Zhejiang Geely and Geely Auto outlook revised to negative at S&P

Investing.com -- S&P Global Ratings has revised the outlook for Zhejiang Geely Holding Group Co. Ltd. and its subsidiary Geely Automobile Holdings (OTC:GELYF) Ltd. ( Geely Auto (HK:0175)) to negative from stable on May 30, 2025. The ratings agency affirmed its ’BBB-’ long-term issuer credit ratings on the companies. The revision is due to the profitability strains of Volvo Car AB (ST:VOLCARb), a major subsidiary of Zhejiang Geely.

Zhejiang Geely is expected to face significant pressure on its EBITDA margin in 2025, despite strong sales momentum at Geely Auto. Factors such as softening sales in Europe and China, and a higher U.S. import tariff, will negatively impact Volvo (OTC:VLVLY)’s profitability. While an improvement is anticipated in 2026, uncertainties surrounding U.S trade policy and the execution risk in Volvo Cars’ business transformation pose a high risk.

The negative outlook reflects S&P Global Ratings’ view that economic uncertainty, increased competition, and U.S. tariffs will significantly impact Zhejiang Geely’s profitability in the next two years. Weak demand, heightened competition, and U.S. tariffs are expected to weaken Volvo Cars’ performance, which will in turn affect the group’s EBITDA margin in 2025.

Volvo Cars’ declining sales momentum is expected to slow the group’s sales growth. Factors such as soft consumer sentiment and intensifying competition in the electric vehicle (EV) market will impact Volvo Cars’ performance in Europe in 2025. The rise of local brands in China’s EV market will also pose a challenge to Volvo Cars’ sales prospects in the country.

The introduction of a 25% auto import tariff by the U.S. in April 2025 will put pressure on the group’s profitability. Volvo Cars, which contributes approximately 50% of the group’s EBITDA, will likely see its EBITDA margin decline to 5.1% in 2025, compared with 7.8% in 2024. As a result, the group’s EBITDA margin is anticipated to narrow to 5.6% in 2025, from 6.4% in 2024, and significantly below the previous expectation of 6.8%.

Uncertainty in Volvo Cars’ business transformation could further hinder the group’s margin recovery. Volvo Cars is increasing production at its Charleston, S.C., facility to mitigate U.S. tariffs and granting greater autonomy to its local product development teams in the U.S. and China. However, any delays in these initiatives could affect the group’s path to restoring its EBITDA margin.

Geely Auto’s improving competitiveness is expected to partially offset the pressure on the group’s profit margin in the next two years. The company’s unit sales are anticipated to continue to outperform the industry average, growing 23%-28% in 2025 and 5%-10% in 2026. This growth is primarily driven by its enhanced EV product offerings across different price segments under its Zeekr, Lynk & Co., and Galaxy brands.

The ratings on Geely Auto will continue to move in line with that on Zhejiang Geely. The company is expected to remain in a net cash position in the next two years due to anticipated profit expansion and prudent capital expenditure. As the group’s core subsidiary, Geely Auto is expected to receive timely and sufficient support from the group in case of need.

The negative outlooks on Zhejiang Geely and Geely Auto reflect the view that Zhejiang Geely will face significant profitability issues in the next 12-24 months, primarily due to softening global demand, increased market competition, and increased U.S. tariffs. Any delays in Volvo Cars’ business transformation or further escalation in global trade tensions could hinder the group’s margin recovery over the next 12-24 months.

S&P Global Ratings could lower the ratings on Zhejiang Geely and Geely Auto if Zhejiang Geely’s EBITDA margin materially deviates from expectations and is unlikely to improve toward 7%-8%, or if its adjusted debt-to-EBITDA ratio exceeds 2x sustainably in the next 12-24 months. Conversely, the outlooks could be revised to stable if Zhejiang Geely’s adjusted EBITDA margin improves to 7%-8% sustainably and its debt-to-EBITDA ratio stays well below 2x.

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