Carmaker Geely has its headlights firmly set on the home market

Geely Automobile Holdings, the Chinese carmaker whose parent owns the Swedish brand Volvo, has vowed to have 90 per cent of its vehicles powered by hybrid engines by 2020, while trying to keep its distance from the proliferating all-electric car landscape.

“All of our current assembly lines are designed to produce cars that are hybrid, but we don’t think all-electric is the way to be,” Gui Shengyue, the company’s chief executive, told South China Morning Post in an interview in Hong Kong.

Based in the Zhejiang provincial capital of Hangzhou, Geely will launch its first hybrid vehicle in the fourth quarter of this year, he added.

It has also declared a sales war against Volkswagen, General Motors, Toyota and other Western brands that have long-dominated the world’s largest automobile market through their joint-ventures (JV) set up with state-owned Chinese manufacturers.

“Foreign brands are declining in China, and the future of the country’s domestic car market lies in the hands of indigenous players that offer better value for money,” Gui said.

The firm, founded by Zhejiang native Li Shufu in 1986 with a loan from his farmer father, is China’s first non-state-owned car manufacturer.

Its sedans are as ubiquitous in China as GM’s Chevy Cruze are in the US. Last year, the company sold 766,000 vehicles, a 50 per cent increase from a year earlier and its net income for 2016 is expected to more than double from 2.26 billion yuan in 2015.

Buoyant investors have piled into its stock in Hong Kong, fuelling a whopping 263 per cent rise within the last 12 months. They soared to a record high as traders returning from the Lunar New Year holiday heard reports it was buying Proton, Malaysia’s national car brand.

Barely anybody outside of China knew the Chinese carmaker, Gui admitted, before it made global headlines in 2010 with its landmark US$1.5 billion takeover of ailing Volvo Cars from Ford Motor – the first time a Chinese automobile company has bought 100 per cent of an international marque.

“Before that, we were really just country bumpkins,” Gui smiles, his eyes gazing around a dozen of colourful Geely car models lined up on the boardroom table of the company’s Hong Kong office.

Many Chinese carmakers such as SAIC, which is state-owned and based in Shanghai, have lucrative joint ventures with GM and VW, and don’t need to make it big overseas because they can already make handsome profits from JVs with foreign brands at home.

But Geely is different.

With China’s rapid ascent to become the world’s largest car market, the golden child among state-owned car manufacturers SAIC has already surged onto the Fortune 500 at No.46, overtaking BMW, Nissan and Hyundai Motor.

The Chinese government requires foreign automobile firms to launch businesses with local partners to allow home-grown firms access to technology and operational know-how.

However, decades on, these alliances did not mean Beijing had met its goal of developing competitive Chinese brands of its own, as overseas partners used to keep their cards close to their chest when it came to technology, Gui said.

“It is extremely hard for you to make a breakthrough through a joint venture, and equally hard for you to count on yourself, because you are just so far behind,” he added.

The 54-year-old former China Resources senior executive joint Geely in 2006 – the year when he first accompanied chairman Li to bring a small silver Geely sedan to the North American Auto Show in Detroit.

Unable to even get space in the main hall, they could do nothing but park their forlorn car in the lobby of Detroit’s Cobo Hall, he recalled.

“Nobody outside China cared about us at the time.”

Yet things have changed dramatically after Geely took a path never travelled by its home-grown peers – adding a global luxury brand to a stable previously associated with non-frills and utilitarian models.

“Instead of forming a 50-50 joint venture, we bought Volvo outright – a short-cut to leapfrogging our research and development,”Gui said.

“When it comes to overseas acquisitions, we are looking into three aspects: technology, the brand, as well as production capacity.”

Whether at home or abroad, Chinese car makers have little more than bargain-basement pricing strategies when competing with overseas peers.

The irony is that the “world’s workshop” falls short of the top 20 car-exporting countries worldwide, lagging behind Asian neighbours South Korea and Japan or even unlikely peers Turkey and India, according to the World’s Top Exports website.

Geely, however, believes that its marriage to the European premium brand seven years ago will eventually allow it into the premier league of the world’s top car brands, alongside Toyota, Hyundai and other industry titans.

“The reality is, as a Chinese car brand, if you want to quickly upgrade your products, you must hire foreign talent,”Gui said.

“If not for the lure of the Volvo brand, who would have been interested in travelling thousands miles away from Berlin to work for a little-known carmaker in Hangzhou?”

The design boss of Geely is former Volvo veteran Peter Horbury, a Briton who has also led design teams at other Ford marques, Jaguar and Aston Martin in the early 2000s.

The company has created a specialist tech centre called China Euro Vehicle Technology, where Geely coordinates all R&D with Volvo. The facility employs 1,700 and is within a stone’s throw of Volvo’s main offices in a science park housing the likes of tech giant Ericsson, in Gothenburg, Sweden.

“We now can get people who speak Korean, Japanese, German and English all in Shanghai to share their expertise for Geely,” Gui said. “You couldn’t have imagined that if we didn’t buy Volvo.”

Four new models, including the Chinese carmaker’s first crossover and first electric car, played a key role in last year’s exponential sales growth.

As well as its new global brand Lynk & Co, Geely will launch a couple of new models in the coming year, including two multi-purpose vehicle models, a midsize SUV, a hatchback, and the flagship Emgrand plug-in hybrid electric vehicle version (PHEV), extending its exposure to the MPV, midsize SUV, and PHEV segments.

Last month it announced 2017 sales targets of 1 million vehicles, a 34 per cent increase on last year, though Gui believes the final figure should well beyond that.

Also coming under spotlight will be the first Lynk & Co vehicle, an internet-equipped compact SUV based on the “Complex Modular Architecture” platform co-developed by Geely and Volvo. It is poised to hit the China market as early as this year, before being sold in Europe and US in 2018.

In China, the new brand will go head to head with mid-end cars such as those jointly made by VW and SAIC, a segment accounting for roughly 45 per cent of the entire China auto market, while Volvo will keep targeting the premium end and Geely on the lower price end of the market.

Carefully keeping a lid on Lynk’s planned prices, Gui said his designers managed to blend Geely’s low-cost manufacturing with Volvo’s safety standards.

“Our target is that, by 2020, out of the 2 million vehicle shipments we aim to achieve that year, at least a few hundred thousand will come from Lynk & Co,”he said.

Meanwhile, with China issuing some of the world’s most stringent emission rules to combat air pollution and save energy costs, Geely will begin producing more gasoline-powered vehicles with battery systems, aiming for 90 per cent of its sales in 2020 to come from hybrid vehicles.

“We are launching our first hybrid sedan this year,” Gui said. The Chinese carmaker will start mass production of its flagship sedan model, the Emgrand EC7, using its self-developed “powertrain” that features the very latest fuel-saving technology.

Chinese carmakers face an industry standard to have average fleet fuel-efficiency reach around 47 miles-per-gallon by 2020 and major players including BAIC, Chery and BYD have all stepped up their push to boost fuel-economy with hybrid or electric models.

But Gui said Geely plans to focus on hybrid not all-electric models – a diversion from the course laid out in its Blue Geely electrification initiative in 2015, that included a target to see 35 per cent of its new energy vehicles by 2020 purely powered by electricity – “unless we see a world-class breakthrough in battery technology”.

Holding a smartphone in his hand, the engineering graduate said: “Just like your smartphone, over time, it tends to run out of energy earlier than its specifications suggest it should, no matter how expensive it is.

“There is a worldwide issue in extending the battery life of all electric vehicles.”