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Tesla’s success in China is a surprise for the country’s own exporters. Its aggressive price cuts have made it highly competitive and it will continue to dominate rankings, at least in the short term. Now Geely has decided to fight back with its own premium electric models.
Tesla’s Model 3 was the best-selling electric car in China last year. The US group has held on to its lead this year. The Model 3 and Model Y were the second and third most popular cars with buyers last month. Local makers have struggled to keep up. Indeed, Geely’s plans for its premium EV brand, Zeekr, underscore the fact that its current model line-up can do little more against Tesla.
The strategy makes sense. Geely, which holds a 9.7 per cent stake in Daimler and owns Volvo Cars, has form in the premium segment. China accounts for about a fifth of global luxury demand. The trend of buyers trading up remains strong.
In the petrol car market, high-end import cars made up more than half of total sales in major cities last month. Local sales growth of Lexus, Toyota’s premium brand, outpaced that of its standard models last year. Yet most of China’s electric car models compete in the lower price segment.
Smaller rival Nio has set an encouraging precedent, selling higher-priced models. Last month, even when rivals such as Xpeng Motors in the entry-level market recorded sharp declines in sales, shipments for Nio almost doubled compared with January. And Geely has money to invest. On analyst forecasts, the group should have free cash flow in excess of $1bn annually through 2023.
Moreover, the Chinese group should have a home team advantage. Local electric car makers have long been favoured by China’s government. Beijing’s electric car subsidies have been extended to 2022.
Shares of Geely have more than doubled over 12 months, reflecting expectations of further growth potential in the local markets. Zeekr may not topple Tesla from its place in the sales ranking. But a premium electric brand should at least boost Geely’s margins — as Lexus has for Toyota.
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