Geely: 'Confronting' BYD, Can It Shake the King's Position?

$GEELY AUTO(00175.HK) (0175.HK) released its 2025 semi-annual report during the Hong Kong stock market midday on August 14, 2025, Beijing time. Here are the key points:

1. Automotive sales revenue slightly exceeded expectations, but the overall selling price per vehicle continues to decline year-on-year: In 1H25, Geely's vehicle sales revenue was 134.6 billion, up 27% year-on-year, slightly exceeding the market expectation of 133.2 billion.

However, the overall selling price per vehicle for Geely continues to decline year-on-year, dropping from 110,000 yuan in 1H24 to 96,000 yuan in 1H25, mainly due to:

① The downward shift in model structure, with Geely's high-end series showing mediocre performance: The mid-to-high-end models in Geely's lineup, ZEEKR and Lynk & Co, still showed mediocre performance, with the year-on-year growth rate of ZEEKR + Lynk & Co slowing down, and their proportion in the model structure decreasing by 5 percentage points quarter-on-quarter, while the main increase still came from the lower-priced Geely series.

② Continued decline in the selling price per vehicle: From the performance of the three brands, ZEEKR's selling price per vehicle in 1H25 dropped from 246,000 yuan by 16,000 yuan year-on-year to 230,000 yuan, Lynk & Co's selling price per vehicle in 1H25 remained flat at 137,000 yuan year-on-year, while Geely Automobile's overall selling price per vehicle dropped by only 10,000 yuan year-on-year to 80,000 yuan, mainly due to the increased proportion of the low-priced Geely Wish series (benchmarking BYD Seagull models).

2. However, the overall gross margin, due to the release of scale effects, basically met expectations: Geely's gross margin in 1H25 was 16.4%. Despite a significant year-on-year decline in the selling price per vehicle, the gross margin only decreased by 0.3 percentage points year-on-year, which basically met expectations, mainly due to the release of scale effects brought by the quarter-on-quarter increase in vehicle sales (vehicle sales increased by 47% year-on-year), and the fixed amortization cost per vehicle continued to decline quarter-on-quarter.

3. Core operating profit improved year-on-year, with reasonable cost control after integrating "One Geely": From the perspective of core operating profit (gross profit - three expenses - SBC expenses), the core profit margin increased by 2.3 percentage points quarter-on-quarter to 3.6%, mainly due to reasonable cost control after integrating "One Geely", combined with the release of leverage effects from sales.

4. Net profit declined year-on-year mainly due to the recognition of one-time gains from the sale of subsidiaries in the same period last year, which is not a major issue: Net profit in 1H25 declined by 10% year-on-year to 9.5 billion, mainly due to the recognition of nearly 7.5 billion in one-time gains from the sale of subsidiaries in 1H24, resulting in a high base.

5. Quarterly net profit per vehicle declined quarter-on-quarter, mainly due to reduced foreign exchange gains, while core operating profit per vehicle remained basically flat quarter-on-quarter: Quarterly net profit per vehicle was 5,000 yuan, down 3,000 yuan quarter-on-quarter from 8,000 yuan in the previous quarter, mainly due to reduced foreign exchange gains, while core operating profit per vehicle was 4,000 yuan, remaining basically flat quarter-on-quarter with the first quarter.

Dolphin Research's View:

Overall, Geely still performed well in its vehicle sales process in the first half of the year. In the first half of 2025, Geely's total sales were 1.41 million units, up 47% year-on-year, mainly due to the volume increase of low-end models (Geely's sales increased by 57% year-on-year), prompting management to raise the 2025 sales target from the previous 2.71 million units to 3 million units.

In terms of the most critical speed of new energy transformation, Geely is steadily advancing, with the proportion of new energy vehicles reaching 51% in 1H25, up 17 percentage points year-on-year. In the second quarter, the proportion of new energy vehicles exceeded half, reaching 55%, up 7 percentage points quarter-on-quarter from the first quarter.

The acceleration of Geely's new energy transformation is still mainly benefiting from the volume increase of Geely's mid-to-low-end series Wish + Galaxy, which is also due to Geely's "close combat" with BYD:

a) Switching technology solutions to reduce costs: By reducing the original three-speed DHT solution to a single-speed DHT solution in the plug-in hybrid technology route (which can reduce costs by about 5,000 yuan), and by reducing engine horsepower, essentially, the original Geely solution was more comprehensive for all-scenario vehicle use (especially advantageous in high-speed scenarios), but users in the 70,000-150,000 yuan price range mostly focus on urban vehicle use, with cost-effectiveness as the core guide, so Geely made this change.

b) BYD's price war is restricted by "anti-involution", giving Geely a competitive window period: The volume increase of Geely's Wish + Galaxy series, benchmarking BYD, is mainly due to the catch-up in technology + switching technology solutions to reduce costs, and also because BYD's price war is restricted by "anti-involution", the price war has slowed down, giving Geely a competitive window period.

c) Integration for efficiency: Previously, Geely had too many sub-brands, resulting in severe resource waste and internal friction. This integration is actually to reduce sales costs, and more importantly, to strictly control the three expenses.

After the merger of ZEEKR and Lynk & Co, the management expense ratio in 1H25 dropped to 1.9%, the sales expense ratio dropped to 5.5%, and R&D investment was 8.3 billion yuan (down 8.8% year-on-year).

From the speed of new model launches by the three major brands in the second half of the year, ZEEKR is taking a high-end route in the second half, which is obviously not a volume model, so Geely's main volume increase in the second half still lies in the Galaxy series (Galaxy A7, Galaxy M9), and Lynk & Co 10.

Dolphin Research expects that with ① the rush to install before the purchase tax reduction next year, ② the continued volume increase of Geely's new car cycle, ③ the easing of competition from BYD, the 3 million sales target is highly likely to be achieved.

If the 3 million sales target is achieved, the current stock price corresponds to a 2025 P/E ratio of about 12 times, which is relatively reasonable. Based on the historical valuation peak of 13-14 times P/E, there is a potential upside of about 10%-20% (21-23 HKD).