How is Geely Auto accelerating its investment in electric vehicles?

China is by far the world’s biggest car market, with over 26 million new vehicles hitting the road in 2021. Zero-emissions and hybrid models are gaining traction, but petrol-powered cars still dominate the market.

Decarbonising the auto manufacturing industry will be critical to China’s goal of reaching carbon neutrality by 2060 – and will also deliver a sizeable boost to global net-zero initiatives.

The China Association of Automobile Manufacturers (CAAM) predicts that new-vehicle sales in the country will reach 27.5 million this year – a 5.4% increase on last year’s total. Electric and hybrid models are rapidly gaining market share: CAAM expects sales of new-energy vehicles to grow an unprecedented 47% to 5 million this year.

Geely Auto, China’s largest vehicle producer, is on the front line of this transition. Its 2025 decarbonisation goal is to reduce vehicle lifecycle carbon emissions by more than 25% and achieve total carbon neutrality by 2045. The company is also committed to setting science-based targets under the Science Based Targets Initiative (SBTi).

It is already making progress. Electric and plug-in hybrid models accounted for 20% of its sales in the first half of 2022, and the company expects that proportion to reach 50% next year. ¹

As well as replacing combustion engines with lower-carbon models, Geely has committed to a comprehensive sustainability programme to accelerate progress across its business. To fund this increased ambition, Geely published a new sustainable finance framework (SFF) in May that paves the way for a programme of future financings that are aligned with this strategy, including sustainable bonds and loans. ²

The SFF was verified by Sustainalytics as being “credible and impactful” and aligned the Sustainability Bond Guidelines 2021, Green Bond Principles 2021, Social Bond Principles 2021, Green Loan Principles 2021, and Social Loan Principles 2021.

The first transaction based on the SFF was a three-year US$400 million sustainable club loan, which closed in August. By opting for a club structure rather than a wide syndication, Geely took the initiative to originate and organise the transaction, drawing on seven global banks as arrangers. Due to Geely’s strong standing in the financial markets and the credibility of its sustainability agenda, the loan was oversubscribed.

HSBC was Sole Global Coordinator, Joint Mandated Lead Arranger and Bookrunner, and Joint Sustainability Structuring Bank for the transaction.

“The response to this loan is a strong endorsement of Geely’s new Sustainable Finance Framework,” says Frank Fang, General Manager, Head of Commercial Banking, Hong Kong and Macau, HSBC. “The commitments the company has made under the framework provide a powerful statement of its intent to pivot to low-carbon vehicles.”

The deal is the first overseas sustainable club loan from a Chinese automaker. Geely will use the proceeds to support research and development (R&D) of low-carbon vehicles. It will also fund new facilities for production and distribution that meet a variety of environmental and social criteria.

The company is pivoting towards greener transportation and buildings, and it will use more renewable energy in its operations. It will improve energy efficiency in new and existing facilities, introduce a circular economy approach toward water and waste management, and increase pollution prevention. The SFF also includes social criteria to advance economic opportunities and equity for underprivileged communities.

As a major player in China’s car market, Geely’s transition away from petrol-powered vehicles will have a big impact on the country’s carbon emissions. Its sustainable financing strategy will help it reach that destination.