SAIC Motor can't get out of the quagmire of joint venture cars
Original debut | Golden Horn Finance
Author | Zelda
With the halo of the joint venture car eclipsed, the dividends that SAIC Group has enjoyed for many years have begun to slowly disappear and fall into a difficult transition period.
In the first three quarters of 2023, SAIC-Volkswagen's sales decreased by 13.50% year-on-year to 830,000 units, while SAIC-GM decreased by 15.18% year-on-year to 720,000 units.
According to the data of the interim report, the "investment income" contributed by the two joint ventures of SAIC Volkswagen and SAIC-GM to SAIC in the first half of this year was only 531 million yuan, accounting for only 3.91% of the operating profit.
In addition, dragged down by the joint venture car, the third quarter report shows that SAIC's revenue and net profit attributable to the parent company have declined significantly.
SAIC Motor Motor is aware of the need to step out of the "comfort zone" of joint venture vehicles, and in recent years, it has begun to make all-round strategic changes. However, the transformation of electric vehicles is still suffering from the price war in the industry, and the "price and quantity" are heavier; Going overseas also faces geopolitical negative factors such as EU countervailing investigations.
This means that SAIC, known as the "first brother of car companies", may have to go through a long period of strategic transformation.
Performance is under pressure
Recently, SAIC Motor released its third-quarter financial report, and the company's revenue and net profit attributable to the parent company in the current quarter were 196.8 billion yuan and 4.3 billion yuan, down 6.92% and 24.69% year-on-year respectively.
In the first three quarters of 2023, SAIC Motor achieved a cumulative revenue of 523.342 billion yuan, a year-on-year decrease of 0.77%; The net profit attributable to the parent company was 11.407 billion yuan, down 9.82% year-on-year.
The pressure on performance is related to sluggish car sales.
In the first three quarters, SAIC's vehicle output was 3.397 million units, down 12.29% year-on-year; Vehicle sales were 3.377 million units, down 10.42% year-on-year.
SAIC Motor has said that at the end of 2022, the preferential policy of fuel vehicle purchase tax and the central financial subsidy for new energy vehicles will be withdrawn, and some consumers will rush to buy cars before the end of the policy dividend, overdrawing the market demand in 2023; In addition, in the first quarter of 2023, the domestic auto market staged a price war, consumers held on to the currency, and the market recovery was less than expected.
In fact, even though the economic situation is still recovering, China's auto industry still maintains positive growth at both ends of the production and sales ends. According to data from the China Association of Automobile Manufacturers, in the first three quarters of this year, China's automobile production increased by 7.3% year-on-year, and sales increased by 8.2% year-on-year. This means that SAIC, the "first brother of car companies", is far behind the industry as a whole in terms of production and sales.
The more important reason for the sluggish production and sales of SAIC is actually dragged down by joint venture vehicles. As a leading domestic auto company, SAIC Motor Group has two major passenger car joint ventures, SAIC Volkswagen and SAIC-GM, but in the first three quarters of 2023, the report cards handed over by these two joint venture car companies are not satisfactory, SAIC Volkswagen's sales decreased by 13.50% year-on-year to 830,000 units, and SAIC-GM decreased by 15.18% year-on-year to 720,000 units.
According to SAIC's financial report, the company's investment in SAIC Volkswagen and SAIC-GM, two joint ventures with 50% of the shares, is accounted for by the equity method, and "investment income is recognized according to the net profit or loss realized by the investee that should be enjoyed or shared".
In other words, SAIC-Volkswagen and SAIC-GM, two joint ventures, will contribute to the latter's performance by driving SAIC's operating profit through the "investment income" on the income statement.
In fact, judging from the financial report data in recent years, SAIC's core profit (operating income - operating costs - taxes and surcharges - sales expenses - management expenses - interest expenses - R&D expenses) is actually in a state of loss, with losses ranging from billions of yuan to more than 10 billion yuan;
However, the "investment income" of the two joint ventures allowed SAIC to sell cars in earlier years and still make a positive contribution to operating profits.
For example, in 2020, the core profit brought by SAIC's revenue of more than 700 billion yuan not only did not make a profit, but lost 3.427 billion yuan, but the two joint venture car companies contributed a total of 9.796 billion yuan of "investment income" that year, turning the situation around in one fell swoop.
However, from 2021 onwards, it will be difficult for the joint venture car to "cover the performance" of the entire group.
On the one hand, SAIC's core profit continued to be uncompetitive, although the company's revenue increased from 723 billion yuan to 760 billion yuan, but the ensuing core profit changed from -3.427 billion yuan to -7.752 billion yuan, the revenue increased, but the loss was greater;
On the other hand, the "investment income" of the two joint venture car companies also declined significantly, from 9.796 billion yuan to 8.724 billion yuan.
