Great Wall Motors: Frustrated new energy track

Under the impact of new energy, the traditional models represented by haval H6 are shrinking, while the new "fist" products that Great Wall Motors can replace Haval H6 have not yet taken shape.

Reporter Wang Dongyue/Wen

On April 11, Great Wall Motor (601633. SH) released the "March 2022 Production and Sales Express", the company sold 100,900 automobile products in March, down 8.86% year-on-year; from January to March, the company sold 283,500 vehicles, down 16.32% year-on-year. At the beginning of 2022, Great Wall Motor's sales fell three times in a row.

From January to March, Great Wall Motor's Haval brand sold a total of 166,800 vehicles, down 55,900 units from the same period last year, down 25.13% year-on-year. Among them, in February and March, the Haval H6, which has been the champion of SUV sales for many years, missed the crown for two consecutive months.

Since the independence of the Haval brand in 2013, with its focus on the SUV field, Great Wall Motors has fully enjoyed the growth dividends brought about by the outbreak of SUV market demand, and the company's operating results have improved by leaps and bounds, and it has become the top three domestic sequences in one fell swoop. However, since 2018, the growth rate of SUV penetration has slowed down, and Great Wall Motor's "big single product" business strategy has suffered from "singleness", and the company's SUV products with Haval H6 as the core have fallen into a growth bottleneck, and the performance growth rate has declined.

In contrast to the "wandering" of traditional cars, in recent years, the development of new energy electric vehicles is in full swing. In 2021, the cumulative sales of domestic new energy vehicles were 3.521 million units, an increase of 160% year-on-year; from January to March 2022, domestic new energy vehicle sales were 1.07 million units, an increase of 146.6% year-on-year, another record high.

In 2020, the 30th anniversary of the establishment of Great Wall Motors, Chairman Wei Jianjun used the "life hanging on the line" to speculate on the past and future of the company, reflecting on whether Great Wall Motors can "survive" the next year. Today, the decline in sales of traditional products has arrived as scheduled, and the battle to break the game of Great Wall Motors is just around the corner.

Haval H6 under the "altar"

According to the production and sales express, in March, Great Wall Motor sold a total of 100,900 vehicles of various types of automobile products, down 8.86% year-on-year; from January to March, the company sold a total of 283,500 automobile products, a decrease of 55,300 units from the same period last year, a year-on-year decline of 16.32%.

According to the brand division, the Haval brand still occupies half of the sales scale of Great Wall Motors. In March, the Haval brand sold a total of 54,500 vehicles, accounting for 54.03%; from January to March, the Haval brand sold a total of 166,800 vehicles, accounting for 58.82%.

Compared with the same period last year, from January to March 2022, the cumulative sales of the Haval brand decreased by 55,900 units year-on-year, down 25.13% year-on-year. Among them, the company's "fist product" Haval H6 has accumulated sales of 71,400 units, down 39,700 units from the previous year, down 35.7% year-on-year.

Since the first Haval H6 rolled off the production line in Tianjin in 2011, the legendary experience of the "National God Car" has begun. The explosive growth of the "big single product" Haval H6 and domestic SUV market demand has promoted the sales of Great Wall Motors' products to rise steadily, and the operating performance has reached a new high. In the five years before the listing, Great Wall Motor's operating income increased by an average annual rate of 26.8%, and the net profit attributable to the mother increased by an average annual rate of 25.23%, laying the market position of one of the company's top three independent companies in one fell swoop.

Since 2017, with the competition of various car companies and the continuous improvement of SUV penetration in the automobile sales market, the competitive situation in the SUV industry has become increasingly severe, and the competitive advantage established by Great Wall Motors in the SUV market has been gradually "leveled". In 2018, Baojun 510 ended the 58-month "myth" of Haval H6's 58-month sales crown, and the company's net profit attributable to the shareholders of the parent company after deducting non-deductions (hereinafter referred to as "net profit attributable to the parent after deduction") fell to 3.889 billion yuan, setting a record for the lowest performance of the company after listing.

Since then, the Haval H6 has suffered more and more frequent competitive impacts. In February 2021, the Changan CS75 won the title of "Pin Champion" from the Haval H6 with a advantage of 1300 vehicles; in April and September of the same year, the Honda CR-V and Tesla Model Y also snatched the "championship trophy" of the Haval H6.

