Let's take a brief look at the overall performance of Great Wall Motors this year from three aspects.
On the first day, whether it is the result of active or passive, the Great Wall not only lost the right to speak in the industry, but also lost a lot of popular popularity, and even directly contributed to a part of the powder turned black.
In terms of sales, its cumulative sales in the first 11 months of this year were 11180,000 units, an increase of nearly 13%. On the one hand, it shows that real car buyers and the overall consumer market are still very rational, and on the other hand, it also highlights the product power and vitality of Great Wall Motors.
In the capital markets, the year's poor performance did not affect the trend of Great Wall, and it still has a dynamic PE valuation of 34x. Compared with a number of OEMs, the Great Wall is the one favored by the market, and everyone seems to be optimistic that the Great Wall will be able to achieve growth beyond the industry in the future.
The results achieved by Great Wall in ** and sales are easy to understand, as long as you bring in the perspective of empathy, after all, a person's bad temper and good craftsmanship are two different things.
However, why the capital market can look so highly and tolerate the Great Wall needs to be put under a question mark
This article will follow the Great Wall's "new energy" and "going overseas" strategy to further demonstrate the above issues by following its current business fundamentals and future development trends. 01—"New energy" does not have the advantage of being a latecomer
At present, the fundamentals of Great Wall's business are:
In terms of scale, in the eight years since 2016, Great Wall's annual sales have basically remained around 1.1 million units, and its sales manufacturers have ranked 8th all year round
In terms of the average price of cars, from 2016 to 2020, ** basically remained at 920,000 yuan, from 2021 to 2023Q3, quickly increased to 1380,000 yuan;
In terms of financial structure, since 2017, its gross profit margin has basically been between 17% and 19%, and its net profit margin has been between 3% and 6%.
The reason for the long-term "stagnation" of Great Wall's sales is that, first, Great Wall adheres to the category focus strategy, second, Great Wall attaches great importance to the immediate commercial benefits of products, third, its capacity utilization rate has remained around 90% for a long time before 2021, and fourth, China's auto market and SUV market segments have already entered the stock stage.
However, since 2021, Great Wall has begun to acquire some domestic automakers and expand production capacity (which is related to its annual sales target of 2.8 million units set at that time), and its production capacity has exceeded 1.5 million units in 2022, the capacity utilization rate has dropped to 71% that year, and Great Wall's long-term planned production capacity is about 2.6 million.
This means that if Great Wall is not able to achieve a breakthrough in sales directly, and only relies on a structured way to increase the average price of cars, it will be difficult to completely reverse its financial structure.
At present, the actual situation is that in addition to the fact that Great Wall still occupies an absolute dominant advantage in the pickup truck market (the market share has been maintained at around 50% for a long time), its position as an SUV leader has been significantly weakened, and the dominant identity of the hard-core off-road market is also facing domestic participants including BYD, Chery, BAIC, Dongfeng and other domestic participants and the future domestic Toyota ** domineering, How to stabilize its first-mover advantage and stock scale is one of the core assessment performance of the market for Great Wall in the short and medium term.
In this competitive situation, on the one hand, Great Wall needs to increase its investment in R&D in order to ensure the competitiveness of its products, but on the other hand, in order to maintain the stability of its financial structure, it has capitalized part of its R&D expenditure.
Since 2018, Great Wall's intangible assets and R&D expenditures have increased significantly to 8.2 billion yuan and 12 billion yuan in 2022, while the capitalization rate of its R&D expenditures has increased from 6% in 2018 to 48% in 2022, and nearly half of its R&D expenditures have been classified as long-term amortization items.
This may indicate that Great Wall is currently under increasing downward pressure on profits, which means that if the product competitiveness brought about by R&D investment cannot effectively increase the overall scale of car sales, then the financial quality of Great Wall will continue to decline.
To this end, Great Wall's response is to rebuild its product competitiveness in the way of "product matrix + hybrid + intelligent driving".
However, according to the sales performance of the Thunder, Thunder MAX, and WEY Blue Mountain released in the first half of this year, the blessing of hybrid technology did not bring continuous sales to its products, and all of them showed "high opening and low walking", and the overall cumulative sales were less than expected.
Behind this result, in fact, there is a direct correlation with the launch of the BYD Champion Edition model, and the cost performance of the BYD Champion model is still better than that of the corresponding model of the Great Wall.
From a longer-term perspective, BYD's first-mover advantage in electrification is already obvious, and it is currently fully able to rely on its own scale advantage to continuously explore the starting price of the model or the configuration specifications of the entry-level model. However, due to limited production capacity, BYD has not yet reached the time to switch to "** butcher".
