Image source: Dugou

Photographed at the Shanghai Auto Show in April 2023

Recently, listed automakers have released their semi-annual reports in succession. From the perspective of operating income and profitability, BYD stands out as a clear leader, while Guangzhou Automobile Group (601238.SH), another significant automaker in Guangdong Province, is headed in a different direction.

According to the semi-annual report disclosed by Guangzhou Automobile Group, in the first half of 2024, the group achieved an operating income of RMB 45.808 billion, a decrease of 25.62% compared to the same period last year. Net profit attributable to shareholders of listed companies was RMB 1.516 billion, a year-on-year decrease of 48.88%. After deducting non-recurring gains and losses, net profit was negative RMB 338 million, down 112.51% year-on-year.

Regarding the performance in the first half of the year, Guangzhou Automobile Group candidly stated that the changes in performance during the reporting period were primarily influenced by the domestic automotive industry's "price war," resulting in increased commercial and administrative investments. While this may be seen as an external factor, the weakening product competitiveness within the company itself is undeniable. Both autonomous and joint venture vehicle sales significantly declined during the reporting period.

From January to June, sales of Guangzhou Honda, a joint venture brand, amounted to 207,900 units, down 28.28% year-on-year. Guangzhou Toyota sold 336,000 units, a decrease of 25.80% year-on-year. Among autonomous brands, GAC AION sold only 126,300 units, down 39.65% year-on-year.

Although Chairman Zeng Qinghong of Guangzhou Automobile Group stated in the financial report that the group is currently in a transition period of shifting from old to new growth drivers, facing multiple pressures to maintain stable growth and adjust its structure, the group will actively identify and respond to changes, seek opportunities amidst challenges, and strive to reverse the business situation in the second half of the year. However, given the persistent weakness, can Guangzhou Automobile Group regain its footing?

1

Performance "Collapse" ●

Judging from the semi-annual reports recently released by listed automakers, while overall performance is improving, polarization remains severe. Some automakers are raking in profits, while others are trapped in the anxiety of "increased revenue without increased profits." Guangzhou Automobile Group, as an established traditional automaker, is one of the few that have seen both revenue and net profit decline.

During the reporting period, Guangzhou Automobile Group's operating income declined by 25.62% year-on-year to RMB 45.808 billion. Net profit attributable to shareholders of listed companies fell by 48.88% year-on-year to RMB 1.516 billion, equivalent to a revenue decline of over 20% and a nearly halved net profit. Moreover, after deducting non-recurring gains and losses, net profit turned from profit to loss, registering a deficit of RMB 338 million.

This outcome is naturally attributed to a significant decline in sales. In the first half of the year, Guangzhou Automobile Group produced and sold 859,500 and 863,000 vehicles, respectively, down 28.19% and 25.79% year-on-year. This is far from Guangzhou Automobile Group's sales target of "a 10% increase over 2023," which would amount to 2.75 million vehicles. The group has only achieved about 31% of this target.

More concerningly, sales of Guangzhou Automobile Group continued to decline in July. The latest production and sales data shows that in July, the group sold 141,200 vehicles, down 25.37% year-on-year and 13.65% month-on-month from June's 163,500 units.

In the first seven months of this year, Guangzhou Automobile Group sold a cumulative total of 1,004,200 vehicles, down 25.83% from the same period last year, achieving only about 36.5% of its annual target.

Such results are undoubtedly unsatisfactory for both Guangzhou Automobile Group and its "helmsman," Zeng Qinghong. In the financial report, Zeng candidly stated that the automotive industry is at a critical juncture of transitioning to smart and new energy vehicles, with accelerating structural differentiation and increasingly fierce market competition. Guangzhou Automobile Group is also in a transition period of shifting from old to new growth drivers, facing multiple pressures to maintain stable growth and structural adjustment, with opportunities and challenges intertwined.

Moreover, under the influence of the "price war," we can sense the anxiety of Guangzhou Automobile Group and Zeng Qinghong, who attribute the changes in performance in the first half of the year primarily to the domestic automotive industry's "price war." At the "2024 China Automotive Chongqing Forum" held in June this year, Zeng also pointed out that pursuing internal competition is not a long-term solution for enterprises.

At the time, Zeng bluntly stated, "Internal competition is not a viable solution. What is the goal of a business? It's to make a profit. And what is the purpose of making a profit? It's to contribute to the country and society, pay taxes, and create job opportunities. But what about layoffs now? Guangzhou Automobile Group has also had to lay off quite a few employees. What impact will this have on society and the country if it continues?"

His remarks indeed sparked industry reflections but also drew more questions. Why, in the same internally competitive environment, can some competitors adapt, coexist, and succeed in this competition, while Guangzhou Automobile Group fails to do so?

2

Joint Venture "Collapse" ●

Zeng Qinghong once said, "Building an open economy requires 'taking what is useful' and 'self-reliance.'" The ideal state is, of course, to achieve both, but at present, the joint venture foundation of Guangzhou Automobile Group has been shaken, and its autonomous new growth drivers seem unable to bear the weight.

