Shares of Geely Automobile Holdings dropped 10.53 per cent yesterday, its largest fall in two years, after the company cut its sales target for the year by 20 per cent. The mainland's largest privately owned carmaker said its low-end car line suffered disappointing sales in the first half. But the company expected its mid-range vehicles and small, hi-tech economy cars to boost sales and profitability by next year. Geely shares dropped 12 HK cents to close at HK$1.02 after the company lowered its full-year sales target to 190,000 vehicles. Industry analysts said small economy cars had failed to draw customers, even though the government, when it implemented consumption taxes in April last year, kept the rate at a low 1 per cent to 3 per cent for cars with one litre to 2.4 litre petrol engines. The tax on the largest cars can be as high as 20 per cent. 'We need one more year to develop hi-tech small economy cars,' said company chairman Li Shufu, adding that the move would lift both sales and profit. Mr Li said too many consumers regarded small economy cars as cheap and therefore undesirable, and this perception had forced carmakers to compete largely on price and discouraged them from further investment. He suggested that 'the government should provide a more favourable investment environment for carmakers that build high-quality economy cars.' Geely's first-half vehicle sales dropped 3 per cent to 84,111 units. Last year the company sold 175,635 units, 2 per cent below its target. Mr Li said the company would not initiate further price reductions in the second half. He noted that because competitors such as Changan Automobile, Chery Automobile, Hafei Automobile and Tianjin First Auto Work Xiali kept cutting prices on low-end economy cars, Geely had to follow suit this year. The company relied on selling low-end cars priced at 30,000 yuan to 50,000 yuan, but at the beginning of the year it launched mid-range cars, such as the King Kong, Free Cruiser and Vision, priced at 80,000 yuan. Mr Li emphasised, however, that better technologies, such as lower-emission engines, could encourage consumers to buy small economy cars. Geely plans to invest an average of 600 million to 800 million yuan annually on research and development for these cars during the next five years. The company estimated that hi-tech economy models could be priced around 75 per cent higher than older economy cars.
