Geely to Develop Vehicles With Volvo for Delivery in 2015

Geely Automobile Holdings Ltd., whose Chinese parent bought Volvo Cars in 2010, will start selling vehicles jointly developed with the Swedish company in 2015 as it competes with foreign brands at home.

“We have entered into actual research and development stage and I believe we can see the new product in the year after next,” Geely Chief Executive Officer Gui Sheng Yue told reporters yesterday at a briefing in Hong Kong, without elaborating on the new model.

The joint development with Volvo, which built a reputation around safety and reliability, may help burnish Geely’s image as the Chinese carmaker seeks to become the country’s largest auto exporter. Geely yesterday also reported first-half net income rose 37 percent to 1.4 billion yuan ($229 million), beating analysts’ estimates. Gothenburg-based Volvo Cars said separately today that Chinese authorities granted clearance to set up two joint-venture factories with Geely in the country.

“Management believes a Geely and Volvo collaboration would benefit both through sharing R&D, procurement and manufacturing platforms,” Paul Gong, a Hong Kong-based analyst for Citigroup Inc., wrote in a note today. “While we note there might be some execution risk, we cannot ignore this opportunity for Geely.”

Geely rose 3.9 percent to HK$4.01 at the close in Hong Kong, the highest price since May 20. The stock has gained 9.3 percent this year, in contrast to a 3.5 percent decline in the benchmark Hang Seng Index.

‘Challenging’ Conditions

Geely’s deliveries increased 19 percent to 263,544 units in the first six months, the Hong Kong-based company said, maintaining its full-year target at 560,000 vehicles. The automaker is also preparing to introduce a range of new-energy vehicles in the coming year to cater to an expected increase in demand, it said in a statement.

“The economic environment in most of our major markets is expected to become more difficult in the second half of 2013, meaning that our operating environment should remain challenging in the remainder of the year,” the company said. “Competitive pressure on domestic brands in the China market should increase considerably in the coming years as most major international brands are strengthening their presence.”

Factory Approvals

Chinese regulators approved projects by Volvo Cars to build a vehicle-assembly plant in Daqing that will be fully operational in 2014, and an engine factory in Zhangjiakou that will begin supplying a Volvo auto plant in Chengdu late this year as well as the Daqing site, the manufacturer said in a statement. The ventures will be 70 percent-owned by units of Geely and 30 percent by Volvo, it said.

Zhejiang Geely Holding Group Co., which bought Volvo from Ford Motor Co. for $1.8 billion in the biggest overseas purchase by a Chinese automaker, signed a memorandum with the Swedish company in March 2012 to “leverage its full access” to technology to develop vehicles. Volvo said in February that it will establish a joint research and development center in Gothenburg with Geely.

Volvo has begun test runs at the Chengdu factory, its first in China, as the carmaker targets a doubling of global sales to 800,000 vehicles by the end of the decade.

— With assistance by Alexandra Ho, and Ying Tian

(Updates with regulatory clearance in third paragraph.)
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