A Volkswagen AG vehicle, right, and Geely Automobile Holdings Ltd. sedans stand parked outside the Great Hall of the People ahead of the opening of the first session of the 13th National People’s Congress (NPC) in Beijing, China. (Photographer: Giulia Marchi/Bloomberg )

More Than $1 Billion Wiped Off China Car Titan Geely in Sell-off

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Geely Automobile Holdings Ltd. plunged the most in 11 months, wiping $1.2 billion off the company’s market value, after Morgan Stanley raised concern over piling inventories and flagging sales in a cooling Chinese auto market.

Some economic indicators signal weak expectations, Morgan Stanley wrote in a report dated Jan. 2, slashing the price target of the carmaker and lowering its stock rating to underweight. Shares of Geely fell 8.2 percent to HK$11.92 in Hong Kong on Thursday, the lowest closing level since May 2017. Geely is controlled by Volvo Cars owner billionaire Li Shufu, who’s also the largest shareholder of Daimler AG.

More Than $1 Billion Wiped Off China Car Titan Geely in Sell-off

“Our economics team for China sees domestic demand as the key drag,” Morgan Stanley analysts led by Jack Yeung wrote in the report. “We believe the weak expectations hurt the sales of domestic brands more, since their customers are more sensitive to the economic cycle.”

Geely shares slid 49 percent last year, the most since 2011, as an escalating trade war with the U.S. and slumping stocks weighed on consumers’ purchasing power and led to six consecutive months of declining auto sales last year. Geely Chairman Li said in his New Year address that there are bigger challenges ahead in 2019. The stock touched an all-time high of HK$29.15 on Nov. 22, 2017, and has tumbled almost 60 percent since.

The inventory of Geely’s best-selling compact crossover SUV, Boyue, has risen to over three months, while that of its luxury brand Lynk & Co. has reached more than a month, Morgan Stanley said in its report.

More Than $1 Billion Wiped Off China Car Titan Geely in Sell-off

A potential stimulus from Beijing in the form of a cut in value-added tax could benefit Geely, though that may not happen until after a central government meeting in March, the analysts wrote.

Geely isn’t the only carmaker facing challenges. Hong Kong-traded peers BYD Co., Great Wall Motor Co. and others have all been falling since trading kicked off in the New Year Wednesday.

©2019 Bloomberg L.P.