Is Geely Automobile Stock a Buy?

Geely Automobile Holdings Ltd (OTCMKTS:GELYF) is a Chinese automaker that could be the region’s answer to Tesla (NASDAQ:TSLA). The company kicked off 2021 in a partnership with tech giant Baidu Inc (NASDAQ:BIDU) to create the next generation of smart electric vehicles.

This has bullish investors wondering – is Geely Automobile stock a Buy?

The partnership forges Geely’s vehicle designs with Baidu’s artificial intelligence (AI) to create automobiles with intelligent driving capabilities. And the company isn’t new on the block – founded in 1986, it has ownership in brands like Volvo (which it bought from Ford in 2010) and a majority stake in Lotus.

Chinese auto manufacturing could be fierce rivals for Tesla on the global market. Its sales maintained steady growth through the 2010s, selling over 1 million sales a year since 2017.

Will Geely Automobile steer investors to profit or drown in debt?

Geely Automobile 

Zhejiang Geely Holding Group is headquartered in Hangzhou, Zhejiang and privately held by Li Shufu, the founder and chairman. It’s a holding company, and you won’t be investing in the whole thing like you do with Alphabet and Google.

The company has four revenue-generating groups beneath it, which include:

• Geely Auto Group,
• Geely New Energy Commercial Vehicle Group,
• Geely Group, and
• Mitime Group

Between them, they have a wide footprint that includes consumer and commercial vehicle manufacturing and distribution, education, tourism, and more. But its vehicle production and marketing are the core of the business.

The company makes a wide range of cars, which lean into the mid-range to luxury range. That means it’s heavily focused on offering more tech-focused offerings for driver assistance, infotainment, and more.

The listed stock on OTC markets is for Geely Automotive Holdings, which is a subsidiary of the main company. This includes only the Geely Auto brand sold primarily in Chinese markets. It doesn’t include the rest of the brands listed above.

Still, Geely’s modular electric vehicle platform is being licensed to the Baidu partnership, along with the Volvo brand. This gives it a wide revenue stream that could fuel future growth into a trillion-dollar car company like Tesla (TSLA).

But is that enough to convince American investors to risk buying it on OTC markets?

Is Geely Automobile Stock A Buy?

Geely Automobile had a market capitalization around $32 billion at the start of 2021. It received a huge boost alongside Tesla in January as it announced its Baidu (BIDU) partnership to pull into the intelligent car lane.

Share prices fell to a 52-week low of $1.23 before more than doubling to nearly $3.50 by year end. By January 2021, share prices soared above $4 per share. This sparked more investor interest in the penny stock.

Its most recent sales report showed 150,517 units sold during the month of November, and the company set forward guidance at 1.53 million vehicles sold for the 2021 fiscal year. This sales volume needs to be solid to make up for its aggressive spending on research and development.

But it headed into 2021 strong, with 7.1 percent and 6.4 percent sales growth in Volvo for October and November. It also announced a deal with Daimler to work on hybrid drive system applications that (if successful) could prove pivotal in its future designs.

The company does pay an annual dividend, with its 2020 payment declared at $0.0323 per share and paid in July. It has a solid history of paying this and is a rare penny stock that pays dividends.

Of course, like any other investment, Geely investors face roadblocks.

Geely Automobile Stock Roadblocks

One of the biggest risks to Geely is Tesla’s Chinese expansion. The American EV giant kicked off 2021 on a search for a design director in China. CEO Elon Musk is hoping to create a full-function studio in either Shanghai or Beijing. This will allow it to create electric vehicles suitable for Chinese consumers.

Now that it’s the biggest car company in the world, Tesla is also said to be seeking to buy an existing auto manufacturer to scale its production line. Could this justify the company’s $1 trillion valuation? Time will tell.

Geely’s debt of about $19 billion US could hinder its growth and keeps it from providing the full value to investors.

And because it operates in China, Geely has the same problems facing Alibaba (BABA) and its founder Jack Ma. The Chinese government is notoriously strict and can bottleneck a company’s growth through vicious antitrust cases. As the company moves towards technology and grows, it needs to remain on the straight and narrow.

Still, it’s no spring chicken – Geely Automobile has been on the block for decades, and it parked itself firmly in the middle of a fiercely competitive market. Tesla isn’t its only competitor.

Geely Automobile Has Tough Competition

Geely isn’t even the most popular car brand in its home country of China. Volkswagen, Honda, and Buick all have a solid presence on the country’s roads.

Each of these companies is working on their own intelligent vehicle systems, and none of them plans to give any market share to either Geely or Tesla.

The key ingredient is how fast electric vehicles, self-driving cars, and other technologies are approved in different regions. Each manufacturer serves different customer bases, and each country will adopt these technologies at a different pace.

Geely needs to spend heavily on R&D and marketing to remain competitive in a fast-changing market.

Is Geely Automobile Stock A Buy? The Bottom Line

Geely Automobile is a multinational automobile company that includes its namesake brand, Lotus, Volvo, and more. The company is based in China and serves a largely Chinese customer base, but it still has a global footprint that keeps it competitive.

However, Tesla is now the biggest player on the block, and it’s expanding into China while looking to buy existing car companies. This is going to bring a lot of heat to that region.

If Geely’s partnership with Baidu is successful, it’ll keep the brands competitive against the juggernaut front runner. But it will have to maintain its debt load while spending heavily on a struggling consumer base to get there.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.