After Reclaiming the Title of 'Top Domestic Brand,' Geely Recalculates Its Strategy

Author | Zhou Zhiyu

Data from the National Bureau of Statistics shows that in the first quarter of 2026, the sales profit margin of China's automotive industry fell to 3.2%, hitting a historical low.

The squeeze on original equipment manufacturers (OEMs) from both ends became particularly evident in the first quarter: bulk raw materials saw collective price hikes, with upstream costs eating into profits, while the new energy vehicle purchase tax shifted from exemption to a 50% reduction, putting pressure on the retail end. Downstream automakers struggled to withstand the price war.

In this quarter, GEELY AUTO surpassed BYD with sales of 709,000 units, reclaiming the championship for domestic brand sales volume. However, the true value of this title lies not in the sales volume, which increased by only 1% year-over-year. What truly stands out are two other figures. The first-quarter report released by Geely on April 29 showed that its revenue rose by 15% and core profit surged by 31% during the quarter.

While car sales barely increased, profits jumped by nearly one-third. In a quarter where the entire industry was bleeding, each Geely vehicle became more valuable. How this calculation was made, and whether it can be sustained, is the most critical aspect of this quarterly report.

The Balance Sheet Thickens

Net profit attributable to shareholders fell by 27% year-over-year, dropping from RMB 5.67 billion to RMB 4.17 billion. This figure is alarming but misleading.

In the first quarter of this year, automakers with significant overseas revenue were generally affected by foreign exchange gains and losses. GEELY AUTO was no exception; it recorded a foreign exchange gain of RMB 3.03 billion in the first quarter of 2025, which turned into a loss of RMB 500 million in 2026. Excluding exchange rate fluctuations, the core profit stood at RMB 4.56 billion, a year-over-year increase of 31%.

Sales volume increased slightly from 704,000 to 709,000 units—a mere 5,000 additional cars. Yet, revenue increased by RMB 11.1 billion.

Where did the money come from?

GEELY AUTO CFO Dai Yong broke down these figures during the earnings conference call on April 29. Excluding revenue from components and technology licensing, the average selling price (ASP) of complete vehicles rose from RMB 94,000 in the first quarter of last year to RMB 112,000, an 18.3% year-over-year increase. Each car sold for nearly RMB 20,000 more.

ZEEKR was the strongest driver boosting the ASP. The brand's overall ASP rose from RMB 281,000 to RMB 295,000. The flagship 9X model had an average transaction price of RMB 530,000, maintaining its position as the best-selling luxury SUV in the RMB 500,000 segment for five consecutive months. The ZEEKR 8X, launched on April 17, secured over 10,000 firm orders within 29 minutes, with an average unit price exceeding RMB 400,000.

Exports were another driving force. In the first quarter, exports reached 203,000 units, a 126% year-over-year increase, with March alone exceeding 80,000 units to set a new historical high. Geely's ranking among Chinese automakers rose from fifth last year to third. The gross margin on exported vehicles is more than 10 percentage points higher than the domestic average.

Premiumization pulled values up, while exports expanded reach outward. These two forces combined to make revenue growth 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-over-year in the first quarter of 2026, Geely's new energy vehicle sales rose by 9%, lifting its market share to 13.39%. In the fuel vehicle segment, where the industry contracted by 20%, Geely's share increased from 10.37% in the first quarter of 2025 to 10.71% in the first quarter of 2026. Geely gained ground on both fronts.

Geely had faced market skepticism over the past two years regarding its large fuel vehicle portfolio. However, with the variable of declining purchase tax exemptions, its "multi-legged" strategy acted as a cushion. Pure new energy companies stumbled due to the policy shift, while Geely stabilized its base with fuel vehicles and drove growth through new energy vehicles and exports.

The gross profit margin rose from 15.7% in the first quarter of 2025 to 17.5% in the first quarter of 2026, an increase of nearly two percentage points.

However, another figure is even more noteworthy than the gross margin.

During the earnings call, Dai Yong revealed that the R&D expensing ratio increased from 28.5% in the same period last year to 44%. This means more R&D expenditures were directly recorded as current expenses, suppressing reported profits. He calculated that if the expensing ratio had remained at last year's level, core profit would have exceeded RMB 5 billion.

Geely's capitalization rate has long been a question for investors. In 2018, the expensing rate was only 5%, meaning 95% of R&D expenditures were capitalized. This has been adjusted continuously in recent years, rising to 36% for the full year of 2025, and jumping to 44% in the first quarter of this year. Proactively increasing the expensing ratio indicates strong operational fundamentals.

Total R&D spending did not inflate despite the higher expensing ratio. R&D investment in the first quarter was RMB 4.47 billion, a 4.9% year-over-year decrease and a 38.2% quarter-over-quarter decrease. R&D as a percentage of revenue dropped from 6.4% last year to 5.3%. Dai Yong attributed this to synergies following the "One Geely" integration, where brands share technical architectures to achieve more with less. The administrative expense ratio fell to 1.6%, which he described as "possibly the best level in the industry."

