Goldman Hearts Geely

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 . . .