(Yicai) July 24 -- Shares of Geely Automobile Holdings advanced after the Chinese carmaker said a subsidiary will invest EUR221 million (USD252 million) to acquire a 34 percent stake in Ford Motor's car factory in Spain.

Geely Auto [HKG: 0175] closed 2.9 percent higher at HKD19.06 (USD2.43) per share in Hong Kong today, after earlier gaining by as much as 4.2 percent. The stock has gained 6.5 percent since the end of last year.

Geely SPV will buy 34 percent of the company owned by Ford's Dutch subsidiary Ford NL that operates a manufacturing and assembly facility in Amussafes, Valencia, its Hangzhou-based parent firm said in an exchange filing yesterday.

Chinese automakers are concentrating their European manufacturing expansion in Spain and Hungary, using a mix of new factories and partnerships to sidestep import tariffs and localize production. BYD is building an electric vehicle plant in Hungary while exploring Spain, while Geely, Chery Automobile, and Leapmotor have each chosen Spain as a base.

The Valencia plant, with a potential annual production capacity of about 500,000 vehicles, has seen its capacity utilization rate decline in recent years, as Ford scaled back its lineup of internal combustion engine vehicles in Europe.

Before the transaction closes, Ford NL will restructure the target company, carving out assets, liabilities, and business units unrelated to contract manufacturing. At the end of last year, the target firm had net assets of nearly EUR1.9 billion (USD2.1 billion). Its net profit after tax was EUR69.8 million (USD79.5 million), down 70 percent from the previous year.

Geely SPV and Ford NL also reached a deal to set up a joint venture under which the target company will operate as a contract manufacturer, producing vehicles for both the Ford and Geely brands. It will not be involved in product design, research and development, branding, sales, and distribution.

The JV is expected to commence operations in the first half of next year, and the plant is forecast to begin production the following year. Geely Auto plans to manufacture two new energy vehicle models at the Valencia factory, with the first rolling off the assembly line in 2028.

The agreements give Geely Auto access to an established manufacturing base in Europe, enabling certain Geely-branded vehicles to be made locally for the European market and supporting the carmaker's European localization strategy.

Rising trade barriers have elevated the costs of exporting Chinese-made vehicles to Europe, squeezing profit margins. Vehicles assembled at the Valencia plant will qualify as EU-made products, thereby avoiding import tariffs and providing greater pricing flexibility.

In addition, compared to acquiring land and building a new factory from scratch, acquiring an existing idle production line represents a classic "asset-light" model for overseas expansion. It eliminates lengthy construction periods and slashes upfront investment costs -- which would run into the billions -- while allowing immediate access to a skilled workforce, established local supply chains, and port logistics, thereby rapidly opening up access to Western European markets.

For Ford, reactivating the long-idle production line at Valencia offers a way to cut the ongoing fixed maintenance and operational costs associated with a dormant facility, according to analysts.

Editor: Futura Costaglione