Inside one brand’s struggle to stay alive in China’s cut-throat car market

Tuesday, 7 May 2024 (2 weeks ago)
Motivational messages posted above factory urinals reveal high stakes for Zeekr in a make-or-break year

Male workers stopping for a pee break at Zeekr’s impressive new factory in Ningbo, south of Shanghai in China, are faced with a motivational poster that reads more like a threat. “To live, to win it all, what does it mean? It means that even a small mistake is not allowed in 2024!”

Above the next urinal, the message – from Zeekr CEO An Conghui – is even more stark. “The knockout competition has kicked off. Whether we can win or not this year holds the key to our future.”

In China’s cut-throat car market, only the fittest survive and the premium-angled electric Zeekr brand needs to be fit because it arguably holds the key to the long-term health of parent company Geely.

Think of Zeekr as Geely’s future version of Audi in the Volkswagen Group, a volume premium brand that takes tech from the wider group but adds its own value for an extra dollop of profit margin.

Plenty of rivals would like this young brand – sales only started in 2021 – to go the way of Byton, HiPhi, Weltmeister and Letin and disappear into whatever history book eventually tells the story of China’s current car brand boom.

Such is the competition here that brands such as Zeekr are fighting tooth and nail for brand recognition among Chinese buyers who are best reached by social media.

As well as more traditional marketing campaigns, owners or fans are incentivised by brands like Zeekr into posting positive comments with the sweetner of points redeemable for merchandise and other goods from their wide-ranging online stores.

Rumours of paid-for ‘astroturf’ campaigns among competing brands to bad-mouth rivals are rife, so much so that Geely is biting back with the promise of a reward to anyone who can prove that seemingly genuine grievances are in fact the work of agencies contracted by rivals.

Zeekr competes against numerous new brands, including Nio, Xpeng, Arcfox, IM (owned by MG parent SAIC), Li Auto, Denza (BYD) and others that sprang up in the wake of Tesla’s success to offer digitally connected, eye-catching electric SUVs, saloons and MPVs to the well heeled. Like the other Chinese start-ups, it reckons that it can also rock the foundations of the so far untouchable German trio of BMW, Mercedes and Audi.

This, however, is doubly hard when China’s price war means even strong brands struggle to sell a car for more than the net cost of building it.

Like others before it, Zeekr is also targeting European buyers, having started late last year in Sweden and the Netherlands with the 001 shooting brake and X compact SUV. More countries will be added this year, including Germany.

*Zeekr X SUV*

Although so far unconfirmed, the UK is expected to follow, aided by the fact that right-hand-drive production of the X for the likes of Australia and New Zealand has already started.

“Zeekr is positioned as a global brand catering to the global market,” An Cong Hui told investors earlier this year.

As An’s bathroom boosters make clear, 2024 is a make-or-break year for Zeekr.

So far, Zeekr has been a drag on profits for Geely’s ‘0175’ group, named for its Hong Kong stock listing number. Zeekr revenues last year were up 62% to the equivalent of £5.7 billion in 2023, driven by an increase in sales to 130,000. But also up were its losses, to just over £900 million.

It’s easy to see where the money is being spent. Zeekr is on a tear when it comes to model launches. Since starting with the 001 (a car that was originally going to be mainstream brand Lynk&Co’s flagship model) in 2021, Zeekr has followed it with 009 luxury MPV in 2022 and the X last year.

Earlier this year, it launched the 007 mid-size saloon, targeted at the Tesla Model 3. At the recent Beijing motor show, Zeekr revealed the Mix MPV and later this year it will launch an SUV landing above the X to be pitched against the Tesla Model Y.

Zeekr talks about Tesla as a rival, but six new models in under four years totally eclipses Tesla’s own lacklustre expansion programme, which has managed only two in six years and is still uncertain about where its next model is coming from.

Like many in this ‘smart EV’ sector, Zeekr derives a large part of its brand power from technology. The SEA (Sustainable Experience Architecture) platform shared with Geely stablemates Volvo, Smart and Polestar gives access to an 800V architecture for faster charging.

