Tag Archives: SUVS

Great Wall Motors Accelerates Sales But Decelerates Profits

Great Wall Sales Chart

Despite predictions that auto sales in China would be grow around 5% in 2017 thanks to the tax increase from 5% to 7.5% on smaller engine liter cars, homegrown Great Wall Motors, 2333 hk, sold 8.8% more cars in the first quarter than the prior year. Unfortunately, in its battle for sales, its gross margin dropped from 25.3 to 22.1.  This, coupled with an increase in selling and administration expense increases as percent of sales resulted in a net profit decline of 18.3% for the first quarter.   (Without subsidies represented in non-operating income and an apparently lower tax rate, the decline would have been closer to 22%).

Great Wall q1 fs

The decline came despite Great Wall’s success and emphasis in the popular SUV segment.

Great Wall Sales by type q1.PNG

As shown above, SUV’s continue to make up the majority of Great Wall’s sales and grew 15.2% in the first quarter.  It’s most popular model, the Haval 6, however, is showing its age and actually declined in the first quarter.  While the year to date decline is small, the month of March 2017 is the first monthly year on year decline in sales of the Haval H6 since 2015. March is generally a more stable month than January or February since year on year comparisons are skewed by the differing time of the Chinese New Year. It is also, therefore, a more critical month to predict future performance.

Great Wall Haval6 q1 2017

As shown in the earlier chart, the new Haval H2 which has been characterized as a sub-compact SUV, has picked up some of the Haval H6’s slack but its March sales are still just a little over half of the H6.  The quarterly release neglected to provide any data on gross margins per vehicle although it could be assumed that the smaller H2 has a lower gross margin than the H6.  The H6 has been refreshed for 2017 and featured at the Shanghai Motor Show but hasn’t yet hit dealers.  Since buyers were aware of the new model, this could have negatively impacted sales year to date and also forced the company to reduce prices to make room for the new model.

Exports, while showing an increase both monthly and year to date, are still a tiny portion of Great Walls sales.  Reviews from car sites in Australia and New Zealand have been lukewarm with an emphasis on low price for lots of options.

Great Wall Stock April 27

Great Wall’s stock, particularly given its year to date performance, should be under pressure due to its declining profits.


Geely Stock Hits the Brakes on 1st Half Earnings

geely first half

Despite a first half where sales prices and units drove upwards,  Geely 175, HK, halted its continued rise. It lost steam after far surpassing the Hang Seng year to date and on a 12-month basis.


Geely Stock up

Here are a few of the reasons for the rise.

First half gross revenue up 31% on sales volume increase of 11%.

First half sales volume increased by 41% in June over 2015; ytd. up 11.2% over 2015.

First half ex-factory average sales price up 17% year on year.

First half net profits up 34.8% on higher volume, better pricing mix, stable gross margins and lower operating costs as a percent of revenue.

So why the drop?  One analyst at Gutai securities blamed it on the overall auto market in China falling faster than projected in the last half.

Geely’s warning – to investors and regulators:

Despite the improved performance by the indigenous brands in China recently, the implementation of more stringent regulatory requirements in fuel efficiency, product warranty, product recall and emissions standards in China could put tremendous cost pressure on motor vehicle manufacturers in China. The impact could be even bigger for China’s indigenous brands given their relatively weak pricing power, and thus their difficulties to pass on the additional costs to their customers.

Further, the planned expiration of sales and purchase tax reduction policy by the end of 2016 could potentially shift some demand forwards from early 2017 to 2016, thus affecting demand for small and mid-size vehicles in early part of 2017.

Road Bumps

Export Declines

Exports remain challenging.  As I reported back in May,  hometown Geely and Great Wall have struggled with declining exports.  This has continued into July of 2016 and with political and economic turmoil in its targets in the Mid-East, South America and Africa is expected to continue throughout 2016.

Geely Greatwall Exports From HK filings 

Fortunately for Geely, year to date unit exports were 12,871 or only 4.5% of the total sold. This is not great for Geely’s international plans but does show what a minimal effect it has on current and projected sales.  (In 2015  Geely exported 24,342 units or about 9.6% of units sold).

Electric Vehicle Fraud and Subsidy Pains

After an initial surge toward electric vehicles, China has been coming to grips with subsidy fraud and lagging infrastructure support.  Geely admitted to a change in subsidy stance as a reason for selling two electric car related jv’s: Kandi and Ninghai Zhidou, which had combined 1st quarter losses of 137.5 million rmb.  A proposed agreement to a 3rd, independent party fell through with the company now proposing a sale of its interests to its parent, Geely Holding.  The breakdown is as follows:

Geely jv

The circular for the proposal had been delayed so is still not resolved.  Although losses are of concern, jv income has been a tiny proportion of net income.

SUV Reliance As Sedans Slip

As mentioned above, Geely has been helped by increased sale prices which has been due in part by SUV’S.  Geely has continued to move toward greater emphasis on SUV’S, while its sedans sales continue to slide.  Geely Monthly Type

Geely appears to have had success with this move.  It introduced 2 new vehicles in the first half, a new SUV crossover, the Emgrand GS and the Boyue SUV which replaced the NL3. The Boyue sold 10,128 in July, its first month while the Emgrand GS has sold 14,128 since its introduction – beating company expectations.  For the second half, a new compact SUV, the Vision will be launched as well as a Emgrand GL sedan and an Emgrand sedan hybrid. All of these cars have at least one version that would be under the 1.6 liter engine maximum to qualify for the 50% tax reduction effective in China until the end of December.