Therefore, if Great Wall wants to maintain the basic market of its SUV, it will have to sacrifice the health of its financial structure in the short and medium term in the future, but this may not be able to resist BYD's further expansion. Unless, Great Wall can build a comparative advantage for the entire industry in "intelligent driving", and this possibility will be even lower.
Therefore, Great Wall is now in a very passive situation, and its long-term advocacy of "category focus" and "category innovation" is only suitable for a relatively existing market, through continuous exploration of more subdivided scene areas to obtain scale increments, but this strategy is not suitable for the current market reshuffle stage.
In the face of this situation in China, although the Great Wall has a lot of emotions and unwillingness, its best strategy option may be to follow up defensively, catch up with BYD in technology, follow up BYD's every move in market strategy as much as possible, and try to maintain the domestic market share. 02—"Going to sea" has a comparative advantage in going to sea, which is indeed a more favorable choice for the Great Wall to reap the scale increase and maintain the overall financial structure in the future.
In fact, there are still many regions in the world that are not suitable for the use of new energy vehicles, such as Russia, Latin America, the Middle East, Central Asia, Australia, etc., which is related to geographical location, climate, infrastructure, oil prices and other factors.
As a result, Toyota expects revenue and profit growth of 16% and 65% respectively in fiscal 2024.
This means that the target opponent of the Great Wall has become a Japanese manufacturer of "fuel vehicle + economy + global ** chain", but it is unrealistic to directly challenge the Japanese system, and it is basically impossible to surpass.
However, the space for overseas markets will be larger than that in China, which can be reflected from Chery's achievements in going overseas in recent years, which means that Great Wall has the advantage of being a latecomer and can achieve high growth in the short and medium term.
Therefore, compared with BYD's toughness (including other independent manufacturers and joint venture manufacturers) through "new energy" and first-mover advantage in China, the direct commerciality brought by the Great Wall going overseas will be higher.
Great Wall has accumulated patented technologies (such as internal combustion engines, gearboxes, chassis), technology, and quality in the field of fuel vehicles, at least in the domestic market, which is not inferior to joint venture brands, and it has long occupied the top spot in the domestic pickup truck and SUV market through the cost-effective strategy.
However, only about 40% of the volume of Japanese cars is produced locally, sold and exported, and 60% is produced and sold overseas, which means that the localization rate of Japanese cars in the global market is very high, and the product competitiveness brought by its global ** chain will be very strong.
The average price of cars exported from China in 2022 is 1890,000 US dollars (about 130,000 yuan), taking a certain model of Chery Tiggo 8 as an example, the landing price of the car in China is more than 110,000 yuan, but the starting price in Russia is close to 200,000 yuan.
This means that if it is exported in bulk parts, most of the price difference will fall into the hands of overseas dealers and local channel providers, and manufacturers will only get a part of the premium.
At present, most of China's car companies are going overseas in the form of complete vehicles and bulk parts, and in the long run, this cannot show the core advantages of domestic cars with high cost performance, and it is difficult to take root in a specific overseas market, and it is impossible to compete directly with local Japanese and Korean cars.
If Great Wall is mainly exported to the sea in the form of vehicles or components, then the continuity and growth of its overseas business in the future will be unstable.
In fact, Great Wall's main overseas sales markets have changed significantly in the past decade, with countries such as Chile, Algeria, Iraq, Iran, and Ecuador, reflecting the uncertainty of going concern overseas.
From 2019 to the present, Great Wall has laid out 3 overseas production bases in Russia, Thailand, and Brazil, with a total production capacity of nearly 400,000 vehicles, and a localization rate of 45% to 65%, which means that the logic of Great Wall going overseas will mainly revolve around localization and the first chain, and the sustainability of its overseas expansion will be reflected.
In terms of specific data, from 2020 to the first 11 months of 2023, Great Wall's overseas sales accounted for the proportion of total sales respectively. 3%, of which Russia, Australia, Thailand, South Africa, and Saudi Arabia are its main overseas sales markets at this stage. In the future, with the commissioning of the Brazilian plant, the proportion of Great Wall's overseas business will continue to increase.
Take the Great Wall Russian factory in 2022 as an example, it recorded 792.2 billion yuan in revenue, net profit of 277.9 billion yuan, but the net profit after deducting foreign exchange gains and subsidies was 55.9 billion yuan, net profit margin after deduction was 71%, which is 5 percent higher than the Great Wall this year0% net profit margin.
Based on this speculation, the financial contribution rate of its overseas business is relatively obvious in the future, but it is also facing the possibility of being significantly adjusted.
