Bill Russo, the former head of Chrysler in China and founder of Automobility, a Shanghai consultancy, noted that choosing to fund businesses through public markets “means it doesn’t all have to come out of Li Shufu’s pockets”.
Taking Chinese government or development agency money often requires building plants in the country. “When you go global you don’t get that same kind of support,” he added.
Nevertheless, shares in auto businesses, especially EV start-ups, have cratered in the past two years as investors become less forgiving of unprofitable enthusiasm in an era of higher interest rates.
“The over-exuberance . . . and listings of EV companies has [led to] capital destruction that is now catching up with companies which chose that route as the main source of funding,” said Russo.
People familiar with Geely’s thinking say the company could easily raise needed finance through debt markets. “The reality is stock markets are more sophisticated and diverse outside of China, that’s why they’ve come to New York.”
The company has also, they note, been a responsible custodian of struggling brands, especially Volvo and Lotus. Geely took a longer-term view of its businesses, something that short-term share prices did not reflect, they said.
Geely was “deliberately patient,” according to people with knowledge of its thinking. “These are not flip stocks,” said one person.
Lotus came into the Geely fold in 2017, as part of a deal to invest in Malaysian owner Proton. After taking a 51 per cent stake, Geely poured £3bn into the once-sleepy business.
Lotus chief financial officer Alexious Lee said the company’s target segment — buyers of electric vehicles costing more than $80,000 — was large and growing every year. “Lotus as an early mover will be able to capitalise,” he said. “We have a strong strategy, which we believe will deliver results and returns to shareholders and investors.”
Investors have awarded higher valuations to pure-play EV makers such as Tesla and the luxury-car maker Ferrari than to other traditional manufacturers.
Lotus commercial head Mike Johnstone said investors were interested in the company’s “history and heritage”, which stemmed from motor racing. That, he believed, would help the brand stand out in a market increasingly saturated with electric SUVs all boasting sports car-like acceleration.
The business has raised about $880mn from new investors, money that along with its $500mn cash will help the business until it becomes cash-generative next year, said Lee.
Lotus plans to produce electric SUVs at its new production line in Wuhan, in central China, that it believes will help it expand sales from just a few thousand to 150,000 by 2028.
Despite the price performances of the listed shares, people close to Geely dismiss the price moves as short-term blips. “By the end of the decade, the direction of travel is pretty clear,” said one person. “The portfolio power of Chinese-controlled brands is going to strengthen.”
If Geely wants to go global, it needs to press ahead with its flotation strategy. But the underperformance of its listed companies’ stock is hardly an incentive for international investors.
Tu Le, head of consultancy Sino Auto Insights noted that by listing its international brands Geely had gone from a fairly complicated portfolio to an extremely complicated one.
“The challenges are of their own making,” he said. “They have all of these brands now that they need to manage — many of them are foreign brands — this is new.”
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