In 2022, the Haval H6 under the background of new energy vehicles is even more difficult. According to the data of the Association, in February 2022, the Haval H6 achieved sales of 18,800 units, down 39.5% year-on-year, and the sales ranking fell to the third place; in March, haval H6 sold 19,300 units, down 43.7% year-on-year, falling out of the top three SUV list.

New energy growth rate "left behind"

According to the data of the Association, from January to March 2022, the top two domestic SUV sales were all covered by new energy electric vehicles. Among them, Tesla Model Y jumped to the first place with 74,700 vehicle sales, an increase of 354.8% year-on-year; BYD Song's cumulative sales of 73,700 vehicles, ranking second, an increase of 127.4% year-on-year.

Driven by the new strategy of energy security and the goal of "double carbon", in recent years, the transformation of China's automobile industry has pressed the acceleration button, and the sales of new energy vehicles have accelerated against the trend.

In March, Wholesale Sales of New Energy Passenger Vehicles in China reached 455,000 units, up 122.4% year-on-year, while retail sales of new energy passenger vehicles reached 445,000 units, up 137.6% year-on-year. From January to March, The wholesale sales of new energy passenger vehicles in China totaled 1.19 million units, an increase of 145.4% year-on-year, and the domestic retail sales of new energy passenger vehicles totaled 1.07 million units, an increase of 146.6% year-on-year. The number of new energy vehicle companies with wholesale sales exceeding 10,000 units reached 13, an increase of 2 over the same period last year.

Compared with the overall growth rate of the industry, in 2022, the growth rate of Great Wall Motor's new energy vehicle business is slightly "weak". According to the data, in March, Great Wall Motor sold a total of 15,100 new energy vehicles, an increase of 15.27% year-on-year. From January to March, the company sold a total of 35,400 new energy vehicles, an increase of 15.31% year-on-year. Despite maintaining double-digit sales growth, the company's performance growth rate lagged far behind the industry average.

Affected by this, from January to March 2022, Great Wall Motor's sales ranking among new energy vehicle manufacturers dropped from fourth in 2021 to eighth. In the same period, Chery Automobile, GAC E-An, Geely Automobile and Xiaopeng Automobile have accelerated their "overtaking".

Different from the mainstream new energy vehicle companies in the price waist competition, Great Wall Motors chose a differentiated competitive strategy at the beginning of entering the new energy track. In August 2018, Great Wall Motors officially launched the Euler brand, positioning itself as "a car that loves women more". At the same time, the company maintains the consistent "cost-effective" attribute, launched two models of Euler IQ and Euler R1, focusing on "female representative cars" within 100,000 yuan.

In 2020, Great Wall Motors renamed Euler R1 to Euler Black Cat, and launched Euler White Cat to build an Euler cat product matrix.

According to the statistics of the Association, in 2021, the cumulative sales of Euler black cats will be 63,492 vehicles, an increase of 35.7% year-on-year; the cumulative sales of Euler white cats will be 20,605 vehicles. The above two models sold a total of 84,100 units, accounting for 61.39% of the company's total annual sales of new energy vehicles.

In 2022, the business strategies of Euler black cats and white cats have suffered a huge impact. On the one hand, the price of lithium battery raw materials represented by lithium carbonate has risen wildly, resulting in a rapid rise in the manufacturing cost of power batteries; on the other hand, the new version of the subsidy policy implemented in 2022 further compresses the profit margins of Euler black cats and white cats.

According to the annual report, in 2021, Great Wall Motor achieved operating income of 136.405 billion yuan, an increase of 32.04% year-on-year; net profit attributable to the mother was 6.726 billion yuan, an increase of 25.43% year-on-year. During the reporting period, the amount of non-recurring profit and loss recognized by the Company was 2.523 billion yuan, an increase of 997 million yuan or 65.33% over the previous year. After deducting non-recurring gains and losses, the company's net profit attributable to the mother after deducting non-recurring gains and losses was 4.203 billion yuan, an increase of only 9.55% year-on-year.

Among the non-recurring gains and losses, great wall motors received government subsidies of about 2.196 billion yuan, an increase of 929 million yuan over the previous year. The amount of subsidies for new energy vehicles received by the company was 1.627 billion yuan, an increase of 722 million yuan over the previous year.

