Geely’s long term profitability remains unknown

Geely is a Chinese auto company that started by making refrigerators 26 years ago. Geely begun to produce cars in 1995. Now it is one of the biggest privately run auto companies in China. Since 2008, Geely has made several attempts to produce vehicles for upper-middle class, to change its previous reputation of making “cheap cars”. It acquired “Volvo Cars” in 2010, and has since then been learning to improve its quality, safety, and design.

This article from Wall Street Journal suggests that “investors should be skeptical as long as Geely drives solo”. Some of the success of Geely are attributed to government subsidies, government’s stimulus plan for small engine vehicles, and Volvo’s increasing sales. However, none of these factors can convince us that Geely is a good auto company. The core of an auto company is its ability to produce vehicles, to expand dealership network, and to generate profit. But so far, Geely has not made significant success in any of these fields, and a large portion of its operating profit is from the capitalization of research and development expenses. Perhaps Geely needs more time to prove itself.

 

http://cn.wsj.com/gb/20140421/hrd142143_ENversion.shtml

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