As a result, SAIC's "core profit + investment income contributed by the two major joint venture vehicles" plummeted from 6.369 billion yuan in 2020 to 972 million yuan in 2021.
In 2022, the situation is even more dire. At the same time, SAIC's revenue declined, the loss of core profit further widened to 12.556 billion yuan, and the "investment income" contributed by the two joint ventures also fell from 8.724 billion yuan to 7.154 billion yuan.
In that year, SAIC's "core profit + investment income contributed by the two joint ventures" changed from 972 million yuan to -5.4 billion yuan. Judging from last year's data alone, it is already difficult for SAIC to make a profit by selling cars.
If the "investment income" contributed by the joint venture to SAIC in the three years from 2020 to 2022 is only gradually declining, then in 2023, when the industry is seriously involuted, this data will decline off a cliff, and it is difficult to "cover the bottom" for the performance of the entire group.
According to the 2023 interim report, in the first half of the year, the "investment income" contributed by the two joint ventures plummeted by 79% year-on-year to 531 million yuan from 2.542 billion yuan in the same period last year, accounting for only 3.91% of the operating profit.
Miss the new energy tuyere
Not only SAIC, but also the entire Chinese automotive industry have come to a critical crossroads.
The rapid rise of independent brands has put pressure on a number of joint venture brands. According to data from the China Association of Automobile Manufacturers, in the 10 years from 2011 to 2020, the market share of China's own brands in passenger cars has fluctuated around 40%; However, in 2021-2022, the market share of domestic brands quickly climbed to 44.4% and 49.9%.
In the first half of 2023, SAIC Volkswagen sold a total of 503,000 vehicles, down 51% from the high set in the first six months of 2018. During the same period, BYD, a self-owned brand company, topped the passenger car market, with sales 2.48 times that of SAIC Volkswagen.
On August 9, Wang Chuanfu, chairman of BYD, predicted at the company's 5 million new energy vehicle off-line ceremony that the market share of China's own brand passenger cars will reach 70% by 2025.
This means that after two years, the share of the entire market left for foreign brands will only be 30%, and then subtract Tesla, which is wholly owned and produced in Shanghai, and a small number of imported models, and the survival space of the joint venture will be further narrowed.
Wang Chuanfu's judgment is not alarmist. Since 2023, the market share of domestic brands has remained above 50%, and in July it was as high as 57.2%.
In contrast, the report card handed over by the joint venture car brand is miserable. In addition to the aforementioned two joint venture brands of SAIC, in the first half of 2023, Dongfeng Nissan fell 28%, Dongfeng Honda fell 32.8%, and DPCA, SAIC-GM, GAC Honda and GAC Toyota fell 21.6%, 11%, 18.9% and 9.5%, respectively.
The reason behind this is mainly due to the transformation of the growth momentum of China's auto market from fuel vehicles to new energy vehicles.
In the first half of 2023, the traditional fuel vehicle market will shrink, and the sales of new energy vehicles will grow by 44.1% year-on-year. In the 100,000-200,000 yuan market, where the products of joint venture car companies are most concentrated, the sales volume of traditional fuel vehicles was 4.336 million units, a year-on-year decrease of 3.8%; The sales volume of new energy vehicles in the same class was 1.405 million units, a year-on-year increase of 63%.
However, the products of joint venture car companies are still mainly fuel vehicles, and they generally fail to seize the growth opportunities of the new energy vehicle market. According to the statistics of the National Passenger Car Market Association, the penetration rate of new energy vehicles of joint venture automakers was only 3.7% in June, and the proportion rose to 5.8% in July, far from the penetration rate of 52% of China's own brands.
The technical person in charge of a large car company said that many joint venture car companies had a fluke mentality and misjudged the market.
"In the early days, joint venture car companies have been waiting to see the new car-making forces make jokes and dismiss them. Later, seeing the rapid growth of new energy vehicle sales, joint venture car companies felt that it was difficult to last. By the end of 2022, the financial subsidies for new energy vehicles will be withdrawn, and joint venture car companies even believe that fuel vehicles still have a chance to fight back. But none of this has become a reality, but more mainstream consumers have turned to new energy vehicles, the person in charge said.
According to industry insiders, the joint venture company does not have a complete enterprise value chain, it mainly undertakes production and sales service functions, and its product technology basically comes from foreign car shareholders. At present, the automotive industry is transitioning to electrification, so that the products imported into China by foreign car companies are no longer in the leading position.
In addition, the unique shareholding structure of joint ventures also hinders transformation. In a large number of joint ventures, Chinese and foreign parties hold 50:50 shares. The above-mentioned person said that the market situation is changing rapidly, the technical route is rapidly iterating, and the two major shareholders of the joint venture car companies are restricting each other, which is particularly passive in the industry transformation period.
SAIC turns the rudder
SAIC Motor has realized that the dividends of joint venture cars have disappeared, so it needs to step out of the "comfort zone" and adjust its strategic focus.
