InvestorGeeks

I got an email from a reader at my other site asking about Geely Automotive Holdings Ltd (Google Finance). The author had already purchased over 19000 shares which might seem like a lot until you realize this is very much a penny stock. Still, the outlay for a young college student is significant and it probably brings up a topic for a good future article “Where the small investor should put his money?” We are not talking about that today because we need to answer the questions on Geely first.

The writer wanted a TA done on the stock and that is what we mostly do at HipEgg but here is the problem; Geely is not really a good stock for a technical analysis. At this point in writing I really started to go down two different paths and so I decided to split this article. If you want to do some reading on why Geely is not a good fit for a TA and some information on avoiding some TA pitfalls then go over to the companion piece at HipEgg after you are done reading here. Now on to the Geely Monster.

The car market in China is a fabulous land of opportunity and dreams. I am a bit of a car fan but I must admit that when I first started to think of cars made behind the silk curtain I was a little concerned about quality and style. I pictured an Eastern European knock off of a Fiat Uno. Fortunately this isn’t the case.

China has some good looking cars and I would assume well made. I can say that because in China they actively block foreign car manufacturers from entering. Take BMW for example. They wanted to sell cars in China but they can’t. Under the law they have to partner with a Chinese car company. In this case, BMW is in partnership with China Brilliance (CBA). CBA makes their own cars but they also manufacture a BMW line for China. CBA is learning important lessons like design, quality assurance and styling from the Germans. If and when they start to export they will probably do very well.

Information on Geely is harder to come by. Overall they do seem to be doing very well on the home front, sales are up and everyone is happy. Geely also seems to be one of the more aggressive companies looking to enter the global market place. They have already previewed an entry level model at the Detroit auto show. This car was a small 4 door with an expected base price of under $10,000 (Some have even put it at around $7500). The claim was that fuel economy would be around 33 to 35MPG which is nothing to write home about but far better then many larger vehicles. They are aiming for a release date of late 2007 to 2008 at this time.

The downside, they have yet to prove that they can pass air quality or US safety standards, although they claim to be on track to make these marks. There is also the unquantifiable problem of perception. Geely will likely be among the first, if not the first Chinese car to be seen in mass by the US public. How will a country so in love with BIG and so broke from fuel bills take a small Chinese econo-box? Hopefully we will see soon.

The long and short of it all is that I think there is potential for two or three major automotive behemoths to rise from the China coast, it will happen. I do not know if Geely will be one of those but it warrants further investigation and it is a company I would be willing to take a gamble on. Very few people outside of China have seen any of these vehicles. Information and research is harder to come by. For those interested in learning more about the products I would point you to http://www.chinacarforums.com/ . There are several companies in China now trying to position themselves for success. I think we as investors should be looking to add a little Chinese car company to our positions if we want to be successful.

In addition to writing for InvestorGeeks, Kevin Hamrick also does analysis at HipEgg under the pseudonym Jym Khana. In his distant past, Kevin worked for 2 brokerage houses and a regional bank. He now makes his living as a defense contractor developing software.