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Geely sell-off wipes more than $1 billion from company value

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The Chinese car giant plunged the most in 11 months, as $1.2 billion was wiped off the company’s market value, after Morgan Stanley raised concern over piling inventories and flagging sales in a cooling auto market

Some economic indicators signaled weak expectations, according to a Morgan Stanley report, which slashed the price target of the carmaker and lowered its stock rating to underweight. Geely shares fell 8.2% to $1.52 this week—the lowest closing level since may 2017. Geely is controlled by Volvo Cars owner billionaire Li Shufu, who is also the largest shareholder of Daimler AG.

“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.” He added.

Geely shares slid 49% last year– the most since 2011– as an escalating trade war with the US and slumping stocks weighed on consumers’ purchasing power and led to six consecutive months of declining auto sales last year.

Li also stated in his New Year address that there are bigger challenges ahead in 2019. The stock touched an all-time high of $3.72 on November 22. Since then, it has tumbled almost 60%.

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.

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, wrote the analysts.

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.

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