After the end of the three-year loss, Changan Automobile deducted non-net profit to turn positive, and the electric vehicle will double tenfold in three years?

Text | Hong Hanqi

Edit | Mao Shiyang

On April 28, Changan Automobile issued its 2021 annual report. According to the financial report data, after the end of the negative state of deducting non-net profit in the previous few years, Changan Automobile finally returned to the "right track" of main business profitability, and achieved total revenue exceeded the level of 100 billion yuan for the first time.

Affected by this, Changan Automobile's stock price rose by 9.98% on April 29, closing at 10.47 yuan per share, the largest single-day increase in the past six months.

But even so, since the beginning of this year, Changan Automobile has significantly accelerated the process of the company's new energy field. In mid-April, the new energy brand "Deep Blue" was released, and multiple sets of technical routes such as pure electric, range extender hybrid, and hydrogen fuel cells were laid out at the same time.

According to the plan, Changan Automobile plans to achieve sales of 1.05 million new energy vehicles by 2025. But the reality is that Changan Automobile's new energy sales in 2021 total about 100,000 vehicles, which is not prominent among car companies. To achieve the goal, Changan needs to achieve a ten-fold increase in sales of new energy vehicles in four years, which is a huge challenge.

To achieve this goal, more funds are obviously needed for R&D and market investment. Deduct non-net profit has just turned positive Changan, can you eat it?

Deduction of non-net profit turned positive after three years

According to the annual report, Changan Automobile achieved operating income of 105.142 billion yuan in 2021, an increase of 24.33% year-on-year, and the company's total revenue reached more than 100 billion yuan for the first time.

In terms of profit, Changan Automobile's net profit attributable to the mother during the reporting period was 3.552 billion yuan, compared with 3.324 billion yuan in 2020, a slight increase of 6.87%.

"Finance and Economics" weekly flipped through the data and found that Changan Automobile's non-recurring profit and loss in 2020 contributed to the company's net profit attributable to the mother of 6.574 billion yuan, directly driving the company's profitability to turn losses into profits. This income mainly comes from government-related subsidies and investment income.

In contrast, after deducting the income of 2.08 billion yuan brought by non-current assets and government subsidies, Changan Automobile's non-net profit in 2021 reached 1.653 billion yuan. This is also changan automobile after three years of silence, once again to achieve a non-net profit reversal. Previously, from 2018 to 2020, the financial indicators were losses of 3.165 billion yuan, 4.762 billion yuan and losses of 3.250 billion yuan, respectively, and the total loss of non-net profit in the three years was 11.18 billion yuan.

Changan Automobile believes that the double growth of revenue and net profit attributable to the mother is mainly due to the increase in the sales scale of the company's own segment, that is, the passenger car brand of Changan Automobile, the Auchan brand, and the profitability of the joint venture business.

Official data show that in 2021, Changan Automobile achieved vehicle sales of 2.301 million units, an increase of 14.8% year-on-year, and the market share increased by 0.8 percentage points year-on-year, returning to the fourth place of the automobile group. Among them, the sales volume of Changan's own brands accounted for nearly 80%, reaching 1.755 million units, an increase of 16.7% year-on-year.

Changan Ford, once known as the "cow of profit", seems to have regained its rhythm in the past year. In fact, with the help of Changan Ford, Changan Automobile's non-net profit was close to the level of 10 billion yuan: in 2015 and 2016, Changan Automobile's financial indicators reached 9.560 billion yuan and 9.449 billion yuan, respectively. It was also in 2016 that Changan Ford's sales reached its peak, with annual sales of nearly 950,000 vehicles.

However, since then, with the sales of Changan Ford in the domestic market, Changan Automobile's profit performance has also taken a sharp turn.

The localization of the Lincoln brand has become one of the life-saving straws. Changan Ford's sales increased 20.9% y/y to 305,000 units in the past year. Among them, the Lincoln brand sold 89,000 vehicles in the whole year, doubling sales.

Although the sales scale is still far from the peak, the addition of luxury models with higher bicycle revenue has allowed Changan Ford to achieve a significant increase in profitability in 2021. According to the annual report, Changan Ford's net profit in 2021 reached 2.283 billion yuan, which directly promoted the expansion of the profit scale of Changan Automobile's main business. In 2020, the value is only about 15.75 million yuan.

In this regard, Changan Automobile explained that Changan Ford achieved a significant increase in profitability, mainly due to the improvement of product structure, sales growth, and material cost reduction.

In terms of gross profit margin, Changan Automobile also improved, with the gross profit margin of the automobile business in 2021 being 16.64%, up 1.9 percentage points year-on-year. Compared with the two outer two parent city automobiles and Geely Automobile in the top three independent companies, the gross profit performance was almost the same, and the values of the latter two were 16.16% and 17.14% respectively.

