Tag Archives: Haval H6

Struggling Great Wall Faces Head-On Collision with Honda Motors

Great Wall h6 pic

Great Wall Motors, 2333hk, already grappling with declining margins, has been blind-sided by a lawsuit from Japan’s Honda Motors, HMC, according to Caixin.

Japanese automaker Honda Motor Co. is taking legal action against Chinese car-maker Great Wall Motors, claiming it infringed on its two patents.

Honda requests Great Wall to stop selling its SUV model of Haval H6. It is also demanding more than 200 million yuan for what it claims were economic losses it suffered, according to a statement of the Beijing Intellectual Property Court dated on Jan. 31.

Press officers at Great Wall said they were unaware of the lawsuit and declined to comment.

While the suit will take time, a halt in sales of the Haval H6 would decimate the already struggling auto maker.   The H6 has been struggling to maintain its high place among China SUV’s, with its sales representing a major percentage of Great Wall’s total units: 47% in 2017; and 54% in 2016.

Great Wall December 2017

As can be seen, the Haval H6 has been Great Wall’s most popular vehicle, but its sales have been sliding downward despite Great Wall’s increases in promotions.  These promotions have decimated its bottom line – with 2017 annual sales projected of 101 Billion rmb, an increase of 2.8%, from a unit sales drop of .4%, Net Profit plummeted 52%.

Great Wall H6 Monthly Sales Historical

Great Wall Annual 2017

Great Wall’s “profit warning”, with few details, blamed the major drop in net margins on increased promotions and research and development costs.  It does, however, match up with the 9 month interim report where net profit dropped by 59.9% despite a minor sales drop of .6%.

Great Wall 3Q 2017

Great Wall is one of China’s few auto companies to sell only China made and created vehicles.

No H6 Saviors

In SUV’s, which make the bulk of Great Wall’s Sales, the H2 showed promise for the year, with a 9.2% increase but for the month of December was down 48% year on year. Great Wall has touted its new luxury models VV5 and VV7, which have shown sales, but combined with other new models represented only about 15% of the total unit sales for 2017.

Great Wall Other Models

Great Wall Monthly Sales All Units

Room for the Stock to Fall

Great Wall’s stock has failed to match the H.S.C.E.I index performance.  While it has a low p/e of 7, (vs. darling Geely at 38), it has lower to go without a major shakeup. It can’t look to the government. Thus far, the government has shown no intent to stimulate the auto sector, having discontinued the tax discount started in 2016 and halved in 2017.  Passenger sales in China increased only 1.35% in 2017, with a sales tax decline and a booming stock market.  Without outside stimulus, Great Wall will have to look internally.  It’s CEO and founder, Wei Jianjun, has his work cut out for him.  However, the rumors of a tie-up with Fiat Chrysler have been squashed.  This was not surprising given its established and growing relationship with GAC, 2238 hk.

Great Wall Stock

 

 

 

 

 

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Great Wall Hits A Pothole

Great Wall April Units

Data source: HK filing

Great Wall Motors, 2333 hk, disappointed with April sales down 8.1% year on year bringing its year to date sales growth to 4%. Sequentially the picture was much worse, with a decline of 14.3% from March.  As can be seen above, April is typically lighter than March but the drop from 2016 same month sales could be a signal for more pain to come.

 

Great Wall April ytd monthly sequential

Data Source: Hk Filing

Great Wall is not alone in this decline, with the China Passenger Car Association (CPCA) reporting that in April China’s broad-sense passenger vehicles sales were 1.6934 million units, showing 1.7% yearly decrease and 13.7% monthly decline.   A 5% growth for the full year has been projected, despite the rise in tax from 5% to 7.5% on small liter engines. Home grown Geely, however, managed a 94.5% increase in April year on year which translated to a 94.4% year to date increase over 2016 and a minor -.3% drop from March.

Geely April ytd yoy

Additionally, Guangzhou Auto, a China brand produced by GAC AUTO, managed to increase its April units by 55.8% for April, bringing year to date sales up 64.2%.  It even managed a sequential increase of 27.1% thanks to its popular Trumpchi GS4 compact crossover.

Guangzhou April

Data Source: Hk Filing

A major portion of the decline for Great Wall was due to the drop in sales of its aging SUV Haval H6.  While some analysts have said it’s due to competition from the Trumpchi as well as Geely’s Boyue, (although the Boyue only just 21,693 in April, up from 20,461 in March – wasn’t selling in April, 2016); Great Wall’s H6 sales were 36,367.  Great Wall partly made up for the decline in the H6 with the H2’s 36% April increase but it’s still less than half the sales of the H6, even at April’s lower units.Great Wall detail April.PNG Data Source: Hk filing

Great Wall’s descent warranted a downgrade in the stock price by Credit Suisse from hk$ 8.5 to 8.00 and kept at neutral.  The bank noted that the decline came despite major price concessions by Great Wall such as the RMB1 billion “red packet” cash incentive program and RMB 9,000-15,000 per unit discounts on selected models.  Finally, it noted that sales for the first week of May had fallen by 24%.  Thanks to the drop, Credit Suisse expected Great Wall to aggressively discount and therefore revised its earnings down by 2-3% for the year.  As shown here, Great Wall’s first quarter net profit showed a decline of 18% despite a unit increase of 8.9%.

Since Great Wall is heading into the slower sales period in China, it will be some time before there is clarity on its direction or profits.  Caution signals are flashing.

Great Wall Stock.PNG