A relationship with battery giant CATL unlocks big capacity, lower-cost LFP batteries. The 100kWh pack in the 001 gives a quoted range of 466 miles while the 009 can be optioned with a 140kWh pack for a claimed 511-mile range (as tested on the China cycle).

The 001 was one of the first cars to be fitted with Intel-owned Mobileye’s SuperVision semi autonomous technology, although Zeekr is looking to replace that with its own tech using Nvidia chips.

And despite being rolled out as an electric brand, the company’s head of European R&D, Giovanni Lanfranchi, said the company can quickly repurpose plug-in hybrid technology from elsewhere in the group should PHEVs continue their recent strong growth in China.

Zeekr has also followed Tesla in installing megacasting at its high-tech Ningbo plant that replaces around 80 stamped pieces at the rear of the 001 and 009 bodies with a pressed aluminium piece.

All this investment requires sales to soar. Zeekr is predicting 230,000 this year globally, adding another 100,000. At the moment, its flagship Zeekr plant is running – like many Chinese plants – severely under capacity. Last year, the key Ningbo facility made 130,000 units and is still running at just one shift, with two a possibility for later this year. The plant should be making over 450,000 units a year based on three shifts, a number that would bring the economies of scale Zeekr needs.

Geely’s advantage is that it spreads investment in platform, powertrains and production across many different brands. As well as the shared SEA platform, Geely doles out assembly duties across its network of assembly plants.

The Ningbo ‘Intelligent Factory’ also makes the new Polestar 4 as well as the Jiyue ‘robocar’ for the Geely-Baidu link-up, while the X is made in Chengdu - better known for its Volvo output - and the 007 at Meishan, which also builds Lynk&Co models.

This is Geely’s famous ‘asset-light’ strategy, where the brands don’t have to invest in production – a drag on costs – but instead pay Geely to take care of it under a contract basis. It also means that Zeekr pays a lot of money to its parent, equivalent to £2.8bn last year, or 45% of its total purchasing bill, according to a share prospectus filed with the US SEC financial authority in March. Licensing SEA also formed part of that bill.

Offsetting that is the fact that Zeekr actually owns entities formerly belonging to Geely but supplying into the group, including the CEVT development centre in Gothenburg, Sweden, that helped create the SEA platform in the first place. It also owns a company called Ningbo Viridi, which sells battery packs, motors and electric control systems to other Geely brands.

Zeekr is the latest Geely brand heading to the stock market, despite the less than stellar share performance of Polestar and Lotus. No date has been set yet for the IPO (rather than the SPAC process followed by Lotus) but the intention is again to float stock to raise investment.

The prospectus flags a series of risks, including that the company being floated - Zeekr Intelligent Technology - is a Cayman Islands holding company that conducts its business operations primarily through a series of subsidiaries in China via Zhejiang Zeekr, which in turn is owned by its Hong Kong subsidiary, Zeekr Technology. “This structure involves unique risks to investors,” Zeekr admits in the prospectus.

While the ownership structure is opaque, Zeekr itself is confident the brand has a strong focus amid the swathes of other brands competing in the same space. That focus can be described as “human technology”, according to Geely Group’s Swedish based head of design, Stefan Sielaff, who was formerly in charge of Bentley design. “We combine the high level of tech with a very warm design that connects all the products,” he told journalists at the Mix unveiling at the recent Beijing motor show.

Cars like the X, 009 and Mix certainly do stand out in a market where it’s often hard to differentiate new products by looks alone. He said Zeekr avoids the “Russian doll” approach taken by some rivals to link their range design.

Zeekr also has that famous ‘China speed’. Sielaff said the new Mix took two years to create from first sketch to near production-ready concept. “This is mind-blowing,” he said.

When your rivals are breathing down your neck running at a similar pace, no wonder you need to remind workers that every toilet break is valuable seconds lost to avoid being booted out of the “knockout competition”.

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Inside one brand’s struggle to stay alive in China’s cut-throat car market

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