With the help of its own and joint venture business, Changan Automobile's net cash flow from operating activities in 2021 increased significantly compared with the previous year, with an increase of about 115% year-on-year to 22.971 billion yuan.

"Burning money" accelerates new energy

Changan Automobile's profitability is back on track, but there are more places to spend money, such as speeding up the process of new energy.

According to the plan, Changan Automobile plans to achieve total sales of 4 million vehicles by 2025. Among them, Changan's own brand is 3 million vehicles, including 1.05 million new energy sales, accounting for 35%. By 2030, Changan Automobile will sell 5.5 million vehicles, of which 4.5 million are Changan's own brands, including 2.7 million new energy sales, accounting for 60%.

Great Wall Motor is one of the earliest domestic automotive companies to upgrade new energy to the strategic level. As early as 2017, Changan Automobile launched the "Shangri-La Plan", planning to invest 100 billion yuan in the layout of new energy fields.

In 2018, Changan Automobile split the new energy vehicle business, and Changan New Energy carried out the mixed ownership reform as an independent company, which was the first case among the state-owned automobile groups at that time.

In the past year, Changan Automobile has successively launched the new energy vehicle brand Avita and Deep Blue, the former joining hands with Huawei and the power battery head supplier Ningde Times to focus on the high-end new energy vehicle market, and the latter relying on Changan New Energy, with the main price range locked in the mid-end market of 150,000 yuan to 300,000 yuan.

Despite the continuous big moves, the reality is that until 2021, Changan Automobile's annual sales of new energy vehicles will exceed 100,000. According to the statistics of the Association of Passenger Vehicles, the cumulative sales of Changan New Energy passenger vehicles in the past year were only 76,500 units, ranking 12th in the ranking of OEMs.

In contrast, Great Wall Motor's new energy vehicle brand Euler achieved annual sales of 135,000 units in the past year. The top three new car-making forces, Weilai, Ideal and Xiaopeng, will have cumulative sales of nearly 100,000 vehicles in 2021.

This also means that Changan Automobile needs to achieve a new energy vehicle business sales span from 100,000 to 1 million in four years.

In the new energy vehicle business, Changan is also facing the dilemma of a single product structure. According to the data of the Association, in 2021, Changan Benben E-Star, which is positioned as a micro-electric vehicle, is the absolute main force, with annual sales reaching 76,400 vehicles, accounting for almost 100%.

Relying on micro-electric vehicles means that the profit margin of related business segments is relatively limited and more susceptible to fluctuations in subsidy policies. According to the annual report, in 2021, Changan Automobile's sales revenue of new energy vehicles was 1.236 billion yuan, but in terms of profits, Chongqing Changan New Energy lost 2.772 billion yuan in 2021, compared with the loss of 1.16 billion yuan in the previous year, and the loss was further expanded.

In this regard, Changan Automobile explained that Changan New Energy continued to lose money, mainly affected by the decline of subsidies for new energy vehicles and the increase in sales resource investment.

In fact, in order to boost the profitability of the new energy vehicle business, Changan has begun to adjust the product structure, move the knife for the hot-selling "oil to electricity" models, and pave the way for new energy with platform technology.

On April 24, Changan Automobile said through the official platform that it will suspend the collection of orders for the E-Star National Edition model from 00:00 on April 25, retaining only two other configurations with relatively higher prices.

According to the annual report, Changan Automobile will promote electrification and platform construction for all series of products. For example, Changan New Energy will rely on the EPA architecture to create entry-level and mid-range products. Avita's CHN platform is jointly built by Changan, Huawei and CATL.

In the eyes of industry insiders, platform building means greater capital investment. In fact, in the period of technological change in the automobile industry, increasing R&D investment has become the consensus of the industry.

According to the annual report, in 2021, Changan Automobile's R&D investment was 4.827 billion yuan, an increase of 24.51% year-on-year, accounting for 4.59% of operating income. The above R&D investment is mainly used for the development of PASSENGER CARS such as PLUS and UNI, the development of a new generation of plug-in hybrid models, the development of new intelligent electric vehicles, and the development of a new generation of pure electric intelligent vehicle platforms.

Such a level of research and development is also consistent with the head car companies of independent brands. According to the financial report, Geely Automobile's total R&D investment in 2021 was about 5.5 billion yuan, an increase of 48% year-on-year, and the proportion of R&D expenditure to revenue rose to 5.4%. Great Wall Motor's R&D expenses in 2021 also increased by 46.36% year-on-year to 4.489 billion yuan.

In order to promote the process of intelligent new energy, according to Changan Automobile, increasing investment in building technical strength will be the focus of the company's next development. According to the financial report, by 2025, Changan Automobile will invest 80 billion yuan for the layout of new energy, intelligence, scientific and technological innovation and other fields.

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