Huawei "pecks" and starts with the "poor"

Author|Eastland

Head Image|Visual China

On October 19, 2023, Jianghuai Automobile (SH: 600418) held the 12th session of the eighth session of the board of directors and unanimously passed the "Motion on the Listing and Transfer of Assets".

The related assets are divided into three "asset packages": passenger car company three plant inventory, fixed assets and construction in progress; Housing construction, construction in progress and land use rights of the three factories of passenger car companies; Passenger car company Shimbashi plant buildings and equipment. The total price to be listed is 4.5 billion.

It is reported that Jianghuai Automobile intends to transfer the relevant assets (namely NIO's F1 plant and F2 plant) in the production of electric vehicles in cooperation with NIO.

According to anecdotal news, the "million-level boundary MPV" cooperated by JAC and Huawei will be mass-produced in Q2 2024.

Looking back, 2016 was the "peak hour" of JAC Automobile.

The first is the surge in sales. The company sold 643,000 vehicles of all types, including 367,000 passenger cars and 276,000 commercial vehicles.

The second is record revenue and net profit. Revenue reached 52.49 billion yuan. Non-net profit was 844 million.

The third is to aggressively enter new energy vehicles. Annual sales of NEVs reached 18,400 units, up 75% y/y.

Fourth, major breakthroughs have been made in foreign cooperation. The 2016 Annual Report joyfully declared: "Joining hands with NIO and marrying the public will create more space for the company's development." ”

But the next six or seven years can be described as "eight or nine things are not as good as expected". Say goodbye to NIO for the time being, embrace Huawei, Jianghuai wants to be the next Cialis!

Scale and grade decline

1) Sales 20% lower than six years ago

In 2016, JAC sold 275,500 small and medium-sized SUVs, 64,500 MPVs, 27,300 basic passenger cars, and 367,000 passenger cars, while the two main drivers of commercial vehicles were light goods vehicles with sales of 192,000 units, heavy goods vehicles with sales of 43,000 units, and commercial vehicles with total sales of 276,000 units.

Since then, Jianghuai Automobile sales have plummeted, with only 421,000 units in 2019. The main problem was passenger car SUV sales of 86,800 units, down 68.5% from 2016. MPV sales were 37,600 units, down 41.6% from 2016.

In 2022, passenger car sales recovered to more than 300,000 units, and commercial vehicle sales retreated sharply, with a total sales volume of 500,000 units, down 22.2% from 2016.

In H1 2023, JAC will sell 163,000 passenger cars and 116,000 commercial vehicles, totaling 279,000 units, up 18.5% y/y. Sales of passenger cars and commercial vehicles increased by 29.1% and commercial vehicles increased by 6.4%.

2) High-end granules are not collected

Sales do not go up, and high-end is not harvested. In 2016, the average ex-factory prices of passenger cars and commercial vehicles were 63,000 and 74,000 respectively. In 2018, the average price of passenger cars surpassed that of commercial vehicles and exceeded the 100,000 yuan mark.

In 2019, the average prices of passenger cars and commercial vehicles were 106,000 and 85,000 respectively, and the total average factory price was 93,000, reaching a peak at the same time.

In 2022, the average price of passenger cars will drop to CNY 33,000, while the average price of commercial vehicles will remain at CNY 83,000. The average ex-factory price was 53,000, down 43.4% from 2019.

The sharp increase in the average sales price in 2018 and 2019 was not due to a breakthrough in technology, brand, and model, but an inflated price of new energy vehicles caused by high subsidies (see below for details).

Benefits "collapse"

Compared with 2016, Jianghuai Automobile's revenue, gross profit, and non-net profit can be described as a comprehensive collapse, which is really lackluster.

Sales volume and average factory price continued to decline, and revenue naturally only decreased but did not increase: revenue in 2016 was 52.5 billion, down 6.4% in 2017, falling below 50 billion; Revenue of 40.2 billion in 2021 and 36.5 billion in 2022...

H1 revenue in 2023 will be 22.4 billion, a year-on-year increase of 26%, in fact, because H1 revenue in 2022 will fall by 21%;

H1 revenue in 2023 was 15.3% lower than H1 2021.

The profitability of JAC commercial vehicles is far better than that of passenger cars. In 2019, the gross profit of commercial vehicles was 11,600 yuan, and the gross profit margin was 13.6%; In 2022, the gross profit of commercial vehicles will be 7,300 yuan, with a gross profit margin of 8.9%.

