Geely to enter Malaysia directly via Lynk & Co, transfers Proton shares to affiliate company

• Restructuring of Geely Holding’s 49.9 percent ownership of Proton is to clear the way for Geely Auto’s direct entry into Malaysia
• Potential complications if Geely Auto enters Malaysia while still owning nearly half of Proton
• Proton will still remain under Geely’s influence, but more Geely Auto group brands will be coming to Malaysia

Last month in May, DRB-Hicom announced that Zhejiang Geely Holding Group Co Ltd (ZGH) has transferred its entire 49.9 percent stake in Proton to a little-known Geely-affiliate company, Linkstate Overseas Limited (LoL). The news was widely reported but at that time it was difficult to understand the reason behind the restructuring exercise.

We can now say with a fair degree of certainty that the move is to clear the way for Geely to enter Malaysia directly without Proton. However, this doesn’t necessarily mean that Geely-badged cars will be sold in Malaysia, at least not so soon. More on that later.

The following text can be rather confusing as it involves multiple Geely-related parties, so we will stick to their abbreviated names.

Who owns Proton now?

As far as day-to-day running of the Proton business is concerned, Geely’s control over Proton remain unchanged, even though its 49.9 percent stake is now maintained via another subsidiary company, Linkstate acting as a proxy.

DRB-Hicom’s control over the rest of Proton is also unchanged.

What is Geely’s relationship with Linkstate?

Linkstate Overseas Limited (LoL) is a subsidiary of the Hong Kong-listed Geely Automobile Holdings Limited (Geely Auto Group).

You can think of the difference between Geely Auto Group and ZGH as a more complex version of VW the brand and VW AG the company. One is the company’s namesake brand (but in Geely's case, it includes many other brands), while the other is the group’s holding company.

What are the financial details of the transaction?

Although the transfer of shares to Linkstate was only announced to Bursa Malaysia in May, the move to change in Proton’s shareholding structure was put in motion much earlier.

On 20-January 2023, Zhejiang Geely Holding Group Co., Ltd. (ZGH) – the Geely holding company that owned 49.9 percent of Proton Holdings Berhad – entered an agreement with Linkstate Overseas Limited, to transfer out all its shares from Proton.

The deal resulted in Linkstate buying over ZGH’s entire stake in Proton from Geely International (Hong Kong) Limited (GIHK), the sole shareholder of ZGH.

ZGH’s 49.9 percent stake in Proton was appraised at CNY 1,063 million (~RM 689.8 million), as of November 2022.

Apart from Proton, Linkstate also signed another deal with ZGH to take over the latter’s 49.9 percent stake in another Malaysian joint venture – the DRB-Hicom Geely Sdn. Bhd. (DHG) company.

DHG was incorporated on 11-January 2018, about one and a half years after Proton partnered with Geely, to restructure Proton’s inter-company debt of approximately RM 1.616.4 billion.

After ZGH had obtained the necessary approval for the restructuring from its independent shareholders, DRB-Hicom announced the new shareholding structure of Proton to Bursa Malaysia on 2-May 2023.

Why Geely needs to distance itself from Proton?

Geely Auto Group has 9 brands under it – its namesake Geely brand; Volvo Cars; Lynk & Co, which Geely Auto co-owns with Volvo Cars; Volvo Cars' performance-oriented spinoff brand Polestar; Zeekr; Proton; Lotus; Farizon (commercial trucks); and LEVC (London black cab).

Smart is a Geely-related brand but it is not parked under Geely Auto. Smart is co-owned by ZGH and Mercedes-Benz. Smart will be launched in Malaysia by the end of this year, under Proton’s subsidiary Pro-Net.

The electric pick-up truck-only Radar brand is also parked under ZGH.

Of Geely Auto Group’s nine brands, Lynk & Co is next in line for a major expansion across Asia. However, if Geely Auto is to launch Lynk & Co models in Malaysia when its holding company ZGH still owns nearly half of Proton, there could be legal complications as shareholders may raise concerns on conflict of interest.

Geely (ZGH) needs to sidestep these potential legal hurdles, hence the need to restructure its ownership of Proton and free itself from Proton / ZGH's licensing agreement with Geely Auto, without terminating it.

