The giants are investing in iteration, and the upward trend in profit has led to profits on a current scale. With the start of a strong new car cycle in 2024, sales are expected to accelerate. 1) Autonomous SUV take-off period (2015-2017): The rapid increase in the penetration rate of SUVs became a key opportunity to increase the share of independent brands. Geely later took the lead, building popular SUVs such as Boyue + Emgrand, etc., to drive rapid sales growth, with annual sales exceeding one million. 2) The initial phase of the new energy transition (2021-2023):

The performance was average. During the 3.0 period, product aging combined with the transformation of new energy sources was relatively slow. The high cost of the three-speed hybrid and CMA architecture was unable to cope with the domestic low-cost competitive environment, and domestic oil vehicles declined. 3) Accelerated energy transformation period (since 2024): Accelerated transformation, restructured brand positioning, and the new GEA platform brought significant technology cost reductions, and the platform empowered to launch a strong new vehicle cycle. Sales led to rapid revenue growth. In the first three quarters of 2024, revenue was 167.7 billion yuan, +36% year over year, benefiting from scale effects and product structure optimization, increased profitability, gross margin and net margin increased year-on-year, and net profit of 5.39 billion yuan (excluding the influence of Renault), or +89.4% year-on-year.

New energy: focus on strategy and technology to embark on a new journey

The GEA platform has strongly launched a new technology and product cycle. The accelerated transformation of new energy sources has led to an increase in sales volume and accelerated the arrival of the inflection point of the overall profit of new energy sources. ZEEKR merges with Lynk & Co to optimize the brand structure and strengthen internal resource collaboration through strategic integration. 1) Galaxy: The new GEA is fully compatible with various energy forms such as pure electricity and hybrid. The technology has significantly reduced costs, low electricity consumption and large space. The Galaxy E5 is the first GEA architecture with strong pricing and product strength. It has delivered a total of 0.04 million vehicles within 85 days of launch, Starship is willing to deliver more than 0.01 million units in 16 days, and the launch of the Galaxy Starship 7 continues to enhance the new car cycle. The GEA platform's focus in the new cycle is next year, and it continues to gain strength. The new vehicle cycle is gaining momentum, leading to a rapid rise in brand profits. 2) ZEEKR: Positioned in the high-end pure electric market. ZEEKR 001 and 007 products strongly support brand sales. 009 sales exceeded expectations, and good profitability and sales structure improvements accelerated ZEEKR's losses. ZEEKR 7X was released for 25 days, delivery surpassed 0.01 million units, and ZEEKR MIX was launched, continuing to improve the family product matrix. 3) Lynk & Co: The transformation of new energy boosts sales. From oil to electricity to a new model cycle, various models such as the Lynk & Co 08 EM-P and Linker 07 drive the brand's new energy sales to continue to rise. The first pure electric Lynk & Co Z20 was launched in Europe, and the 2025 Linker 03+ was officially launched. Increased sales are expected to accelerate the narrowing of net losses.

Fuel vehicles: stable base, joint ventures innovate overseas models

The fuel vehicle base is stable, and the joint venture innovates the mode of going overseas. Empowered by the CMA platform, Geely continues to lead in oil truck product strength. At 0.08-0.2 million prices, fuel vehicles have a clear advantage. Domestic fuel vehicle joint venture brands account for a relatively high share, and replacing major brands is expected to continue to contribute to steady sales in the future. The Group has a mature global sales network and production capacity. The collaboration mechanism is expected to continue to expand the market, acquire shares in Proton Motors to expand the Southeast Asian automobile market, collaborate with Volvo and Renault brands, and accelerate the export of domestic models overseas.

At the same time, overseas expansion was accelerated with the commissioning of KD plants in Indonesia and Algeria. At the same time, the gross margin of overseas oil trucks is much higher than domestic, and the share of overseas sales has increased, further opening up overseas profit space.

Investment advice: The GEA platform is strongly starting a new technology and product cycle. The accelerated transformation of new energy sources brings new platforms to increase profits, and Geely Automobile is expected to open a new era of products. The GEA architecture supports the new vehicle cycle, and ZEEKR, Lynk & Co., and Galaxy are improving across the board. The new energy transformation of various brands is progressing smoothly, and the gradual highlighting of scale effects will bring upward flexibility to profits. The company's fuel vehicle base is stable, and joint ventures continue to open up new overseas space by innovating overseas models. The transformation of intelligent electrification has accelerated the transition of hybrid and electric vehicles into the expansion period. Large-scale production has led to profits. Combined with product structure upgrades and cost reduction efforts, profits are highly elastic under the strong new cycle of vehicles. Currently, valuations are still low, and key recommendations continue. Net profit due to mother for 2024-2026 is estimated to be 16 billion, 11.8 billion yuan, and 15.7 billion yuan, respectively, corresponding to Hong Kong stock PE is 7.6X, 10.4X, and 7.8X, respectively, maintaining a “buy” rating.

Risk warning

1. Weak market demand led to lower sales of new energy vehicles than expected; 2. Increased industry competition weakens corporate profits; 3. Demand in overseas markets falls short of expectations; 4. Economic recovery is weaker than expected and the impact of declining policies on demand.