First of all, SAIC Motor has reorganized its own brand camp and transformed to electrification as a whole.
Among them, Zhiji Automobile is positioned as a pure electric high-end brand; SAIC Passenger Vehicle Company's Feifan and Roewe are positioned as mainstream brands of new energy; MG brand is fully committed to expanding overseas markets; Wuling brand positioning boutique electric car.
In the first three quarters of this year, SAIC's performance of new energy products increased significantly, with the company selling 683,000 new energy vehicles, a year-on-year increase of 18.2%, of which about 280,000 were sold in the third quarter, a year-on-year increase of more than 20%.
Second, in terms of joint venture vehicles, SAIC Volkswagen introduced the ID.3, ID.4 and ID.6 BEVs from the Volkswagen Group. However, compared to the products of Chinese automakers, these models were not competitive enough, and it was not until SAIC Volkswagen recently cut prices sharply that the sales situation improved.
Jia Jianxu, the total net profit of SAIC Volkswagen, said that the domestic market share of electric vehicles is growing rapidly, and Volkswagen can only "fight against the water", and the price reduction is indeed very large. However, he said that the price reduction effect is significant, and since July, SAIC Volkswagen's monthly sales of electric models have stabilized at more than 10,000 units.
Jia Jianxu believes that joint venture car companies should strive to reduce costs in the short term to cope with market competition; In the long run, joint ventures need to keep up with the pace of product development by domestic and local companies, and if foreign shareholders have shortcomings, joint ventures can introduce relevant products and technologies from Chinese shareholders.
"The good things of both the shareholders of the joint venture can be introduced into the joint venture, and this door will be opened soon." Jia Jianxu said.
Finally, SAIC sees overseas markets as a key focus for revenue growth. In the first nine months, the number of cars exported or produced overseas by SAIC Motor increased by 21.75% year-on-year.
"The company should accelerate the spillover of its advantages and capabilities forged in the fierce competition to overseas and accelerate the expansion of SAIC in the global market." Wang Xiaoqiu, president of SAIC, said at the third-quarter results briefing.
Wang Xiaoqiu said that the company's annual overseas sales target is 1.2 million vehicles, of which Europe is expected to become SAIC's first overseas market of 200,000 vehicles. In addition, SAIC expects annual sales in the Americas, the Middle East, Australia, New Zealand, ASEAN, and South Asia to exceed 100,000 units. Wang Xiaoqiu said that SAIC's overseas business will achieve "large-scale profitability" in 2023.
It is worth noting that SAIC Motor also ensures overseas business expansion through multiple layouts.
On August 29, CSSC Jiangnan Shipbuilding officially launched the first ocean-going car carrier (ro-ro ship) customized for SAIC Motor, which is scheduled to be put into use in 2024. SAIC said the ro-ro ship has a total of 7,600 parking spaces, and from 2024 to 2026, a total of 12 newly-built ro-ro ships will join the fleet of Anji Logistics, the group's automotive logistics company.
Anji Logistics is the world's largest automotive logistics company, with eight special foreign trade ships and seven international routes in Southeast Asia, Mexico, South America and Europe.
SAIC said that in recent years, China's automobile exports have grown rapidly, and insufficient capacity has become one of the bottlenecks, and Anji Logistics' self-operated fleet will provide transportation services for all car companies, including SAIC.
However, while the data is bright, SAIC's "going overseas" strategy is also facing geopolitical risks.
At the beginning of October, the European Union announced the official launch of a countervailing investigation into pure electric vehicles produced in China, and due to the large number of companies involved, the European Commission adopted a sampling method to determine the final investigation target.
On October 25, local time, according to relevant media disclosures, the European Commission decided to choose BYD, SAIC and Geely Automobile as target companies.
According to the analysis of Beijing Jingtian & Gongcheng Law Firm, there are generally three outcomes of EU countervailing investigations:
First, if no important subsidies or other reasons can be found, the investigation will be terminated; Second, the investigation found that although there were subsidies, there was no damage to European car companies, and it was decided not to take countervailing measures; Third, the investigation found subsidies, damages, etc., and initiated the collection of countervailing duties.
According to the existing practice of the European Union, more than ninety percent of cases are settled in the third case. Once the Commission decides to impose countervailing duties, they will generally last for five years, and every five years thereafter, the Commission may decide through a review procedure to continue to impose them.
It can be seen that whether the transformation of electric vehicles is mired in the price war of the industry, or the various risks faced by "going overseas", it shows that SAIC, the "first brother of car companies", needs to go through a period of transformation pain in order to get out of the "comfort zone" of joint venture cars in the past.
Resources:
Caixin "Joint Venture Car Players to be Broken"
Caixin "EU Selects Three Chinese Automakers Including BYD to Conduct Countervailing Investigation"