Chinese carmakers shift to ‘asset-light’ models in overseas expansion

CHINESE carmaker Geely is betting that an “asset-light” investment model will accelerate its overseas expansion, as competition among China’s automakers to win foreign drivers intensifies amid the global shift toward electric vehicles (EVs).

Earlier this month, Hong Kong-listed Geely Automobile Holdings and its parent, Zhejiang Geely Holding Group, signed an agreement to acquire a combined 26.4 per cent stake in Renault Group’s Brazilian subsidiary – a move that gives Geely a foothold in South America’s largest auto market while enabling the pair to produce and sell new-energy vehicles there.

The technology-for-equity deal is designed around deep operational integration. The French automaker’s Brazilian arm will distribute Geely’s zero- and low-emission vehicles, with the all-electric EX5 SUV already being sold through its dealership network.

In return, Renault will use Geely’s GEA new energy architecture to develop its own vehicle lineup for Brazil. Both Geely- and Renault-branded cars will roll off the production line at Renault’s Ayrton Senna plant.

For Geely, the tie-up is part of a broader push to use partners’ existing factories and sales channels to enter foreign markets faster, and with lower financial risk.

That strategy was underscored at a London roadshow in October, where Gan Jiayue, the chief executive officer of Geely Auto Group, said the company remains open to working with potential partners in Europe who have underused production capacity. Geely Auto Group oversees the automaker’s vehicle production business.

Gan’s remarks echoed comments made four months earlier by Geely founder and chairman Li Shufu, who urged Geely to make better use of global surplus factory capacity through pragmatic cooperation and resource restructuring as the industry confronts mounting overcapacity.

Unlike the traditional model of heavy capital investment – such as building wholly owned plants abroad — Geely’s asset-light approach focuses on establishing local manufacturing joint ventures (JVs) that use existing production facilities.

Asset-light benefits

Geely Auto’s first experiment with an asset-light overseas investment came in 2022, when it acquired a 34 per cent stake in Renault’s South Korean JV through a technology-for-equity deal.

The partnership allowed the two companies to co-produce fossil-fuel and hybrid models at the JV’s Busan plant for export to other markets, using Geely’s Compact Modular Architecture as the underlying platform.

While building wholly owned factories overseas can yield higher long-term returns, an asset-light strategy helps insulate automakers from risk, said Tang Liming, the chief strategy officer at Geely Auto Group.

Tang pointed to Toyota Motor’s experience as an early example. In 1984, three years after Tokyo signed a voluntary export restraint agreement with Washington amid pressure from US automakers, Toyota entered a JV with General Motors to operate its first manufacturing facility in America.

“Although Japanese carmakers were confident about their product competitiveness and technologies, they were not as familiar as their American counterparts with the local market, regulations and ecosystem,” Tang said.

Heavy factory investment is also expensive. Building an overseas plant costs roughly six billion yuan (S$1.1 billion) to seven billion yuan. With an estimated profit of 20,000 yuan per vehicle, an automaker would have to sell 300,000 cars just to break even, according to Dai Qing, rotating president of Zhejiang Geely Holding Group.

Even in countries that welcome Chinese investment, Geely has preferred partnering with local automakers to jointly operate or upgrade existing facilities. In October 2023, for example, Geely and Malaysian carmaker Proton signed an agreement to modernize an old industrial complex as part of the Automotive High-Tech Valley project. Geely now holds 49.9 per cent of the project.

The project’s first EV assembly plant came online in September with initial annual capacity of 20,000 vehicles. The facility can also provide contract manufacturing services for other brands, Geely said at the time.

Rivals follow suit

The initial overseas strategy of many Chinese automakers was to build their own local production facilities. But as geopolitical tensions rise and trade barriers shift, more companies are adopting flexible, asset-light strategies of their own.

One such player is Chery Automobile. The company in April 2024 launched a venture with Spain’s EV Motors to manufacture vehicles in a former Nissan Motors plant that had sat idle since 2021.

Meanwhile, state-owned Saic Motor has been building its own manufacturing bases in countries including Thailand, India, Indonesia and Pakistan since 2014. But regulatory hurdles in India – which has maintained a tough stance toward Chinese investment – forced the carmaker to rethink its strategy.

In April last year, Saic sold a chunk of its India unit to local investors in a deal that allowed it to recoup most of its investment in the country while maintaining control over technology and branding.

The asset-light model has also gained momentum among China’s younger EV-makers, who lack the deep cash reserves of their larger rivals. Zhejiang Leapmotor Technology and XPeng have both turned to global partnerships as a faster, less capital-intensive route abroad.

Leapmotor struck a landmark deal in October 2023, when Stellantis – the parent of Chrysler, Fiat, Jeep and Peugeot – bought a 21 per cent stake in the Chinese startup for US$1.6 billion. The two companies followed up in May 2024 by creating Leapmotor International, a JV in which Stellantis holds 51 per cent, to manufacture and sell Leapmotor vehicles overseas.

XPeng has taken a similar tack. In September this year, the EV-maker began producing cars in Europe through a partnership with automotive manufacturer Magna Steyr Fahrzeugtechnik.

Production of XPeng’s G6 and G9 SUVs started in the third quarter at Magna’s Austrian facility, with additional models to follow, the company said at the time. CAIXIN GLOBAL