According to the latest subsidy policy, in 2022, pure electric passenger car mileage below 300 kilometers will be issued without subsidies, and the subsidy for pure electric passenger cars with a cruising range of 300-400 kilometers (including 300 kilometers) will be reduced to 9100 yuan, and the subsidy will be reduced by 3900 yuan; the subsidy for pure electric passenger cars above 400 kilometers (including 400 kilometers) will be reduced to 12,600 yuan, and the subsidy will be reduced by 5400 yuan.

According to public information, the minimum endurance of the Euler black cat and the white cat are 301km and 305km, respectively, and the endurance of the long-endurance version is 401km and 405km, respectively. Based on the sales scale of more than 80,000 euler white cats and black cats, the slope reduction policy will at least affect the subsidy income of Euler black cats and white cats of nearly 300 million yuan.

In February 2022, Euler brand CEO Dong Yudong issued a statement in the ORA APP, saying that due to the rising factors of raw material prices, the company's Euler black cat lost more than 10,000 yuan per unit, and from February 14, Euler black cat and white cat will stop receiving orders.

Specifically, from January to March 2022, euler black cats sold a total of 12,700 vehicles, a decrease of 6,495 units or 33.9% from the same period last year.

High-end "test"

In June 2021, Chairman Wei Jianjun said at the "2025 Strategy" conference of Great Wall Motors that by 2025, Great Wall Motors will achieve the goal of annual sales of 4 million vehicles, of which new energy accounts for 80%, the total revenue exceeds 600 billion yuan, and the company will fully turn to new energy.

According to Great Wall Motor's plan, the company will strive to achieve sales targets of 1.49 million, 1.9 million and 2.8 million units from 2021 to 2023.

In terms of sales share, in 2021, Great Wall Motor's new energy vehicle sales were 137,000 units, accounting for about 10.69% of the company's overall sales; in 2022, from January to March, the company sold 35,400 new energy vehicles, accounting for 12.49%. The proportion of Great Wall Motor's new energy product structure continues to increase, but the proportion is still relatively low.

From the trend point of view, high-end is still the core strategic goal of Great Wall Motors. According to the data of the Association, from January to March 2022, the euler brand of Euler good cats sold a total of 18,700 vehicles, an increase of 227.1% year-on-year. Compared with the cessation of orders from Euler black cats and white cats, tilting resources to Euler good cats with higher positioning is a "figurative" of Great Wall Motors in high-end operation.

According to the product plan previously disclosed by Great Wall Motors, in 2022, the company plans to launch a number of new members of the cat family such as Euler Ballet Cat, Lightning Cat and Punk Cat. Among them, ballet cats are expected to be priced at 150,000-200,000 yuan, and the product pricing of lightning cats and punk cats may exceed 200,000 yuan, and the product positioning is obviously upward.

In fact, since the release of the high-end brand WEY in 2016, Great Wall Motors has not given up its attempts to transform high-end. However, since its inception, WEY's business results have not been satisfactory.

At the end of 2016, Great Wall Motor launched a new high-end brand "WEY" with a price range of 150,000 yuan to 200,000 yuan, Chinese name "Weipai". In 2018, the WEY series achieved cumulative sales of 139,500 units, breaking the average monthly sales mark of 10,000 vehicles. After a brief period of rise, sales of WEY series products began to decline.

Statistics show that in 2019 and 2020, the WEY series achieved sales of 100,000 units and 78,500 units, respectively, down 28.28% and 21.53% year-on-year.

In May 2021, WEY made its brand debut with a new flagship mocha. According to reports, WEY Mocha is the first model built by Great Wall Motors based on the "coffee intelligence" platform, carrying Weipai's leading technical strength in the field of "intelligence". Unfortunately, in the three months before the listing, wey Mocha's monthly sales were 2006 units, 3018 units, and 4506 units, respectively, failing to shoulder the heavy responsibility of "redeeming" WEY.

In September and December 2021, Great Wall Motors successively launched the first model equipped with the company's lemon hybrid DHT technology, WEY Macchiato and WEY latte DHT, marking another strategic adjustment of WEY, from traditional fuel technology to hybrid technology.

Judging from the annual data, Macchiato and Mocha equipped with lemon DHT have not aroused consumer confidence in WEY. In 2021, the WEY series sold a total of 58,400 vehicles, down 20,100 units from 2020 and down 25.65% year-on-year.

Research and development of "double-edged sword"

According to Great Wall Motor's "2025 Strategy", in the next five years (2021 to 2025), the company will invest about 100 billion yuan in research and development.

