Summary of Key Points
In 2026, two major Chinese automakers, BYD and Geely, initiated opposite organizational reforms: BYD adopted a decentralized approach, splitting into four independent brands (Dawang, Haiyang, Tengshi, and Fangchengbao) with separate accounting systems, and reorganizing its R&D division into five separate units; Geely, on the other hand, decided to consolidate its brands (integrating Geometry into Galaxy and merging Krypton and Lynk & Co.) and establish a central sales company to manage marketing efforts. These seemingly contradictory moves are actually aimed at adapting to the shift in the automotive market from a period of growth dividends to one of competitive saturation, as well as to address issues related to organizational inefficiency. BYD aims to reduce internal conflicts and inventory pressures caused by a unified structure, while Geely seeks to eliminate the waste associated with duplicate brand development. Both companies are focusing on balancing internal management costs and market transaction costs in order to enhance their competitiveness.
Detailed Analysis
Why Are Automakers Suddenly Reorganizing?
Over the past decade, China's new energy vehicle market has been one of growth, where any company that could produce cars could make a profit through expansion. However, by 2026, the market had become saturated: sales growth slowed down, price wars were rampant, and consumers became more selective. The traditional organizational models no longer worked effectively:
- BYD's centralized structure (where all brands shared R&D and distribution channels) led to overlapping products (such as the Han L and Seal 08, which appeared almost identical but with different exteriors), channel competition for customers, and excessive inventory buildup.
- Geely's approach of having multiple independent brands each operating on their own resulted in duplicated investments (e.g., Krypton's proprietary battery technology was not accessible to other brands) and confusion among consumers regarding which products to purchase.
In simple terms, what used to be a strategy of "expanding rapidly" now requires a more refined and targeted approach. Organizational structures must change; otherwise, companies will face either internal strife or high costs.
BYD's Decentralization: Breaking the Centralized Model
BYD's main issue was the high coordination costs associated with its centralized model. The reform focused on delegating authority at the front line while maintaining unity at the back:
- Why decentralize?
- R&D delays: For example, when Fangchengbao requested the YunNian-Z technology, it took three months to obtain it, missing market opportunities.
- Internal competition for customers: Overlapping products like the Han L and Seal 08 caused internal strife, forcing the Han L to be sold overseas.
- Excessive inventory: In April 2026, BYD's inventory ratio was 1.8 (the industry average was 1.58), leading to significant pressure on dealers.
- How to decentralize?
The four brands were turned into independent subsidiaries, each responsible for their own product development and sales processes (e.g., Tengshi could directly contract with suppliers for HUD without going through the R&D division). Channels were also integrated, and an inventory "circuit breaker" system was implemented to stop production when inventory levels exceeded a certain threshold.
- Results?
Inventory turnover improved by three weeks, and the inventory ratio dropped to 1.3 in June (below the industry average). Dealers experienced less pressure and had more time to focus on customer service. The only exception was the Yawang brand, which was not targeted for profit generation but focused on developing cutting-edge technologies.
Geely's Consolidation: Streamlining Costs and Boosting Profits
Geely's main issue was the high costs associated with multiple brands operating independently:
- Why consolidate?
- Duplicated R&D efforts: Krypton invested heavily in battery technology, which could only be used internally, increasing costs.
- Waste in marketing: Six brands each had their own marketing campaigns, resulting in wasted funds and consumer confusion.
- Confused brand positioning: Brands like Krypton and Lynk & Co. competed for the same customer base due to overlapping prices.
- How to consolidate?
Brands were merged (Geometry into Galaxy, and Krypton with Lynk & Co.).
A central sales company was established to manage marketing efforts across all brands, allowing for the sharing of resources (e.g., Krypton's technology could be used by Lynk & Co.).
- Results?
In the first half of 2026, core net profits increased by 46%, and average profit per vehicle rose by 45% to 6,806 yuan. However, there were initial challenges, with Geely's overall brand sales declining by 4% and Lynk & Co.'s by 11% (as integration required time to take effect).
The Two Approaches Are Not contradictory: Both Aim for Cost-Efficiency Balance
Both BYD's decentralization and Geely's consolidation are based on Richard Coase's "theory of transaction costs"—the decision to merge or split companies depends on which option results in lower internal management or market transaction costs.
- BYD's approach: With a production volume of 4 million vehicles, the high internal coordination costs (R&D delays, product competition) outweighed the benefits of independent brand accounting. Therefore, core technologies (such as batteries and platforms) were shared to maintain its scale advantages.
- Geely's approach: The repeated investments in multiple brands (R&D, marketing) were more costly than centralized efforts. By consolidating brands, costs were reduced, but each brand maintained its distinct positioning (e.g., Krypton targeting higher-end markets, Lynk & Co. targeting mid-range consumers).
In summary, both reforms aim to achieve greater efficiency by balancing these two types of costs.
Evaluating the Success
The effectiveness of these reforms is measured by four key indicators:
- Profit per vehicle: Can BYD turn losses into profits after decentralization? Can Geely continue to improve its profitability after consolidation?
- Product efficiency: Have R&D cycles been shortened (e.g., Tengshi's adoption of HUD, and Geely's ability to release new cars every six months instead of annually)?
- Channel health: Are inventory levels under control (BYD reduced from 1.8 to 1.3, and has Geely improved its channel management)?
- Price differentiation: Do products still attract customers effectively (e.g., clear distinctions between BYD's different brand segments, and whether Geely's brands have distinct price ranges)?
These indicators reflect whether the reforms have truly reduced costs and improved efficiency, as what consumers care about is the quality of the vehicles and the合理性 of prices.
In Conclusion
Organizational changes in automakers are essentially about improving efficiency through better management. Whether it involves decentralization or consolidation, the goal is to provide customers with more cost-effective and better-quality vehicles. With the "Golden September and Silver October" sales season approaching, the results of these reforms will soon be evident in the market.