Date
20 October 2017

And Taizhou makes three for Volvo in China?

What’s in a name? More than just a little speculation if it’s Geely’s Project V factory relocation in the Zhejiang city of Taizhou {台州}, where company founder Li Shufu {李書福} got his start.

The ground-breaking ceremony for the new factory in Taizhou’s economic development zone late last year attracted a full complement of local cadres and congratulatory messages from Zhejiang party chief Xia Baolong {夏寶龍} and governor Li Qiang {李強}.

The old factory used to produce Geely’s entry-level models priced at around 50,000 yuan (US$8,250) and local newspapers proclaimed that the new 12.1 billion yuan plant would make about 200,000 mid- to high-end marques a year.

Only then did the industry notice the factory is called “Project V” and the hefty investment is shared by Volvo Cars China, Zhejiang Geely Holding Group, Hong Kong-listed subsidiary Geely Automobile (00175.HK) as well as the local government.

That raised the big question of whether the Taizhou project will be the third Volvo car plant on the mainland in addition to ones in Chengdu and Daqing. The Chengdu plant started test runs in September to make Volvo’s hit S60L and XC60 while Daqing will make other models like the XC90 SUV.

Geely spokesman Yang Xueliang {楊學良} rejected the idea that Project V has anything to do with making Volvos, saying the new plant will produce new upmarket Geely models developed by the firm’s R&D center in Europe. The center, located right in Volvo’s home base of Gothenburg, was the first fruit of Geely’s acquisition of the Swedish industrial giant’s car division back in 2010.

Yang told Xinhua that the new models to be made in Taizhou will bear some Volvo hallmarks, but would be marketed “under Geely’s own brand”. But Yang didn’t explain why Geely wouldn’t make these models at the firm’s existing, larger plants in Ningbo.

Yang’s statement was also not supported by the ubiquitous Geely and Volvo flags at the Project V launch, where officials reportedly told the Economic Observer that the new plant would definitely make Volvo cars.

A source close to Geely also revealed that Volvo’s family compact S40 and V40 hatchbacks are the prototypes for the Project V models and share the same vehicle platform, ensuring the Taizhou plant is shovel-ready to produce S40s, V40s and the rumored XC40.

The Project V start comes as Zhejiang is trying to entice heavyweight businesses founded in the province to head back home. Geely certainly fits the heavyweight bill — it’s the epitome of homegrown auto brand success and has been part of the global Fortune 500 since 2012.

Geely’s only problem now is that it seems to have picked too many partners for Volvo in China, diluting its bargaining power.

Besides Chengdu and Daqing, there is an R&D base in Shanghai and an engine factory in Zhangjiakou {張家口}, a lower-tier Hebei city. Li is no doubt skilled at drumming up support from GDP-driven local authorities — the Daqing authorities lavished billions of yuan on a 37 percent stake in Geely’s consortium for the Volvo transaction while Chengdu helped secure financing and land.

Yet, Li will no doubt be aware that Chengdu, Daqing, Shanghai and Zhangjiakou cadres will not be happy to hear about Taizhou, which is reason enough to keep Project V low-profile for now. Li still has to walk a fine line with his numerous Volvo assets — not many car brands can run more than two major manufacturing plants with different stakeholders at once.

Project V could well be placed to ratchet up production just as Volvo is poised to make solid gains in China. But, despite a 45 percent surge in sales, just 61,146 Volvos were sold on the mainland last year according to the China Association of Automobile Manufacturers — a fraction of that of competing brands like Audi and BMW.

Li has indicated in the past that no fewer than 200,000 Volvo cars will be sold in China by 2015. Investors will be watching to see if Volvo can swiftly scale up its China business to absorb the new production facilities.

– Contact the writer at [email protected]

SK

 

EJ Insight writer

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