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.
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’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 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.
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.