The gross profit of JAC passenger cars fluctuates between small profits and small losses, and does not have sustained profitability. In 2022, the gross profit of a bicycle will only be 950 yuan, with a gross profit margin of 2.8%.

As early as 2016, Jianghuai passenger car sales were close to 400,000 units, which cannot be said to be large enough. The gross profit of several points cannot be guaranteed, indicating that the technical content of the product and the added value of the brand have not been recognized by the market.

In 2016, Jianghuai Automobile deducted non-net profit of 843 million yuan, with a profit margin of 1.6%. Since then, the non-net profit has been negative for six consecutive years, and the non-net loss in 2022 will be 2.79 billion, with a loss rate of 7.7%.

In the era of fuel vehicles, Jianghuai Automobile can be regarded as a success, but it is two or three grades worse than Geely and Great Wall. There is no "expensive" "fuel vehicle baggage", but it has failed to seize the opportunity of new energy vehicles.

Perfect "lived up" with subsidies

Worse than sales and revenue stagnation and sustained losses, JAC got up early and gathered late, perfectly living up to the government's subsidies for new energy vehicles.

In the "2016 Annual Report", Jianghuai Automobile claimed that it "has a first-mover advantage in the accumulation of new energy technology and market promotion", and "cooperated with Huating Power and Juyi Automation in battery, motor and electronic control respectively, further enhancing the company's synergy advantages in the core industrial chain of new energy".

In April 2016, the company reached a strategic alliance framework agreement with NIO to jointly produce high-end pure electric SUVs.

In August 2016, the company raised RMB4.5 billion through a private offering, of which RMB4 billion was used for "new energy passenger vehicles" and "pure electric light trucks."

It's really a great fight, ready to do a big job.

In 2016, Jianghuai Automobile's share of China's pure electric vehicle market reached 5.2%; In 2018, sales reached 64,000 units, a year-on-year increase of 125%, and its market share reached 8%.

In 2021 and 2022, JAC new energy vehicle sales increased by 169% and 44% respectively, but did not exceed 200,000 units.

In H1 2023, JAC New Energy Vehicle sales were 67,000 units, down 16.5% y/y, and its share in the pure electric vehicle market was 2.7%, about half of that in 2016.

Looking at sales alone, Jianghuai's new energy vehicle business seems to be unsatisfactory, but the peak revenue occurred in 2019, when sales were only 58,000 units.

In 2022, sales reached 193,000 units, with revenue of 7 billion units, down 47.6% from 2019. The reason is that the average factory price of JAC new energy vehicles in 2019 was 232,000, which suddenly dropped to 87,000 in 2020 and only 36,000 in 2022.

There is a world of difference between more than 200,000 cars and less than 40,000 cars, what happened to JAC new energy vehicles?

In 2015, JAC sold 10,500 new energy vehicles, with revenue of 1.85 billion yuan and an average price of 176,000 yuan. This annual income subsidy is 2.19 billion, equivalent to 118% of sales revenue.

In 2016, JAC sold 18,400 new energy vehicles, with revenue of 3.27 billion yuan and an average price of 178,000 yuan. This annual income subsidy is 3.57 billion yuan, equivalent to 109% of sales revenue.

In 2019, JAC NEV sales increased to 58,000 units, with revenue of 13.45 billion yuan, the average price of bicycles was 232,000, and subsidy revenue dropped to 1.385 billion yuan, equivalent to 10.3% of sales revenue.

In 2016 and 2018, Cialis subsidy income also accounted for more than 30% of the sales revenue of new energy vehicles, but it was not as exaggerated as JAC said.

In the initial stage of new energy vehicles, the production end is small in scale and high in cost. The consumer side has insufficient awareness of new things, has doubts, and is unwilling or unable to bear higher prices.

Government subsidies can increase the volume of transactions between buyers and sellers, allowing producers to expand production capacity, reduce costs, improve technology, and optimize products.

The purpose of the subsidy is to remove it. When new energy vehicles have sufficient competitive advantages and can continuously compress the market share of traditional fuel vehicles, subsidies can be "collected by money".

China's subsidies for new energy vehicles and photovoltaics have exceeded expectations. Excellent enterprises such as BYD and Zhonghuan seized the opportunity. And the Jianghuai people failed to live up to this "heavenly wealth".

When there is a subsidy, 230,000 vehicles are sold, and when there is no subsidy, the market can only accept less than 40,000 Jianghuai electric vehicles.

