China's Geely bets on bigger cars for growth with new plant - sources

By Yilei Sun and Norihiko Shirouzu

BEIJING (Reuters) - China's Geely is building a new plant to produce a quarter of a million bigger-sized cars that it expects will power future growth and help meet its goal of selling more than 2 million vehicles by 2020, two people familiar with the matter said.

Zhejiang Geely Holding Group Co, one of China's five biggest automakers and the owner of Sweden's Volvo Cars, is building the facility in the eastern port city of Ningbo where it already operates an assembly plant, as per the sources and information on a Geely-owned construction bidding procurement website.

Once known for its cheaper, copycat designs and shoddy quality, Geely has assumed upmarket aspirations after the Volvo deal and has expanded sales significantly since 2016 by banking on smaller, so-called compact cars.

The planned capacity increase underscores its ambitions as well as the shift in customer preferences towards bigger vehicles such as SUVs and minivans in China, the world's biggest auto market.

The new capacity will enable Geely to produce roughly 250,000 more cars a year in Ningbo and add larger cars to its lineup, as well as ramp up launches at its new brand Lynk & Co, which Geely came up jointly with Volvo.

The plant will have two assembly lines. According to information on the Geely-owned website, the automaker plans to spend 3.4 billion yuan ($498.31 million) for one of them. The overall investment planned for the plant was not immediately known.

Geely unveiled two years ago its goal to produce and sell 2 million vehicles and become a major global automaker by 2020. It has made steady progress towards that, with sales of Geely branded vehicles forecast to reach 1.58 million vehicles this year.

Consultancy LMC Automotive's senior market analyst Alan Kang says global car makers such as Ford Motor Co and Hyundai Motor Co are now losing market share to Geely in China with customers flocking to an array of compact cars Geely has developed by benchmarking Volvo technology and expertise.

Those Geely cars, such as the Boyue sport-utility vehicle and Borui sedan, are priced at 100,000 to 160,000 yuan and 120,000 to 180,000 yuan, respectively.

"But they need bigger, fancier cars to keep growing," LMC's Kang said. "Geely needs to do that to better compete with global brands." Geely also needs bigger cars to raise transaction prices to grow revenue.

STRETCHED RESOURCES?

Some question how much longer Geely would be able to sustain the break-neck expansion within China and globally. In addition to Volvo, Geely invested for a 49.9 percent stake in Malaysia auto manufacturer Proton and, through its founder, bought almost 10 percent of German car maker Daimler AG .

"No doubt Geely's resources are getting stretched thin, and that's testing the limits of management, engineering capability, marketing, and brands," said James Chao, an independent auto industry consultant.

Geely's quality too has room for improvement. Buyers of Geely cars have complained on social media about engine lubricant oil leaks, wind noise and vibrations, rusting, suspension issues, among other gripes.

For the Geely brand, the company plans to use the new capacity to add to its product offerings several midsize vehicles designed on a new platform called D-segment modular architecture (DMA).

Among those midsize cars are a three-row, seven-seat SUV, similar in size to vehicles such as the VW Teramont and the Toyota Highlander, a category that is not represented in Geely's current product lineup.

Geely also plans to leverage the planned new capacity to expand the product lineup of Lynk & Co. Among the new cars Geely plans to produce for Lynk & Co are a three-row, seven-seater SUV which has been designed by Lynk & Co using Volvo's platform for larger cars.

($1 = 6.8231 Chinese yuan renminbi)

(Reporting by Yilei Sun and Norihiko Shirouzu; Editing by Muralikumar Anantharaman)