Great Expectations for the Last Stretch

While June was good, July was even better in terms of unit sales.  Geely reported that July sales were up over 64% from 2015 and up 16.75% year to date from 2015.  With Geely raising its annual projections from 600,000 to 660,000 units, it appears to be expecting this run to continue.  This will mean a shift of its sales at year end from 2015.

Geely august through dec.PNG

Geely’s sales definitely have been picking up steam.  If they continue as the company projected, they will be on track for the projected unit increase of 29%.  Momentum and the looming tax incentive deadline could push them there. Geely beat 1st half forecasts easily with eps up 36% vs. 18.9% and 30% vs. 23% projected on revenues.

geely first half forec

Forecasts from the Financial Times

Annual Projections

Currently, projections are for a bit over 46% increase in annual revenues and eps.  If this is an achievable target, it would leave room for the stock to climb with its moderate p/e even after its dramatic climb over the last 12 months.

Geely annual

Forecast from the Financial Times

China July Auto Sales Up, BAIC Skids Downhill From June to July

July Car 1

The China Passenger Car Association reported that July year on year sales increased by 23%. Ytd increases were 11% over 2015. Three Hong Kong car stocks with a combined market cap of 205 Billion hkd, (23 Billion usd equivalent), beat that rise. Geely 175 hk, Great Wall 2333 hk, and BAIC  1958 hk, all reported year on year monthly and year to date sales increases. Geely and Great Wall managed to drive up over 4% from June, but BAIC dove 27%.

3 car stock july changes

BAIC sells its own brand, Beijing Benz, but relies on Hyundai and Mercedes Benz for the bulk of its sales and profits.

BAIC July Sales Type

The drop was striking and defied continued increases by home-grown competitors Geely and Great Wall.

great wall july monthly

geely july monthly

baic july monthly %

Much has been made over the Chinese voracious appetite for SUV’S.  Geely and Great Wall are polar opposites in their reliance on SUV’S, with Great Wall relying heavily on SUV’S, particularly its Haval H6, which is considered a close clone of the 4th generation Honda CRV.  Other types have had little growth, including  the Wingle pickup, with pickups banned  in major cities although some restrictions are easing along with a hope for more acceptance. BAIC only breaks down the sales by type for its own brand, with SUV’s ramping up to 50% of 2016 unit sales from only 7% in 2015.

Geely Monthly Type

great wall july types 2

Based on 2015 unit sales for Geely and Great Wall, there do appear to be seasonal sales variances with the highest sales occurring in the last quarter.  (BAIC was excluded since it didn’t provide monthly sales data for the full year of 2015).

great wall geely seasonal

China sales growth is critical for these companies, with Geely and Great Wall exports shriveling, (BAIC doesn’t report any exports).

Geely Greatwall Exports

Note: All charts and data were prepared from HK Filings with the exception of the stock data, which was from Bloomberg.  March was primarily used as the starting point since January and February are extremely variable due to Chinese New Year.

Despite the year on year overall increases, the stocks in Hong Kong are showing  a moderate trailing p/e ratio; with Geely outperforming the Hang Seng on a year to date and 12 month return basis.  Geely has recently completed the acquisition of two subsidiaries, Shanxi & Baoji, with combined capacity of 300,000 vehicles, construction completion expected in 3Q 2016.

3 car stocks

None of these companies provide sales dollars in their monthly updates.  Interim results have not yet been presented.  BAIC’s Q1 showed an increase in revenue of 30% but a drop in net profit of 25% due to lower JV numbers with Hyundai and increasing operating losses for its own brand.  The increase in profit was mainly due to Beijing Benz, which is owned 49% by Daimler.  Greatwall’s Q1 showed an 8% increase in revenues but a 4.5% decrease in profit, thanks to a lower gm and operating margin. Geely doesn’t provide quarterly statements.

Great Wall Q1




Geely July Sales up 64% over 2015

geely cars

Geely Auto, 175 HK, maintained its momentum in July thanks partly to the acceptance of its new Emgrand GS crossover SUV and the recently introduced Boyue SUV.



*HK filings – January and February based on an average for both months since company presented combined sales, due to the skewed impact of the Chinese New Year.

Although monthly increases have been gradual, the year on year changes: 16.75%  year to date and 64.05% monthly year on year, show just how bad 2015 was.


Geely even managed to turn around dismal export numbers, at least compared to June.

Geely Exports July

Geely’s stock more than reflects this increase, with a 12 month return of 73%, far outpacing the Hang Seng.


Whether the first half earnings will show a major increase in profit, however, remains to be seen with stiff competition and big players like Ford, which sold 577,097 autos in China in the first half compared to Geely’s 280,337, representing an increase of 6%, projecting negative pricing for the full year 2016 for itself and the industry in China to be 6%.  (Ford, F, sells in the Chinese market mainly through Changan-Ford and Jiangling Ford). Based on history, Geely should report around August 19, 2016.  Tighten your seat belts.