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Geely moves into commercial vehicles: right timing or wrong bet?

Geely launched its new commercial vehicle brand Yuancheng Auto on October 26 in a year that featured huge overcapacity in the heavy-duty truck, light truck as well as passenger vehicle markets.

Some believe Geely’s entry into the commercial vehicle sector could become a drag on Geely’s passenger vehicle business just as many other commercial vehicle enterprises which failed to see the expected positive effects. However, others believe it might be the right timing for Geely to make this bold move.

Actually, Geely’s entry into the commercial vehicle sector focused initially on new energy commercial vehicles rather than a full rollout might be a tougher choice in the eyes of many industry insiders, since the industry especially the bus sector has been rocked by subsidy fraud scandals and not many new energy trucks have even entered the subsidy catalogue.

However, Geely has its advantages in the extended-range engine that will enter into the market in a gradual manner. Geely’s extended-range engine will be right at its prime until the new energy commercial vehicle market fully opens up. As Zhou Jianqun, vice president of Geely Holding Group and president of Geely Commercial Vehicle Co., said at the brand launch, fully electric vehicles for now represent a transition for the company and does not necessary reflect its future direction of development.

It is reported that Geely’s secret weapon for new energy commercial vehicles lies in the ranger extender, originated from the mature range-extension technology of Volvo. Geely made improvement of this technology for its commercial vehicles and applied it in the Chinese market, which has shown marked advantages in a high economic efficiency.

Just as Cai Wenyuan, deputy director of the research institute at Geely Commercial Vehicle Co., explained in detail, Geely’s efficient range extender is different from the traditional one that may become out of power during long-distance driving. Geely’s range extender is expected to cover the entire driving journey and to bring more economic benefits. With two major advantages, Geely’s range extender distinguishes itself from others: first, it is more efficient and second, it offers more power when the vehicle runs faster. In particular, its power supply is also in a distributed system, which makes it unique.

For this reason, some believe Geely’s move is at exactly the right time since most of the domestic new energy vehicles have too much costs and rely too much on government subsidies, while Geely’s efficient range extender has the same cost with traditional commercial vehicles but with a higher efficiency in operation. Therefore, Geely is more competitive under the current subsidy policy environment.

Moreover, the new energy commercial vehicles mentioned by Geely is in a broad sense, including clear energy, methanol, natural gas and others.

 

Location: favorable or unfavorable?

Geely Commercial Vehicle Co. and its key production bases are all located in the Yangtze River Delta, mainly Zhejiang, Jiangsu and Shanghai. Some argue that although the supply chain for passenger vehicles in this region is already mature, suppliers of commercial vehicle parts however are mostly located in Shandong Province further north, which is a disadvantage. But as for Geely, the distribution of production bases is quite advantageous for inter-dependence and clear division of labor.

First, take the acquired Nanchong base in Sichuan Province as an example. Geely has made many years of preliminary preparation for the acquisition of Dongfeng Nanchong Auto, from basic preparation to product development although it took only six months to complete the purchase. Nanchong is merely positioned as a base for the basic development of Geely commercial vehicles and the purchase aims at turning Nanchong into a base for new product development and R&D of new technology, which is different from other bases.

According to Zhou, the Nanchong plant started construction on July 9, 2015 and will be finished by the end of 2016. After it goes into production in July 2017, it will realize real synchronous development with other plants and mainly produce buses and trucks.

For another instance, the Yiwu production base in Zhejiang Province mainly produces such passenger vehicles as MPVs, LCVs and high-end luxury commercial vehicles. It should be noted that Zhejiang is just one of the regions with the largest sale of these vehicle types. Moreover, a large number of suppliers for Geely passenger vehicles gather in Zhejiang and they are also suppliers for the parts used in multi-functional private cars, MPV, LCV and high-end luxury commercial vehicles. Therefore, Yiwu serves as both a gathering place for numerous suppliers and one of the major markets.

In addition, the Jinzhong base in Shanxi Province, which is under construction, will become a commercial bus production base. Upon completion, the two bases in Jinzhong and Nanchong will have a combined production capacity of 50,000 light trucks, 30,000 heavy-duty trucks and 20,000 buses. With light commercial vehicles as main products, the Yiwu base will take on two product platforms of 2.5T and 3.5T and the vehicle types produced here mainly include high-end commercial vehicles, pickups, European style light passenger vehicles, LCV, MPC, SUV and taxi cars. In addition, Geely has its overseas base in Coventry, Britain, mainly engaged in the R&D and production of the London Taxi TX5 platform products that will be introduced into the domestic market after completion of R&D and trial.

To sum up, the above three models in three regions take advantages of their respective local characteristics to develop different types of commercial vehicles. Therefore, it might be possible for Geely to reap future sales of more than 200,000 units.

 

Talent: weak or strong?

As the most important factor in competition, talent is also one of Geely’s strong points, according to this passenger vehicle maker with over a decade of experience. Geely’s confidence is originated from its pool of talents in Chinese and foreign commercial vehicles field.

In terms of R&D talents, Geely has a R&D team of over 500 people at the early stage. It is revealed by Zhou that Geely has a team in Britain of more than 200, in Volvo over 30 and its own team over 500. Furthermore, Geely commercial vehicles of clean energy have been developed at Nanchong base in 2015 and its methanol-powered bus will also be displayed at the new energy auto exhibition in Kunshan, Jiangsu Province this year.

Besides technological R&D, Geely also boosts unique advantages in sales talent. Resource for its passenger vehicles can be integrated and bought for the use of its commercial vehicles despite the two departments are completely independent.

Actually, Geely has worked out its sales plan of expanding into surrounding areas from Nanchong and Sichuan as the center. According to Lin Xiaohu, vice president of Geely Commercial Vehicle Co. and president of Shanghai LTI Automotive Components, Geely prefers to be less aggressive as the quality of new products has not won 100 percent customer satisfaction. Geely will never use clients for its new products experiment in spite of numerous orders or introduce its products without market application into the whole country.

Lin argued that many good dealers selling Geely’s passenger vehicles could also get engaged in commercial vehicle sales. With well-connected social resources, knowledge of Geely brand and rich sales experience, these dealers can be a powerful driver for Geely’s progress.

It might be a long way to go before Geely Commercial Vehicle Co. hits its 2021 sales target of 200,000 units, but as the saying goes, the sun is there even though it is far away.

(Rewritten by Xu Jun based on author’s article on find800.cn)

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