S&P's Negative Outlook on Geely Automobile: Navigating Risks and Opportunities in a Shifting Automotive Landscape

The automotive industry's transition to electric vehicles (EVs) has created both winners and losers. For Geely Automobile, S&P Global Ratings' recent downgrade of its outlook to negative underscores the fragility of its position amid escalating global headwinds. This article dissects the risks and opportunities facing Geely, focusing on S&P's concerns about Volvo Cars' profitability, U.S. trade barriers, and the broader implications for Geely's creditworthiness. We also explore whether its EV-driven growth narrative can outweigh near-term challenges.

The Catalyst: S&P's Concerns and Their Basis

On May 30, 2025, S&P revised its outlook for Zhejiang Geely Holding Group and its subsidiary Geely Auto to negative, citing deteriorating profitability at Volvo Cars—the crown jewel of the group, contributing ~50% of its EBITDA. Key issues driving this shift include:

1. Volvo's Profitability Crisis
2. Volvo's EBITDA margin is projected to plummet to 5.1% in 2025, down from 7.8% in 2024, due to a 25% U.S. import tariff imposed in April 2025. This tariff alone is estimated to cost Volvo hundreds of millions annually, exacerbating losses in its key U.S. market.

3. Sales declines in Europe (weakening demand) and China (intense EV competition from local brands like BYD and NIO) further strain margins.

4. Structural Risks and Strategic Hurdles

5. Volvo's shift to a U.S.-centric production model (expanding its Charleston facility) and its push for localized product development teams face execution risks. Delays here could prolong margin pressures.
6. Geely's overall EBITDA margin is now forecast to drop to 5.6% in 2025, far below S&P's earlier estimate of 6.8%.

The Silver Lining: Geely's EV Resilience

While Volvo's struggles loom large, Geely Auto's EV division offers a critical counterbalance. Its brands—Zeekr, Lynk & Co., and Galaxy—are outperforming industry averages, with sales projected to grow 23%-28% in 2025. This growth is underpinned by:
- Zeekr's premium positioning: The brand's high-end EVs (e.g., the Zeekr 001) are gaining traction in China's luxury market.
- Global expansion: Geely is leveraging its cost advantages in China to penetrate emerging markets, where EV adoption is accelerating.

Investment Risks vs. Long-Term Potential

Near-Term Risks

• Debt Sustainability: S&P warns of a potential downgrade if Geely's debt-to-EBITDA ratio exceeds 2x sustainably. Current estimates suggest the group's leverage could hit this threshold by late 2025.
• Tariff Volatility: The U.S. tariff remains a wildcard. If trade tensions escalate, Volvo's restructuring efforts may prove insufficient.

Long-Term Catalysts

• EV Market Growth: The global EV market is expected to hit $1.4 trillion by 2030, with China and Europe leading demand. Geely's portfolio is well-positioned to capture this.
• Cost Efficiency: Geely's vertically integrated supply chain (battery tech, software, and manufacturing) could become a moat against competitors.

Actionable Insights for Investors

1. Monitor EBITDA Recovery: Geely must stabilize margins above 7%-8% to reverse S&P's negative outlook. Track quarterly updates on Volvo's U.S. production ramp-up and cost savings.
2. Assess Valuation: Geely's shares trade at a discount to peers like Toyota and Tesla, reflecting its near-term risks. A pullback could present a buying opportunity if fundamentals stabilize.
3. Watch EV Sales Momentum: Strong sales data from Zeekr and Lynk & Co. in Q3 2025 could signal a turning point, offsetting Volvo's struggles.

Conclusion: A High-Reward, High-Risk Play

Geely Automobile sits at a crossroads. While S&P's negative outlook highlights vulnerabilities tied to Volvo's profitability and trade barriers, its EV divisions represent a compelling growth story. Investors must weigh the short-term execution risks against Geely's long-term strategic advantages in EV technology and global scaling.

For risk-tolerant investors, a gradual position-building strategy—entering on dips and layering in exposure as EBITDA stabilizes—could yield outsized returns. However, those prioritizing stability should tread carefully until Geely demonstrates margin resilience and de-escalation of trade conflicts.

The automotive sector's next chapter hinges on who masters the EV transition. Geely's fate may well turn on whether its innovations can outpace its challenges.

Stay informed. Act decisively.