Cost pressures remain significant. Prices for copper, aluminum, lithium carbonate, and chips are all rising. Dai Yong pointed out that the negative impact per vehicle was approximately RMB 2,000, but cost reduction efforts achieved about 80% of their target, basically covering the impact. Supplier payments are also improving, with accounts payable turnover days decreasing from 110 days in the first quarter of 2025 to 78 days in the fourth quarter of the same year.

Cui Dongshu, Secretary-General of the China Passenger Car Association, provided industry benchmarks in late April 2026: automotive production in the first quarter was 7.15 million units, a 6% year-over-year decline; revenue dipped slightly, costs rose, and profits were squeezed from both sides.

Against this backdrop, Geely expanded its gross margin by two percentage points and achieved a core net profit margin of 5.4% in the first quarter of 2026, creating a significant gap compared to the industry average of 3.2%.

Global Expansion Is Key

Gui Shengyue, CEO of Geely Automobile Holdings, stated at the April 29 earnings conference: "The record-high core profit in the first quarter is just the beginning."

This is not merely polite rhetoric. The engines driving profit growth in the first quarter—ZEEKR's premiumization and export volume—are still in early stages, and the products with the highest premium potential have not yet gone global.

The ZEEKR 9X has an average price of RMB 530,000, and the 8X exceeds RMB 400,000. These two models are currently sold only domestically. Gan Jiayue, CEO of Geely Auto Group, provided a timeline at the earnings conference: the 9X is scheduled to begin exports to the Middle East in late June and expand to Europe in September. The 8X will enter overseas markets in the fourth quarter or early next year.

Regarding overseas pricing, Gan Jiayue did not provide specific figures but stated that gross margins would "definitely be higher than domestic levels, and significantly so." Currently, Geely's average export gross margin is about 10 percentage points higher than domestic levels, and ZEEKR's premium will be even greater.

A detail emerged at the Beijing Auto Show. International modification brand Mansory purchased a ZEEKR 9X for modification, displaying it with a price tag of $400,000 (equivalent to over RMB 2.7 million). Mansory previously only modified Ferrari, Bugatti, and Rolls-Royce vehicles, marking its first choice of a Chinese brand. ZEEKR confirmed this was not an official partnership.

Gui Shengyue proactively mentioned this incident at the earnings conference. He said, "If this had happened with certain competitors, the whole of China would have known about it long ago." More than 1,400 people attended the international dealer conference held in Hangzhou in April. Gui Shengyue noted that their biggest judgment was that Geely might "completely change the international image of Chinese automobiles."

His exact words were: "Chinese automotive brands are not only fast in their new energy transition and offering good value for money, but they can also compete head-to-head with traditional BBA."

Beyond ZEEKR's global expansion, another unrealized growth driver is i-HEV.

Released on April 13, this self-developed hybrid technology is positioned as a "direct replacement" for fuel vehicles. The core difference from Toyota's THS lies in cost. Gan Jiayue stated at the earnings conference that Toyota's HEV is RMB 8,000 to 15,000 more expensive than its fuel version, while Geely's i-HEV incremental cost is more than 30% lower than that. The pricing strategy aims to allow users to switch from fuel vehicles without spending much more.

Pricing for the Xingrui i-HEV and Xingyue L i-HEV has been announced. Subsequently, the entire Emgrand and Boyue series will transition to i-HEV, with overseas expansion starting in the fourth quarter.

If successful, Geely's base of 340,000 fuel vehicles sold in the first quarter will not be stagnant inventory waiting to be replaced, but rather incremental volume waiting to be upgraded. Each vehicle switching from fuel to i-HEV moves up in both unit value and gross margin.

Export volume targets are also expanding. At the annual report press conference in March 2026, Gan Jiayue set a budget target of 640,000 units and a challenge target of 750,000 units. At the first-quarter earnings conference on April 29, he stated that achieving 750,000 units "should be very easy." Regional targets have been upgraded from "three 150,000-unit markets" to "three 200,000-unit markets," with at least 200,000 units each for Latin America, ASEAN, and Europe. Growth in Latin America is approaching 300%, and in Europe, it exceeds 400%.

Fourteen overseas subsidiaries are transitioning from general agency models to direct operations. Lynk & Co in Europe is shifting towards leveraging Volvo dealer resources, and the joint venture factory with Renault in Brazil has at least 100,000 units of capacity allocated to the Geely brand. Proton serves as a reference: its market share in Malaysia was less than 9% when acquired in 2017, rising to 30% by January 2026.

These are variables not yet reflected in the first-quarter figures. They will begin to materialize intensively in the second quarter, with the ramp-up of 8X deliveries, the implementation of i-HEV pricing, and the launch of 9X exports.

If these cards are played successfully, Geely will prove not just that it can make money, but that there is another way to calculate profitability in an industry where selling cars is becoming increasingly unprofitable. This will also serve as the most direct footnote to Chinese automobiles going global.