Data from the National Bureau of Statistics revealed that the sales profit margin of China's automotive industry fell to a historical low of 3.2% in the first quarter of 2026. The pressure on vehicle manufacturers from both ends became particularly evident during the quarter: rising prices of bulk raw materials squeezed profits from the upstream, while the shift from exemption to a 50% reduction in the new energy vehicle purchase tax put pressure on the retail side. Downstream automakers struggled to withstand the price war. During this quarter, GEELY AUTO surpassed BYD with sales of 709,000 units, reclaiming the title of top-selling domestic brand. However, the significance of this achievement lies not in the sales volume, which increased by only 1% year-on-year for the entire quarter. The real difference was reflected in two other figures. The quarterly report released by GEELY on April 29 showed a 15% increase in revenue and a 31% rise in core profit for the quarter. While vehicle sales remained almost flat, profits surged by nearly one-third. In a quarter where the industry overall was bleeding, each GEELY vehicle effectively became more profitable. How this financial result was achieved, and whether it can be sustained, are the key aspects worth examining from this quarterly report.
**Thicker Ledger** The apparent net profit fell by 27% year-on-year, dropping from 5.67 billion to 4.17 billion. This figure appears alarming but is misleading. In the first quarter, automakers with significant overseas revenue exposure were generally impacted by foreign exchange gains and losses. GEELY AUTO was no exception, having recorded a foreign exchange gain of 3.03 billion in Q1 2025, which reversed to a loss of 500 million in Q1 2026. Excluding these exchange rate fluctuations, the core profit was 4.56 billion, representing a 31% year-on-year increase. Sales were 709,000 units versus 704,000 units, an increase of only 5,000 vehicles. Yet, revenue increased by 11.1 billion. Where did the extra money come from? GEELY AUTO's CFO, Dai Yong, broke down the numbers during the earnings conference on April 29. Excluding revenue from parts and technology licensing, the average selling price (ASP) per vehicle rose from 94,000 in Q1 last year to 112,000, an increase of 18.3% year-on-year. Each vehicle became nearly 20,000 RMB more expensive. ZEEKR was the primary driver behind the ASP increase. The brand's overall ASP climbed from 281,000 to 295,000. The flagship ZEEKR 9X achieved an average transaction price of 530,000 RMB, topping the sales chart for SUVs priced above 500,000 RMB for five consecutive months. The ZEEKR 8X, launched on April 17, received over 10,000 firm orders within 29 minutes, with an average unit price exceeding 400,000 RMB. Exports were another significant contributor. First-quarter exports reached 203,000 units, a 126% year-on-year increase, with a record high of over 80,000 units in March alone. GEELY's export ranking rose from fifth among Chinese automakers last year to third. The gross profit margin for exported vehicles is more than 10 percentage points higher than the domestic average. The dual forces of premiumization pulling upwards and exports pulling outwards combined to drive revenue growth at a rate 15 times faster than sales volume growth. Market share also expanded against the trend. While the industry's new energy vehicle retail sales fell by 24% year-on-year in Q1 2026, GEELY's new energy vehicle sales grew by 9%, increasing its market share to 13.39%. In the conventional fuel vehicle segment, where the industry contracted by 20%, GEELY's market share actually grew from 10.37% in Q1 2025 to 10.71% in Q1 2026, gaining ground on both fronts. A key criticism GEELY faced over the past two years was its heavy reliance on fuel vehicles. However, with the change in purchase tax policy, this "multi-pronged approach" turned into a buffer. Pure new energy vehicle companies stumbled due to the policy shift, while GEELY used its fuel vehicle business to stabilize its foundation, relying on new energy vehicles and exports for growth. The gross profit margin increased from 15.7% in Q1 2025 to 17.5% in Q1 2026, a rise of nearly two percentage points. But another figure is even more noteworthy than the gross margin. CFO Dai Yong revealed during the earnings call that the R&D expense ratio increased from 28.5% in the same period last year to 44% in the first quarter. This means a larger portion of R&D spending was directly expensed in the current period, which suppressed profits. He calculated that if last year's expense ratio had been maintained, the core profit would have exceeded 5 billion. GEELY's R&D capitalization rate has been a point of investor scrutiny. In 2018, the expense ratio was only 5%, meaning 95% of R&D spending was capitalized. This ratio has been adjusted continuously in recent years, reaching 36% for the full year 2025 and jumping directly to 44% in Q1 2026. Proactively increasing the expense ratio indicates strong underlying operational performance. Total R&D spending did not balloon despite the higher expense ratio. R&D investment in the first quarter was 4.47 billion RMB, actually decreasing by 4.9% year-on-year and 38.2% quarter-on-quarter. R&D as a percentage of revenue decreased from 6.4% last year to 5.3%. Dai Yong attributed this to the synergistic effects following the "One Geely" integration, where brands share technology architectures, allowing them to achieve more with less spending. The administrative expense ratio dropped to 1.6%, which he said "might be the best level in the industry." The cost side remains challenging. Prices for copper, aluminum, lithium carbonate, and chips are all rising. Dai Yong pointed out that this had a negative impact of approximately 2,000 RMB per vehicle, but cost reduction efforts achieved about 80% of the target, largely offsetting the increase. Supplier payments are also improving, with the accounts payable turnover days decreasing from 110 days in Q1 2025 to 78 days in Q4 2025. Cui Dongshu, Secretary-General of the China Passenger Car Association, provided industry context in late April 2026: In the first quarter, automotive industry output fell 6% year-on-year to 7.15 million units, revenue decreased slightly, costs increased, and profits were squeezed from both sides. Against this backdrop, GEELY managed to expand its gross margin by two percentage points and achieve a core net profit margin of 5.4% in Q1 2026, creating a significant gap compared to the industry average of 3.2%.
