Auto Exports Hit the Brakes for Geely and Greatwall

China Cars

Over the weekend, China reported an a year on year April increase  in overall exports of  4.1 percent in yuan terms from a year earlier equivalent to a  1.8 percent decline in dollar terms. Cumulative export data for the year showed more weakening. Shipments declined 2.1 percent in yuan terms in January to April versus the same period a year earlier, while slumping 7.6 percent in dollar terms.

For Chinese auto manufacturers Geely, 175 HK, and Greatwall, 2333 HK, however, the decrease in exports was much more pronounced.

Autos April

(HKex Filings)

Looking at just 2016, it would appear that for both, exports are incidental.  However, going back to 2013, they had ambitious goals for exports and had achieved much higher sales abroad.

annual exports

(Hk Filings, production reports)

Geely, which bought Volvo, is the smaller of the 2 in terms of units produced and sold and market cap.  For Geely, exports dove from 21.6% of units in 2013 to just 5% in 2015. Greatwall, the maker of Haval and Great Wall Brands, didn’t reach the heights that Geely had in exports but went from 9.7% in 2013 to 2.7% of total units sold in 2015.  Both companies blamed political and economic instability in their overseas markets.  With China growth in car sales slowing, (domestic manufacturers reported a 7.3% increase in passenger car units in 2015 but this was a 2.6% decline from the prior year’s growth), these manufacturers could use an injection from exports.

Neither companies have fared too well this year on the Hong Kong exchange compared to the Hang Seng, which has dropped 8.23% ytd.

car stocks

Although both produce popular SUV’S, with Greatwall claiming to be the largest SUV manufacturer in China, competition is stiff between domestic and international producers.  Both companies saw a cumulative increase in the January to April period, but it was far below the projected 6% plus hoped for.  This is particularly worrying given the 50% cut in  in the 10% sales tax on cars with engines lower than 1.6 liters, placed in October, 2015 and effective through the end of this year.  (In 2015, per CAAM, the Chinese Association of Automotive Manufacturers, stated that cars with engines of 1.6L or less made up 68.8% of the 21.1 million domestically sold Chinese passenger vehicles. )

April sales

Sequentially, units actually declined from March, but based on prior years there is seasonality involved.

seasonal sales

 

(Sources -HK filings on monthly sales and production reports)

While both companies publish monthly sales figures by units, the fight for market share has led to profit declines.  Although Great Wall showed an 8% increase in revenue for the first quarter, thanks to a 9.8% increase in operating costs as well as a 13.7% increase in other costs, Net Profit After Tax declined by 5.5%.  This decline came despite an increase in autos sold of 5.7%.

gr wall q1

(HK Filing)

For 2015, Greatwall increased revenues by 21%, but, as costs increases surpassed revenue increases, net profit rose only an .2%. NOI as a percent of revenue dropped from 12.8% to 10.6%. Greatwall annual units sold increased by 19%.

Geely hasn’t published its quarterly report as of this time. Annually, Geely increased revenue by 38.7% with an increase in net profits of 58%, thanks partly to lower costs as well as higher JV income and government grants representing 37% of net to shareholders. Geely sold 22% more cars in 2015 than 2014.

cars annual

In short, despite the tax decline and hopes for sales increases, neither of these made in China companies is a sure bet.

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