Geely stops building more car factories due to overcapacity crisis

Geely Auto, China’s second-largest automaker, has announced it will stop building new factories to address severe global overcapacity. The announcement by Chairman Li Shufu at the Chongqing Auto Show marks a strategic shift as Chinese automakers face shrinking profit margins and a fierce price war.

“The global auto industry is facing serious overcapacity, so we have decided to stop building new plants,” Mr. Li said in a video shared online, stressing that Geely will focus on improving its technological capabilities rather than expanding its production facilities.

The move comes amid an escalating price war in the domestic market. In late May, major manufacturers including BYD, Geely, and Leapmotor slashed prices by up to 20 percent on 70 models to protect their market share, according to the 21st Century Business Herald. The average discount in April hit a record 16.8 percent, up from 8.3 percent at the start of the year, according to JPMorgan Chase.

Industry analysts see Geely’s decision as a signal that Chinese automakers should rethink their sustainable growth strategies. “Reducing production capacity can help solve the problem of price wars, because companies will no longer have to cut prices deeply to clear their huge inventories,” said Chen Jinzhu, CEO of Shanghai Mingliang Auto Service.

Mr. Li said Geely will leverage its existing global facilities to support its international expansion strategy through cooperation. In February, Geely announced plans to use Renault’s manufacturing plant in Brazil to support its Latin American operations.

Industry analysts say Geely's decision signals that Chinese automakers should reconsider their sustainable growth strategies.

However, he also warned that if oversupply and weak sales are not properly controlled, Chinese electric vehicle (EV) makers could lose their competitive edge in cost and production efficiency – which could hinder their global ambitions.

Geely, based in Hangzhou, Zhejiang province, delivered 2.18 million vehicles in 2024 – up 32% from the previous year. Electric vehicle sales alone jumped 92% to more than 888,000. The group, which owns brands such as Zeekr, Lynk & Co and Galaxy, is part of Zhejiang Geely Holding Group, which also owns Volvo Cars and has a stake in Daimler – the parent company of Mercedes-Benz.

Geely is targeting a core net profit of 8.5 billion yuan ($1.2 billion) in 2024, up 52% from the previous year. Electric vehicles accounted for more than 60% of all vehicles delivered in the domestic market last year, according to the China Passenger Car Association. However, only about 50% of China’s EV production capacity – or 20 million vehicles – will be in use in 2024, according to Goldman Sachs.

Exports are emerging as a key strategy to improve profitability. Chinese EVs have higher profit margins when sold overseas, said Nick Lai, head of auto research for Asia Pacific at JPMorgan. From January to April 2025, EVs accounted for 33% of China’s total auto exports, up from 25% two years ago.

Auto manufacturing and assembly joint venture between Tasco and Geely in Vietnam

On September 23, 2024, Tasco Joint Stock Company and China's Geely Group signed a joint venture contract to assemble and distribute automobiles in Vietnam. The contracts and agreements signed include: a joint venture contract to manufacture and assemble automobiles between Tasco and Geely; a contract authorizing Geely to Tasco to distribute the Geely Auto automobile brand in Vietnam; and a memorandum of understanding on strategic cooperation between Tasco, Geely and the Management Board of Economic Zones and Industrial Parks of Thai Binh province.

Car manufacturing and assembly joint venture between Tasco and Geely in Vietnam.

Specifically, the joint venture for automobile manufacturing and assembly between Tasco and Geely is a domestic assembly project with imported components (CKD), with a designed capacity of 75,000 vehicles/year for phase 1. The joint venture factory has a land area of 30 hectares to serve domestic demand and especially export to countries with free trade agreements with Vietnam. The total investment capital of the project is expected to be about 168 million USD, of which Tasco will contribute 64% and Geely Group 36%.

According to the plan, the joint venture will initially assemble vehicles under the Lynk & Co and Geely Auto brands, and may expand to other car brands in the future. The factory is expected to start construction in the first half of 2025 and deliver the first models to customers in early 2026.

We have contacted Tasco representatives regarding the fate of this factory and will have an update soon.

Source: https://khoahocdoisong.vn/geely-ngung-xay-dung-them-nha-may-oto-do-khung-hoang-thua-post1546993.html