**Overseas Expansion is Key** GEELY AUTO Holdings CEO, Gui Shengyue, stated during the April 29 earnings conference: "The record high core profit in the first quarter is just the beginning." This was not mere rhetoric. The engines driving profit growth in the first quarter – ZEEKR's premiumization and export volume growth – are still in their early stages. The products with the highest pricing power have not yet entered overseas markets. The ZEEKR 9X has an average price of 530,000 RMB, and the ZEEKR 8X averages over 400,000 RMB. Currently, these models are only sold domestically. GEELY Auto Group CEO, Gan Jiayue, provided a timeline during the earnings call: the 9X is planned for export to the Middle East by the end of June, with a European rollout in September. The 8X is scheduled to enter overseas markets in the fourth quarter or early next year. Pricing overseas? Gan Jiayue did not give specific numbers but stated that the gross margin would "certainly be higher than in China, and significantly higher." Currently, the average gross margin for GEELY's exported products is about 10 percentage points higher than domestically, and ZEEKR's premium is expected to be even greater. A notable detail emerged at the Beijing Auto Show. The international tuning brand Mansory purchased a ZEEKR 9X independently for modification, displaying it with a price tag of $400,000 USD, equivalent to over 2.7 million RMB. Mansory, known for modifying Ferrari, Bugatti, and Rolls-Royce, chose a Chinese brand for the first time. ZEEKR confirmed this was not an official collaboration. CEO Gui Shengyue voluntarily brought this up during the earnings call. He remarked, "If this happened to some of our competitors, it might have been known all over China by now." At the International Dealer Conference held in Hangzhou in April, which attracted over 1,400 participants, Gui said the biggest consensus was that GEELY could "completely change the international image of Chinese cars." His exact words were: "Chinese auto brands are not only transitioning quickly to new energy, not only offering good value for money, but can also compete head-to-head with traditional German luxury brands (BBA)." Beyond ZEEKR's overseas expansion, another unrealized growth driver is the i-HEV technology. This self-developed hybrid technology, launched on April 13, is positioned as a direct replacement for fuel vehicles. The key difference from Toyota's THS system lies in cost. Gan Jiayue stated that Toyota's HEV versions are 8,000 to 15,000 RMB more expensive than their fuel counterparts, while GEELY's i-HEV incremental cost is over 30% lower than that. The pricing strategy aims to allow users to switch from fuel vehicles without significant additional cost. The pricing for the Xingyue i-HEV and the Xingrui i-HEV has already been announced. Subsequent models like the Emgrand and Boyue will all adopt i-HEV technology, with exports starting in the fourth quarter. If successful, GEELY's base of 340,000 fuel vehicles sold in the first quarter would not be a存量 waiting to be replaced, but rather an增量 waiting to be upgraded. For every vehicle switching from fuel to i-HEV, both the unit value and gross margin would increase. The overall export target is also being raised. During the annual report presentation in March 2026, Gan Jiayue set a budget target of 640,000 units and a challenge target of 750,000 units for the year. At the Q1 earnings conference on April 29, he stated that 750,000 units "should be easily achievable." Regional targets were upgraded from "three markets of 150,000 units each" to "three markets of 200,000 units each," aiming for at least 200,000 units in Latin America, ASEAN, and Europe respectively. Growth rates are接近 300% in Latin America and over 400% in Europe. Fourteen overseas subsidiaries are transitioning from general distributors to direct operations. Lynk & Co in Europe is leveraging synergies with Volvo's dealer network. The joint venture plant with Renault in Brazil provides at least 100,000 units of capacity for the GEELY brand. Proton serves as a reference: when acquired in 2017, its market share in Malaysia was less than 9%; by January 2026, it had risen to 30%. These are all variables not yet reflected in the first-quarter numbers. Their impact will begin to materialize intensively from the second quarter onwards, with the ZEEKR 8X delivery ramp-up, i-HEV pricing implementation, and the ZEEKR 9X export launch. If these strategic moves play out successfully, GEELY will demonstrate not only its ability to generate profits but also present an alternative business calculus in an industry where selling cars is becoming increasingly less profitable. This would also serve as the most direct footnote for Chinese automobiles stepping onto the global stage.
Comments