Let's start with joint ventures. As a model of domestic automotive joint ventures, Guangzhou Automobile Group has successively cooperated with overseas automakers such as Honda, Toyota, Hino, Mitsubishi, and Fiat in the early years, establishing joint ventures and rapidly capturing the market through deep integration, enriching its performance but also sowing "hidden dangers."

Amid the wave of new energy transition, joint venture vehicles have struggled in the Chinese market in recent years, especially Korean and Japanese cars, which have collectively "lost speed" in China, with sales shrinking significantly. In this context, Guangzhou Automobile Group cannot escape unscathed, and the impact of industry changes cannot be underestimated.

Previously, joint ventures under Guangzhou Automobile Group, including GAC FIAC, GAC Acura, and GAC Mitsubishi, encountered difficulties. GAC FIAC filed for bankruptcy in late October 2022 due to insolvency. Acura officially withdrew from the Chinese market last year due to dismal sales. After a series of delisting controversies, GAC Mitsubishi finally decided to implement equity adjustments and other restructuring measures.

Historically, Guangzhou Automobile Group has had a strong "dependence" on its remaining joint ventures, GAC Honda and GAC Toyota. However, sales of these two joint ventures have also fluctuated significantly. In the first half of this year, sales of GAC Honda declined by 28.28% to 207,900 units, while sales of GAC Toyota fell by 25.80% to 336,000 units.

This led to a year-on-year decrease of approximately 28.35% in GAC Honda's operating income to RMB 30.668 billion and a decrease of approximately 29.58% in GAC Toyota's operating income to RMB 52.15 billion. In the first half of the year, Guangzhou Automobile Group's investment income from its associates and joint ventures was only RMB 2.011 billion, compared to RMB 5.3 billion in the same period last year.

In the semi-annual report, Guangzhou Automobile Group candidly stated that one of the main problems and challenges it currently faces is the decline in production and sales of joint venture brands. The group's existing joint venture automakers are all Japanese brands, and the market share of Japanese brands, which are primarily fuel-based, has generally declined in recent years.

Nevertheless, facing unprecedented challenges, Guangzhou Automobile Group has not given up. It revealed that joint ventures will fully utilize resources from both shareholders to deepen cooperation in product development, supply chain, and sales channels, accelerating the transition to intelligent and electric vehicles, enhancing local development, and creating more competitive products that better meet domestic customer needs.

However, given the current trend of autonomous progress and new energy vehicle competition, can the "lost speed" GAC Honda and GAC Toyota catch up?

3

Autonomous "Slowdown" ●

If the decline of joint ventures can be offset by the growth of autonomous brands, that would be ideal. However, the current issue for Guangzhou Automobile Group is that joint venture brands are still the primary source of sales. Its autonomous brands not only account for a relatively small proportion of sales, at only about 36.5%, but also gradually show signs of waning momentum.

Taking GAC Motor as an example, in the first half of this year, it produced and sold 193,600 and 188,900 vehicles, respectively, up 6.51% and 0.44% year-on-year, making it the only brand under Guangzhou Automobile Group to achieve sales growth in the first half of the year.

However, the longer-term picture is less optimistic. Due to a failure to stabilize sales in July, which declined by 17.70%, cumulative sales of GAC Motor in the first seven months of the year were 214,700 units, down 2.90% year-on-year.

Moreover, compared to the past, GAC Motor's current performance is only mediocre. With its flagship model GS4, it sold over 500,000 units in 2017 and peaked at 535,200 units in 2018. However, after the decline of GS4, sales dropped to 324,200 units in 2021 and 362,500 units in 2022. It remains to be seen what figure it will achieve this year.

Turning to GAC AION, it was initially one of the fastest-growing new brands launched by traditional automakers. Since the launch of its first model in 2019, its sales have grown at an average annual compound rate of over 120%.

From 2019 to 2021, GAC AION sold 42,000, 59,500, and 120,200 units annually, respectively. In 2022, cumulative sales reached 271,200 units, up 126% year-on-year, marking the fastest growth rate in years and significantly exceeding the original sales target for that year. Last year, GAC AION continued to push forward, ultimately achieving cumulative sales of 480,000 units, up 77.02% year-on-year, solidifying its position at the forefront of the industry.

However, GAC AION's performance this year has been surprising. In the first half of the year, sales were only 126,300 units, down 39.65% year-on-year, a decline that was even steeper than that of joint venture brands GAC Honda and GAC Toyota, making it the brand with the largest decline under Guangzhou Automobile Group.

Meanwhile, the operating incomes of both GAC Motor and GAC AION have also declined significantly. The former achieved an operating income of RMB 25.459 billion in the first half of the year, down approximately 11.39% year-on-year, while the latter recorded an operating income of RMB 12.401 billion, down 44.61% year-on-year.

Therefore, it is still too early to say that Guangzhou Automobile Group's autonomous brands have taken over from joint venture brands in terms of sales and revenue generation. The double decline in revenue and net profit of Guangzhou Automobile Group in the first half of this year cannot be attributed solely to any one brand. Until autonomous brands can truly become the "backbone," Guangzhou Automobile Group must continue to walk on two legs.

As for the second half of this year, whether Guangzhou Automobile Group can "reverse the business situation" as Zeng Qinghong stated in the semi-annual report remains to be seen.

Author | Lili

Source | CarVisibility

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