Statistics show that from 2016 to 2020, great wall motor's R & D investment totaled about 20 billion yuan. Compared with the above data, the planned R&D investment of the company's "2025 strategy" is five times that of the company's R&D investment in the previous five years.

With years of R&D investment, as of December 31, 2021, Great Wall Motors has obtained a total of 10,410 authorized patents, including 1,823 authorized invention patents, 5,644 authorized utility model patents, and 2,943 authorized design patents, an increase of 321, 1,170 and 704 respectively over the previous year, an increase of 21.37%, 26.15% and 31.44%.

It should be pointed out that since 2018, Great Wall Motors has for the first time adopted R&D investment capitalization to adjust the company's R&D investment. In 2018, Great Wall Motor's R&D investment was 3.959 billion yuan, of which 2.216 billion yuan was capitalized, accounting for 55.96%. Previously, Great Wall Motors adopted a fee-based treatment for all R&D investment. Affected by capitalization, in 2018, Great Wall Motor's R&D expenses decreased by 1.622 billion yuan, a year-on-year decrease of 48.2%.

In 2019 and 2020, Great Wall Motor's R&D investment was 4.248 billion yuan and 5.15 billion yuan, respectively, and the company's current capitalization amount was 2.075 billion yuan and 2.875 billion yuan, accounting for 48.85% and 55.82%.

In 2021, Great Wall Motor's R&D investment totaled 9.07 billion yuan, an increase of 3.917 billion yuan over the previous year, an increase of 76.06% year-on-year. Among them, the company's capitalized R&D investment was 5.798 billion yuan, an increase of 2.923 billion yuan over the previous year, an increase of 101.67%; the company's capitalized R&D investment accounted for 63.95% of the total R&D investment, an increase of 8.13 percentage points over the previous year. In recent years, the proportion of R&D capitalization of Great Wall Motors has continued to increase.

Since the capitalized R&D investment needs to be amortized after being converted into intangible assets, since 2019, the gap between the amount of R&D expenses confirmed by Great Wall Motors and the amount of R&D investment expenses has widened year by year.

According to the annual report, in 2019, the amount of R&D expenses confirmed by Great Wall Motors was 2.716 billion yuan, and the amount of R&D investment expenses of the company in the same period was 2.173 billion yuan, and there was a gap of 543 million yuan between the two. In 2020, Great Wall Motor confirmed R&D expenses of 3.067 billion yuan, and the amount of R&D investment expenses of the company was 2.275 billion yuan, with a difference of 792 million yuan.

In 2021, Great Wall Motor confirmed R&D expenses of 4.49 billion yuan, and the company's R&D investment in the current period was 3.269 billion yuan, and the difference increased to 1.221 billion yuan.

The problem arising from this is that due to the company's post-amortization of capitalized R&D investment, the growth rate of Great Wall Motor's R&D expenses has begun to exceed the revenue growth rate of the same period.

For example, in 2020, Great Wall Motor confirmed R&D expenses of 3.067 billion yuan, an increase of 12.92% year-on-year, exceeding the revenue growth rate of 5.54 percentage points in the same period. In 2021, Great Wall Motor's confirmed R&D expenses were 4.49 billion yuan, an increase of 46.36% year-on-year, exceeding the company's operating income growth rate of 14.32 percentage points in the same period.

Affected by the above factors, in the second half of 2021, Great Wall Motor achieved a total operating income of 74.476 billion yuan, an increase of 10.53% year-on-year, and in the same period, the company's net profit attributable to the mother fell by 24.17% year-on-year.

According to statistics, in 2020 and 2021, the amount of Great Wall Motor's transfer from development expenditure to intangible assets was about 61.22% and 64.08% of the company's opening amount, respectively. As of the end of 2021, the ending balance of the company's development expenditure was 7.145 billion yuan, an increase of 91.89% year-on-year.

According to the company's conversion ratio in recent years, in 2022, the company's new amortization expenses will reach 2.144 billion yuan (60% of the opening balance of development expenditure will be transferred to intangible assets, and amortized according to the proportion of 50% of new intangible assets). At the same time, taking into account the company's annual fixed R&D expense growth, the amount of R&D expenses of Great Wall Motors in 2022 may exceed 6 billion yuan (the cost-based growth rate will remain 20%).

In response to the issues involved in the article, the reporter of securities market weekly has sent an interview letter to Great Wall Motors, and has not received a reply from the company as of press time.