Referring to Chery's overseas expansion, Chery's total sales in 2022 will be 1.23 million units, with exports of 450,000 units, accounting for 37%, and Chery's operating income will exceed 200 billion yuan for the first time this year, and the overall average price of vehicles will reach 1630,000 yuan;In the first 11 months of 2023, Chery's total sales volume will be 1.57 million units, and 880,000 units will be exported, accounting for 56% of exports.
At present, Chery has 6 overseas R&D bases, 10 production bases (about 300,000 production capacity), more than 1,500 overseas dealers and service outlets, and a cumulative overseas sales volume of more than 3 million vehicles.
In contrast, Great Wall has also set up 6 R&D centers, 3 vehicle production bases and multiple KD factories overseas, with more than 700 overseas sales channels and cumulative overseas sales of more than 1 million vehicles.
It can be seen that both Chery and Great Wall are going to sea in the form of direct investment (or capital export), and judging from the development momentum of the past three years, the increment brought by the Great Wall's future overseas has a certain imagination.
However, this does not mean that the Great Wall will go to sea will be straightforward, the other side of direct investment in overseas factories is heavy assets, long cycle, short-term high profits can not cover up the long-term business risks of the project, such as the international environment, politics, consumer demand, competition and many other changing factors will affect the benefits of the whole life cycle of the project.
Therefore, most of the independent brands are in the way of bulk parts of the whole vehicle to go to sea, one is to test the international competitiveness of their own products, the second is to screen out the appropriate target market and the coverage of the regional market, the third is to spend time and resources to establish a solid cooperative relationship and circulation channel network, and the fourth to take into account the changes in the market competition situation that may be faced in the future.
In short, this is a high-risk business, and the decision-making cycle can be long and cumbersome.
At this stage, the direct investment of Chery and Great Wall is only the first step, and it has also achieved positive feedback, which is the effect of their path selection and late-mover advantage in the short term of high growth. However, it does not mean that they can maintain such a high growth rate all the time, and expanding overseas is bound to be a long-term and gradual development process.
Then, the consideration for the Great Wall to go to sea will be a vague premium.
03—The "favored" one will be set back to mid-2020, from this starting point, domestic automakers have ushered in a wave of surge, including: China's auto industry chain quickly returned to normal operation, policy consumption stimulus measures, Tesla's rapid expansion in China, the overall explosion of the domestic C-end new energy vehicle market, etc.
Back to the end of 2023, the global automotive industry chain has returned to a steady state, and the pattern of the electrification stage of new energy vehicles has also been roughly formed.
Leading new energy vehicle companies such as Tesla and BYD, their stock prices remain in a mid-to-high range, which means that they have basically fulfilled their position and share in the industry in the electrification stage. Currently, Tesla's PE is 70 and BYD's is 20.
Traditional car companies like Changan, which continue to carry out continuous strategies in the field of new energy, basically with the expansion and deepening of their circle of friends, as well as the rise of their own new energy vehicle sales, their stock prices have remained at a high level and hit new highs, and their current PE is 14.
Car companies such as SAIC, GAC, Geely, and BAIC Blue Valley are either still the financial revenue logic of joint ventures, or the basic plate of fuel vehicles has not changed, or the new energy sub-brands that have done well will be spun off and listed independently, or the new energy transformation will be blocked.
All in all, their share price has gone through a complete roller coaster, and their PE is basically between 10 and 15 at the moment.
After experiencing a sharp rise in 2020 and 2021, Great Wall's stock price is now basically stable in a median range, which is significantly better than SAIC, GAC, Geely and other major manufacturers, and its current PE of 34 times is also significantly higher than BYD.
However, compared with three years ago, the business fundamentals of the Great Wall have not shown a significant improvement momentum, and its new energy transformation is not only lagging behind but also difficult to say successful, and with the intensification of this round of domestic industry competition, the stability of its SUV basic disk is also facing severe challenges brought by industry participants, and there are signs of decline.
In this regard, the Great Wall's response strategy is "new energy" and "going to sea".
The former is only a technical follow-up, it is difficult to reverse the current passive situation of its domestic market, and it may face a situation of "slow knife cutting meat" in the future;Although the latter has the possibility of achieving high growth in overseas business in the short to medium term, it still needs to be rationally observed how high the financial contribution rate to the Great Wall as a whole is.
In addition, in addition to the fact that SVOLT Power and SVOLT Yichuang are directly subordinate to the Great Wall system, SVOLT Energy and Momo Zhixing are completely independent companies, so the two concepts of "new energy" and "intelligent driving" are not priced within the Great Wall.
Intuitively, the Great Wall's current 34 times PE requires a certain amount of imagination and shareholding determination.