Geely Auto reported 2Q26 revenue of RMB89.8bn (+14.1% YoY /+ 7.2% QoQ), while attributable net profit reached RMB4.92bn (+37% YoY / +18% QoQ). Despite only modest volume growth, a higher mix of premium models and overseas sales lifted unit value and margins, allowing revenue and earnings to grow well ahead of vehicle sales.

Revenue Growth Driven by Product Mix Upgrade: Although 2Q26 sales reached 714k units (+1.2% YoY / +0.6% QoQ), the ASP rose to around RMB126k (+12.8% YoY/ +6.6% QoQ), highlighting a continued upgrade in sales mix. Sales of premium brand Zeekr surged 105% YoY and 31.5% QoQ to 101k units, accounting for around 14% of total volume and becoming the main driver of higher unit value. Sales of Galaxy brand also improved 17.6% QoQ to 281k units, but down 2.7% YoY, while Lynk & Co and the broader Geely brand remained under pressure.

NEV and overseas sales further improved the mix: NEV penetration increased to 60.3% in 2Q26 (+5.6ppts YoY), while exports surged 188% YoY to 271k units and lifted their contribution to 38% of total sales from 13.3% a year ago and marking a rapid shift toward overseas and electrified demand. With overall volume only slightly higher, the strong export growth also points to continued softness in the domestic market. A richer mix of premium models, NEVs and overseas sales helped cushion domestic weakness and supported higher unit value.

Profitability continued to improve: GPM rose about 1.4 ppts YoY and 0.9 ppts QoQ to 18.4%, supported by a higher Zeekr mix (GPM at 20%) and stronger overseas contribution, with export GPM around 10 ppts above domestic levels. This helped offset raw material and chip cost inflation as well as domestic pricing pressure. Operating expenses increased by about 13% both YoY and QoQ to RMB11.7bn, including RMB5.4bn of selling expenses (+13% YoY), mainly due to new-model launches and overseas channel expansion. Meanwhile, the One Geely strategy continued to improve administrative and R&D efficiency, keeping the OPEX ratio broadly stable at 13%. Hence, attributable net profit rose 37% YoY and 18% QoQ to RMB4.92bn, with NPM improving to 5.5% (+0.9 ppts YoY /+0.5 ppts QoQ).

Cash flow and the balance sheet remained solid: 1H26 operating cash flow increased 32% YoY to RMB19.9bn over net profit of RMB9.1bn, indicating solid cash conversion from earnings. With net funding reserves of around RMB60.8bn at period-end, overall liquidity remained ample. Inventory rose 33% QoQ to RMB33.8bn, mainly reflecting preparation for 2H26 new-model launches and advance raw-material purchases. Trade receivables were broadly stable QoQ at RMB23.7bn. In response to Chinese government’s push for shorter supplier payment terms, the company has shortened its standard payment terms from up to 90 days to generally within 60 days. Management also noted that supplier turnover days continued to decline, reaching around 96 days in 2Q. Trade payables remained broadly stable at RMB81.3bn, while notes payable rose to RMB41.4bn, mainly reflecting greater use of bank acceptance notes and changes in settlement methods.

Management remains constructive on 2H26: The company maintained its full-year sales target of 3.45mn units and raised its export target from 640k to 920k units, with a stretch target of 1mn. Overseas markets are expected to remain the key source of incremental growth. New launches in 2H26 include Zeekr 9X Grand, Zeekr 009 Grand, Lynk & Co 20, Galaxy TT and Galaxy Zhanjian 700, while China Star models will increasingly migrate toward i-HEV. Management expects GPM in 3Q26 will remain at or above 2Q’s 18.4%, supported by a stronger export mix and previously locked-in raw material costs, while One Geely strategy integration and overseas capacity sharing should continue to improve operating and capital efficiency.

Our views: 2Q26 demonstrate that Geely Auto’s earnings is gradually improving, with premium models and overseas sales lifting unit value and margins, offsetting weaker domestic demand. The One Geely strategy is also translating into better operating efficiency. Looking ahead, overseas markets will be an important growth driver, while the company is shifting from an asset-heavy global expansion model toward a lighter-capital approach by leveraging parent company’s overseas resources, which could help reduce CAPEX intensity and geopolitical exposure.

Meanwhile, founder Mr. Li Shufu’s exit from frontline governance at Geely Auto, while remaining chairman and controlling shareholder of Geely Holding, marks a further shift toward professional and institutionalized management. Looking ahead, the key focus will be on model lifecycle resilience, the sustainability of overseas growth, and the execution ability of the new management team. The counter is trading at 8x FY26E P/E. (Research Department)