Cialis VS JAC

Cialis has much shallower "qualifications" than Jianghuai, and its predecessor is Chongqing Yu'an Holdings, established in May 2007, with a registered capital of 50 million yuan.

After the change of equity in 2010, the actual controllers were Xiaokang Control, Yu'an Industry and several natural persons.

In July 2007, it acquired 90% of the shares of Chongqing Xiaokang Automobile Group.

In April 2011, it was changed to "Chongqing Xiaokang Industrial Group Co., Ltd." as a whole, and its main business is mini vehicles, engines and parts.

In 2015, Dongfeng sold 277,000 micro-cars, with a market share of 7.8%, ranking third in the market segment. No. 1 GM-Wuling sold more than 2 million units, with a market share of 56.5%; Changan Automobile, ranked second, sold 442,000 units, with a market share of 12.4%.

In June 2016, Chongqing Xiaokang was listed on the A-share market.

Compared with JAC Corporation, Cialis' revenue is in the downside. Both "peaked" in 2017~2018, but Cialis fell faster - in 2017, Cialis' revenue was 21.9 billion, equivalent to 45% of JAC In 2020, Cialis' revenue was 14.3 billion, equivalent to 33% of JAC revenue.

In 2021, the tide began to reverse. In 2022, Cialis' revenue will be 34.1 billion, equivalent to 93% of JAC

Cialis' sales volume and unit price have also been "crushed" by Jianghuai, and the gap is getting bigger and bigger. In 2018, Cialis sold 348,000 units, equivalent to 75.3% of JAC sales; In 2021, Cialis' sales fell to 267,000, equivalent to 50.1% of JAC sales.

In 2022, Cialis' sales will rebound to 53% of JAC and in 2023, H1 will drop to 33% of JAC in 2023.

It is worth noting that the average sales price of Cialis has greatly exceeded. In 2020, the average price of JAC exceeded 100,000 yuan, and the average price of Saili was less than 50,000 yuan; In 2022, with the increase in the proportion of Qianjie, the average factory price of Cialis will reach 117,000 / vehicle, equivalent to 213% of JAC

If you are poor, your way will change, and Jianghuai's road will become narrower and narrower. The foundation is not as good as its own Cialis sales have exploded, and the stock price has skyrocketed, and Jianghuai should not have any hesitation.

Huawei's "pecking order"

In March 2023, Huawei issued another "No Car Building Resolution", which was personally signed by Ren Zhengfei and is valid for five years.

There are three modes of cooperation between Huawei and automotive companies: one is the standardized parts model, the other is Huawei inside (HI), and the third is Huawei's smart choice. The three models are progressive, and Huawei's role is all suppliers.

Yu Chengdong once said that "Huawei is good at intelligence, electrification, and networking, and its strengths are software, algorithms, and chip design capabilities." The above capabilities may be called "Einstein capabilities", and excellent car companies have "Edison capabilities".

There is no other company that has both capabilities. Apple has not built a car, mainly because the "Edison ability" is not strong enough; Huawei is self-aware, so it resolutely does not build cars. Instead of spending more than half your time and energy doing what you're not good at, why not do Einstein well?

Since Huawei does not build cars, Huawei is the second party that provides solutions for car companies. Due to the concern of "losing the soul" and the role of intelligent solutions in driving sales, Huawei's cooperation with Party A is not smooth.

At present, the only party A in Huawei's smart selection mode is Cialis, and Yu Chengdong spares no effort to stand for it;

Party A that chose the HI mode was originally Beiqi Extreme Fox, Changan Avita and GAC Aion. GAC AION sold well, and the AH8 project in cooperation with Huawei was changed to "independent research and development" (downgraded). BAIC's situation is diametrically opposed to GAC's, and it has upgraded to smart mode in August 2023 to produce high-end pure electric cars.

Huawei hates that all car companies can become their own party A, but the meal must be eaten bite by bite. Factors such as comprehensive brand, technology, and sales volume divide car companies into three, six, and nine, and Huawei's pecking order is from fifth to fourth, and then from fourth to third. At present, first- and second-class car companies are still Huawei's "high climbing" party A.

If you are poor, you will change. "Poor" is not a lack of money, but a nowhere to go. Cialis is "poorer" than Jianghuai, so the cooperation with Huawei is more active than Jianghuai.

Cialis' double harvest in the car market and stock market will significantly accelerate the above process. The more "badly mixed" car companies are itching in their hearts, this time it is Jianghuai's turn.

*The above analysis is for reference only and does not constitute any investment advice!