Morgan Stanley has resumed coverage of Hong Kong-listed Geely with an overweight rating on expectations that the Chinese automaker can overcome macro and industry uncertainties. Fierce competition in China's new energy vehicle market, which includes battery-powered and hybrid vehicles, has increasingly forced automakers to lower prices and add features if they want to survive. Many companies have launched overseas expansion strategies to tap new sources of revenue, but growing trade tensions with the United States, and more recently with the European Union, have added challenges. “We see Geely as a beneficiary of market consolidation,” Tim Hsiao, Asia equity analyst at Morgan Stanley, and the team said in a June 25 report that resumed coverage on the stock. “Geely said its engagement with the EU is limited, with the exception of plug-in hybrid electric vehicle (PHEV) exports under Lynk & Co (which are currently unaffected by the tariff hike) and Zeekr's potential overseas expansion (which will start at a minimum),” the report said. He said. PHEV is short for hybrid electric vehicle. Hangzhou-based Geely entered the auto industry in China in 1997 and is best known for its acquisition of Volvo in 2010. Geely has a large number of other subsidiaries, which include Polestar and Lynk & Co. and electric vehicle brand Zeekr, which listed in New York earlier this year. . Morgan Stanley's analysis showed that Geely jumped from the fourth place it occupied for years to third place last year in terms of Chinese market share, behind one of Volkswagen's joint ventures in the country. The analysis showed that BYD took first place, a position it has held since 2022, up from 13th in 2021. In 2020, BYD launched the Blade battery, which many argued helped spur the company's growth in electric vehicles. Geely announced Thursday that it has developed its own competitor, the Aegis Short Blade Battery, which it claims has passed tests above industry standards without exploding. The company also claimed that the new battery can be used for 50 years, which could boost sales of used products. The company plans to initially use the battery in its own cars this year. The majority of Geely cars are still conventional vehicles with internal combustion engines. But the company has increased its share of new energy vehicles to 32% so far this year, which is higher than peers such as Great Wall Motor, which has a share of 23%, Morgan Stanley analysts noted on Tuesday. The report said that Geely's presence “in the (new energy vehicles) market should bode well for its presence in the local market in the medium and long term amid the trend towards switching to new energy vehicles, and contribute to the sustainability of profits in the long term.” Analysts expect Geely's sales to grow by 22% overall this year, despite moderate growth in the second half of this year. Zeekr and other electric car brands typically release monthly delivery numbers around the end of each month. Geely on Friday reported first-quarter results for the first time — and Hong Kong rules do not require such frequent disclosures. The filing showed that quarterly revenues rose 56% to 52.32 billion yuan ($7.2 billion) year-on-year. Profits attributable to shareholders doubled to 1.56 billion yuan compared to the same period last year. Geely shares closed 1.2% lower at HK$8.79 (US$1.13) on Friday ahead of the earnings announcement. Morgan Stanley analysts on Tuesday set a target price of HK$11.20 (US$1.43), about 27% higher than the shares' closing price on Friday. “Although profitability has been volatile in the last two-three years due to investment in (new energy vehicles) and one-time non-cash expenditures, we see a good outlook for earnings growth supported by higher sales volumes and potentially lower losses in new energy vehicles.” Companies,” Morgan Stanley said in the report. “We believe the company’s profitability will allow it to weather the current macroeconomic uncertainty,” the analysts said.
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Play China's Electric Vehicle Consolidation With This Stock: Morgan Stanley
