China's auto industry has taken a beating over the last four months, and Geely Automobile Holdings (OTCPK:GELYF) has been hit hard, with the shares down about 50% since my last update on the company. While more EV-leveraged names like BYD (OTCPK:BYDDY) and XPeng (XPEV) have held up better, closer comps like Great Wall (OTCPK:GWLLY) have also been hit hard.
The short-term outlook for Geely is challenging, as input costs are going to weigh on margins and the company is still navigating the impact of COVID-19 lockdowns and component shortages, particularly for higher-end NEV models. Longer term, though, I continue to like the company's move to mid- and high-range models, as well as its aggressive plans to build out its NEV offerings and grow its export business.
As the leading domestic player in China, I still expect high-single-digit to low-double-digit long-term revenue growth and even stronger FCF growth as the company scales up. Geely's growth can support a substantially higher fair value now, but sentiment is a major headwind now and more pronounced acceleration in unit volumes is likely a prerequisite to better share price performance.
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Geely Auto Has Hit Some Big Potholes, But The Fundamental Story Is Intact
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