By on September 22, 2009

Can we call this the Geely Goldman?

If there’s one thing that can be counted on in the world of investment, it’s that someone is bound to copy Warren Buffett’s latest move. The Oracle of Omaha has reportedly made a billion bucks in less than a year on his $230 mil investment in BYD, and that firm’s soaring stock price has other investors taking notice. Bloomberg reports that Goldman Sachs is looking at buying $250 mil worth of convertible bonds and warrants in Geely, in hopes of repeating Buffett’s success. With major global automakers (specifically GM, VW and Toyota) solidifying their dominance of the Chinese domestic market, Chinese automakers see the low-cost segments in other markets as their opportunity for growth, and Geely is no exception. The firm hopes to boost overseas sales to 66 percent of its annual sales by 2015, a goal that justifies its current pursuit of the Volvo brand (update from Thor Johnsen coming soon). Though a name-brand backer like Goldman could help Geely break into foreign markets, there are challenges aplenty for the planned investment.

Currently, Geely’s export business is only five percent of total sales. In the short term that exposes the firm to tough competition in China, where growing sales (+14 percent in the first five months of 2009) are being offset by falling profits (-9.9 percent in the same period). Sources confirm that Goldman’s investment will free up capital to ease along the Volvo deal, but a recognizable brand may not be enough to jump-start Chinese auto exports. The WSJ reports that Chinese exports have falling without interruption since August 2008, and are down 57 percent in the first seven months of 2009. Though Chinese government officials primarily blame the global financial crisis, they say “an apparent rise of protectionism” may have played a role.

Of course that’s not the whole story. Chinese analysts say Chinese firms “lack knowledge about overseas demand, government policies, regulations and certification.”Safety and quality concerns may have played a role as well. Indeed, Geely’s new EC718, the firm’s first global model, is still waiting on European market certification. Previous results like this one won’t speed the process up either. Meanwhile, Goldman has had several Chinese investments nixed by Chinese regulators in recent years.

Though analysts are saying things like “Goldman’s investment in Geely may repeat the impact that Buffett had on BYD,” it’s by no means a sure thing. If Geely had BYD’s secret battery technology or three-mode hybrid drive, the parallels would be more apt. Instead Geely is most famous for its knock-off Rolls Royce, complete with a single rear throne (seriously!). Don’t jump onto your Ameritrade account just yet . . .

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8 Comments on “Goldman Hearts Geely...”

  • avatar

    isn’t this just a knee jerk reaction to those 99% growth figures month on month?

    surely everyone must be thinking… “how do i get in on some of that action?”

  • avatar

    With all due respect to Warren Buffett, none of those overhyped Chinese manufacturers will sell any vehicles outside China in the near future, simply because the product they sell is either absolute garbage in terms of technology and quality, or simply a design stolen from another manufacturer. The second any of these heaps would be on a transporter to Europe or the Americas, their manufacturers would be drowning in lawsuits.

    (Just look at, for instance, the BYD S8 – it’s a Renault Megane Convertible clone with a Mercedes SL face welded to the front. Absolutely laughable – and don’t even think about how this POS will drive. Here’s another few gems from their portfolio:
    BYD F0 = Toyota Aygo
    BYD F3 = Toyota Corolla
    BYD F3-R = Toyota Corolla with a Daewoo Lacetti rear end)

    Does anybody actually believe that manufacturer is capable of producing a competitive hybrid drive that they’ll be able to sell outside the Empire of IP Theft without being inundated with patent infringement lawsuits by Toyota et al?

  • avatar

    It depends on your definition of near future. I think they have a lot of work to do before they can even think about crossing the pond. They need to invest a lot up front, and I wouldn’t be surprised if they cut a lot of corners. Traditionally, they don’t like putting money up front and risk that kind of uncertainty. So the first few years of Chinese cars here will absolutely suck and probably blow up. The courts will eat them for lunch, and…they either leave this market alone or Buffett (if he’s still alive and well then)will give them some more money and pointers, after which point they will probably be successful.

    My feeling is that they will definitely be players in US and European markets in 10 to 15 years, probably sooner, but I tend to be conservative when guestimating.

    We were saying that about the Japanese cars 40 years ago, and the UK/Europe was saying that about American made anything about 100 years ago.

  • avatar

    Discoholic investors like Warren Buffet are successful at investing because they invest for the future not the near future. Imagine buying into Honda in the 1950’s or 60’s or even the 70’s.

  • avatar

    discoholic :
    September 22nd, 2009 at 2:10 pm

    With all due respect to Warren Buffett, none of those overhyped Chinese manufacturers will sell any vehicles outside China in the near future


    Chinese car makers (not JVs) sell a lot of cars to other countries (mostly African) every year.

    As Sherman pointed out, we all know the cars were and are junks. But that info doesn’t have any value. Will they suck less in the future? So far, Buffet has been better at guesstimating than you.

  • avatar

    chinese cars are all over africa, the ME and the more backward parts of the EU and wannabee EU and South America

    they may be crap but they are less crap than the communist crap they had before

    they are making inroads into Oceania so I’m thinking that in 10 yrs they’ll be close to where Korea was 5 yrs ago

  • avatar

    Considering how quickly South Korea managed to replicate the Japanese manufacturing quality / reputation turnaround, I would not bet against the Chinese. They have excellent role models and more capital than those role models had with which to pull it off.

  • avatar

    hey I like that car – Crassy !

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