Lynk & Co to enter Southeast Asia

Geely Auto Group will make a direct entry into Malaysia via Lynk & Co. This is not even a speculation anymore as the company has already announced in November 2021 that Lynk & Co will be launched in Malaysia in 2025.

It was a very low-key announcement, hidden within its ‘Smart Geely 2025’ strategy presentation.

Malaysia was briefly mentioned in Smart Geely 2025:

“Geely sales goals are not limited to China – by 2025, the Group aims to achieve exceed 600,000 in overseas sales. The Geely Auto brand will focus on developing the Eastern Europe, Middle East, Southeast Asia, and South America markets as well as introducing new energy products to EU and Asia-Pacific markets. Lynk & Co will expand its global presence by entering Russia, Malaysia, Australia, and New Zealand among others. Geely will also continue its support for Proton with the goal of making the brand No.1 in Malaysia and top 3 in ASEAN markets with further introduction of new technologies and products.”

What is Lynk & Co?

Lynk & Co is a joint-venture between Geely Auto and the Volvo Car. Its product range is centred around plug-in hybrid SUVs, although regular combustion engine variants are also available, as are sedans and hatchbacks.

Lynk & Co has 7+1 models on sale in China. The ‘+1’ is because the Lynk & Co 02 model is available in two bodystyles – hatchback and SUV.

Outside of China, Lynk & Co is sold in the Netherlands, Sweden, and Germany, but only one model is available there - the Volvo XC40-class Lynk & Co 01 plug-in hybrid.

With just one model, sales have been low, just 28,000 units in 2022. Launching Lynk & Co in the Middle East and other parts of Asia, including Southeast Asia, will address this.

To go to places Proton can’t, Geely can’t use Proton-badged Lynk & Co models

Just because Proton is part of Geely doesn’t mean that Proton has the right to request whatever model it wants from Geely Auto, including Lynk & Co models.

Remember that the Geely models are not given free to Proton. Proton (via ZGH) paid RMB 1,344,000,000 (~RM 874.8 million) to Geely Auto for the rights to use the Geely Boyue (Proton X70), Geely Binyue (Proton X50) and Geely Haoyue (Proton X90).

For every unit of Geely-based model sold by Proton, Proton must guarantee a 5.83% profit to Geely Auto.

The licensing agreement between ZGH (now Linkstate) and Proton also limits Proton’s export markets to just Brunei, Indonesia, Singapore, and Thailand. If Proton wants to export to countries other than the ones listed above (South Africa for example), ZGH (now Linkstate) needs prior approval from Geely Auto.

From Geely’s point of view, there is no benefit in exporting their models under the Proton badge beyond right-hand drive markets in Southeast Asia or Africa, when the more international Lynk & Co brand has stronger export potential, and there is no need for more licensing agreements.

Regardless, Proton has yet to export to Thailand or Indonesia - the two biggest markets in this region. More than 5 years have passed and probably Geely has other plans for these two markets now.

Proton will most likely still be part of the picture with Lynk & Co, but as a contract assembler rather than distributor / exporter

Proton to build engines for Lynk & Co?

Last year, Proton opened a new 180,000 units per year engine manufacturing facility in Tanjung Malim, for the 1.5-litre 3-cylinder turbocharged TGDi engine.

180,000 engines is clearly far too many for Proton, which sells less than 150,000 cars annually.

Last year, Proton sold less than 60,000 units of 3-cylinder engine cars, the Proton X70 and Proton X50. The Proton X90 that was launched earlier this year will boost demand for 3-cylinder engines, as is the upcoming Proton S50 (or is it S70?), but even with these two models the volume is unlikely to add up to 180,000 units. Proton’s export volume is only in the low thousands.

Almost all Lynk & Co models are powered by variations (either hybrid or plug-in hybrid) of the CEVT-developed GEP3 1.5-litre 3-cylinder engine, so it’s not too far-fetched for Proton to contract manufacture engines for right-hand drive Lynk & Co models.

On another Geely-related matter, Reuters have reported that Geely is preparing to enter Thailand. ZGH’s electric pick-up truck-only Radar brand is reportedly under consideration for local assembly there.