Exports Drive Growth as Geely Recalculates Its Profit Equation

Geely's third-quarter report has set a new record for the same period.

On October 29, Geely Auto (ASX: 00175) released its financial results for the third quarter of 2026. During the quarter, the company generated revenue of 99 billion yuan, up 10% year-on-year, while core net profit attributable to shareholders reached 5.21 billion yuan, up 32% year-on-year, with both metrics hitting record highs for the same period.

Geely Auto Vice Chairman Gui Shengyue described it at the earnings conference that day as "a quarterly report delivered under high pressure." In his view, over the past three months, Geely faced unusually severe competition compared with recent years, with every product line confronting the challenge of homogenized offerings.

Gui Shengyue admitted that from an internal perspective, the goal is to "make everyone more satisfied and exceed expectations in the future," while also developing clearer thinking about future development. With new models launched intensively, formerly best-selling products quickly encounter similar competition, meaning Geely must continuously add new product advantages.

In the third quarter, Geely exported 323,400 vehicles, an increase of approximately 211,400 units year-on-year. Overseas growth was rapid, with exports as a share of total sales rising from about 14.7% in the same period last year to 39.8%. Ranking first among mainstream automakers in overseas expansion growth rate and exceeding 100,000 monthly sales for four consecutive months shows that overseas markets have taken on a heavier growth burden.

This shift is also affecting profitability. In its interim report this year, Geely listed export products and high-end products as higher-margin businesses, and explicitly noted that their increased sales volumes, combined with scale synergies and cost control, jointly pushed up the gross margin.

ZEEKR (ZK) connected high-end products with overseas demand. According to performance materials provided by the company, in the first three quarters, ZEEKR accounted for 12.9% of group sales volume and 31.3% of revenue. In August and September, ZEEKR's exports both exceeded 15,000 units, accounting for more than 40% of the brand's monthly sales. This brand, which carries a higher revenue weight, is selling more products overseas.

Geely's new energy vehicle exports in the first three quarters reached 484,000 units, accounting for about 60% of overseas sales. Products developed over the past few years for new energy and premiumization now have markets beyond China to absorb them, and earlier investments have the opportunity to generate returns on higher sales volumes.

In the first three quarters, Geely's total revenue reached 272.6 billion yuan, up 13% year-on-year. Cumulative core net profit attributable to shareholders was 14.9 billion yuan, up 41% year-on-year, with growth outpacing revenue. Gross margin during the period reached 18%, up 1.5 percentage points year-on-year. The effects of an improved sales mix are already reflected in overall profitability.

Research and development is another key to understanding this income statement.

Geely Auto Group CFO Dai Yong said at the earnings conference that R&D investment in the first three quarters was approximately 14.9 billion yuan, "basically flat compared with the same period last year." However, the proportion of current-period R&D investment that was expensed rose from 32.1% in the same period last year to 40.7%, an increase of 8.6 percentage points.

Of a given R&D expenditure, the portion directly expensed is recorded in current-period profit or loss, while the portion that meets conditions and is capitalized is amortized gradually in later periods. A higher expensing ratio means that more of the current period's R&D investment is borne by current-period profit.

This is also what makes the 41% growth in core net profit attributable to shareholders noteworthy: current-period R&D investment did not increase significantly, yet a higher proportion was directly charged to profit or loss, and operations still achieved growth. The rising share of high-margin products and markets provided support for continued investment, while the homogenized competition Gui Shengyue mentioned requires these investments to continue translating into product differentiation.

To sustain overseas gross margin space, Geely still has to work the numbers down to local factories.

In responding to changes in export policies and the trade environment, Geely Auto Holdings Executive President and Geely Auto Group CEO Gan Jiayue discussed localized production, noting that local costs in Europe may be significantly higher than in China, requiring suppliers to go overseas together with vehicle manufacturers and also to cooperate with overseas suppliers and local production resources.

Localization can bring products closer to the market, but it also means production costs must be recalculated. As the share of local manufacturing rises, Geely needs to bring the supply chain efficiency it built in China abroad and then connect it with local production conditions.

Gan Jiayue specifically mentioned that some local production capacity "may already be almost fully depreciated," allowing dedicated equipment upgrades to control the cost of introducing new products.

Building a new factory requires upfront investment in plant, equipment and supporting facilities, which must then be gradually absorbed by later sales. Introducing new models at existing factories, by contrast, offers the opportunity to concentrate incremental investment more on production line upgrades and product adaptation. The factory's existing workforce and supplier system can also continue to be used, reducing the cost of organizing production from scratch.

These upgrade and adaptation investments still need to be amortized through sales after production begins. The cooperation discussed by management is therefore both about securing speed to market and about controlling the investment required for expansion.

The cooperation plan between Geely Auto and Ford announced in July proposes using an existing factory in Valencia, Spain, to produce models for both parties and share development costs. Lynk & Co, according to an agreement announced in September, will have Volvo serve as its exclusive European distributor starting in January 2027, plugging into Volvo's existing sales and service network.

Geely Auto Holdings Board Chairman An Conghui introduced the overall progress of the EU localization layout at the meeting: product validation, factory technical upgrades and local supply chain arrangements are advancing, and important products are expected to begin production at local EU factories in 2027. Leveraging partners' production capacity, workforce and supply chains to rapidly achieve scale is the path explicitly proposed by management.

For the nearer fourth quarter, Gui Shengyue believes the effects of products launched in the third quarter will be further reflected. He gave a clear expectation at the earnings conference: "I believe that in the fourth quarter, we will definitely still be better than in the third quarter."