Rising Tariffs And Supply Chain Woes Will Limit EV Profitability

Key Takeaways

• Exposure to geopolitical risks and supply chain volatility could severely impact international expansion, revenue stability, and operational consistency.
  
• Technological disruption and fierce EV competition may erode market share, compress margins, and outpace Geely's investments in R&D and product innovation.
  
• Geely's scale, cost discipline, overseas growth, tech investment, and successful brand integration position it for sustained profitability and resilience amid the electric and smart vehicle transition.

Catalysts

An investment holding company, operates as an automobile manufacturer primarily in the People’s Republic of China.

• Intensifying geopolitical tensions and looming trade protectionism threaten Geely's ambitious international expansion plans; as the company relies increasingly on overseas growth, any new tariffs or restrictions could sharply limit export revenue and undermine global sales growth targets, reducing top-line revenue and earnings resilience.
  
• Rapid industry-wide adoption of advanced software for digital connectivity and autonomous driving poses a critical risk; Geely's heavy R&D commitments and recent partnerships may not match the pace or quality of domestic and global technology leaders, risking loss of market share, diminishing pricing power, and compressing net margins as spending outpaces tangible differentiation.
  
• The accelerating global transition away from internal combustion engines could outpace Geely's investments in alternative powertrains; the company's continued reliance on ICE development may require costly updates, which could become stranded assets faster than anticipated, ultimately jeopardizing gross margin stability and future profitability.
  
• Heightened competition in the EV market from aggressive domestic players such as BYD, NIO, and XPeng, as well as established international automakers, may lead to intensified price wars, higher marketing and sales expenses, and a race to the bottom that erodes average selling prices and gross profit margins across Geely's key segments.
  
• Persistent supply chain volatility-especially in batteries, chips, and rare earth materials-threatens production consistency and cost control; any sustained disruptions or input price spikes could amplify operating risks, force margin-dilutive concessions, and trigger unpredictable fluctuations in quarterly earnings and cash flow.

Geely Automobile Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Geely Automobile Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Geely Automobile Holdings's revenue will grow by 14.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 8.1% today to 4.2% in 3 years time.
• The bearish analysts expect earnings to reach CN¥15.8 billion (and earnings per share of CN¥1.57) by about July 2028, down from CN¥20.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, up from 8.4x today. This future PE is lower than the current PE for the HK Auto industry at 18.8x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.38%, as per the Simply Wall St company report.

Geely Automobile Holdings Future Earnings Per Share Growth

Risks

• Geely's aggressive expansion in electric and new energy vehicles is capitalizing on the global shift towards decarbonization, with nearly 60 percent NEV penetration by late 2024 and NEV operations already profitable, which can support long-term revenue growth and margin expansion.
  
• The company's strong scale economies and cost control, demonstrated by improved gross profit margin to over 15 percent and further targeted cost cuts through restructuring and centralized procurement, suggest gross and net margins could remain robust or even improve.
  
• Geely's internationalization strategy, including rapid growth in overseas sales, localization of supply chains, and strategic alliances with global partners like Renault and Volvo, provides diversified revenue streams and reduces reliance on the domestic China market, supporting more resilient earnings.
  
• Major investments in advanced digital connectivity, autonomous driving, and AI-powered smart vehicle technology, underpinned by partnerships, in-house capability, and the scalable application of proprietary AI models, poise Geely to remain competitive as vehicle intelligence and automation become key drivers of unit sales and pricing power.
  
• The successful integration of Zeekr and Lynk & Co, alongside ambitious targets for NEV launches and significant reduction in R&D and SG&A expenses, indicates management's ability to execute transformation, potentially leading to higher operating leverage, better profitability, and upside to long-term earnings.

Valuation

• The assumed bearish price target for Geely Automobile Holdings is HK$16.59, which represents two standard deviations below the consensus price target of HK$24.75. This valuation is based on what can be assumed as the expectations of Geely Automobile Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$34.99, and the most bearish reporting a price target of just HK$15.04.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥379.2 billion, earnings will come to CN¥15.8 billion, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 12.4%.
• Given the current share price of HK$18.9, the bearish analyst price target of HK$16.59 is 13.9% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.