Article: Poetry and Starry Sky

ID: SingingUnderStars

Entering 2024, domestic new energy vehicles have sounded the call to attack joint ventures. As a result, SAIC Motor and GAC Motor, which rely heavily on joint ventures, have been stabbed in the back.

SAIC Motor was relieved to have a vast overseas market, only to be hit again by EU tariffs. While GAC Motor's joint venture sales halved, its own new energy vehicle brand Aion also experienced a decline in sales.

In June, GAC Honda's official Weibo account announced the launch of a shopping festival, offering discounts of up to 50,000 yuan (including trade-in subsidies) on the GAC Honda Accord, which has a starting price of 197,800 yuan. The discounted price starts at 147,800 yuan.

According to GAC Group's production and sales report for August, sales of both GAC Honda and GAC Toyota are declining rapidly.

Overall, vehicle sales in August were 148,190 units, down 24.69% year-on-year, with cumulative sales for the year reaching 1,152,424 units, down 25.68% year-on-year.

Are gasoline-powered vehicles no longer appealing?

In fact, there are only uncompetitive prices, not uncompetitive gasoline-powered vehicles.

In May, the new Toyota Highlander officially reduced its price by 53,000 yuan. After deducting markups, the actual price reduction was over 100,000 yuan, leading to a near doubling of sales.

Similarly, a 200,000 yuan Accord may not be popular, but a 150,000 yuan Accord is quite attractive. After a price reduction in June, July sales increased by 8.35% month-on-month.

Overall, the business logic of joint ventures in China has undergone a qualitative change.

The three major joint venture factions have taken different measures:

German brands have proactively embraced the market, with Volkswagen setting up factories and buying battery factories in China, investing in XPeng and Horizon Robotics.

Japanese brands have responded passively by reducing prices.

French brands have simply withdrawn from the market.

Why didn't you mention American brands? Oh, there's no hope for them...

We cannot ignore Korean brands, namely Hyundai and Kia. In 2023, they sold over 160,000 vehicles, with more than half being exported as complete vehicles.

Kia initially aimed to increase annual exports from its Yancheng factory to over 200,000 units by 2026, but quickly revised its goal to a total annual production and sales of 300,000 units.

Relying on the world's strongest automotive supply chain, joint venture brands have discovered new opportunities in the era of new energy vehicles: reverse exports!

01

Reverse Exports by GAC Honda

In December 2021, Honda's Sayama plant, which produced the Odyssey, closed down.

In September 2023, GAC Honda's Odyssey began entering the Japanese market.

Despite initial reluctance, Japanese consumers embraced the Chinese-made Odyssey, which was around 20,000 yuan cheaper and better equipped than the Japanese-made version. In just a few months, 80,000 units were sold (Japan's auto market is less than a quarter the size of China's).

However, these figures are not fully reflected in GAC Group's financial statements.

Data Source: iFind; Chart: Poetry and Starry Sky

The half-year report shows that the company achieved operating revenue of 45.808 billion yuan in the first half of 2024, down 25.62% year-on-year; net profit attributable to shareholders was 1.516 billion yuan, down 48.88% year-on-year; and after-tax net profit excluding non-recurring items was a loss of 338 million yuan, down 112.51% year-on-year. Cumulative sales in the first half of the year were 863,000 units, down 25.79% year-on-year.

It is important to note that the revenue of joint ventures is not included in GAC Group's financial statements.

Toyota and Honda's foreign shareholders hold a 50% stake and have actual control, so GAC does not consolidate their results. Instead, only the net profit is included in investment income, which still amounted to 2 billion yuan in the first half of the year despite the significant decline in sales.

This indicates that the two joint venture brands are still profitable, albeit less so.

Data Source: iFind; Chart: Poetry and Starry Sky

02

Regression of Domestic Brands

So who is generating the revenue on GAC Group's books if joint ventures are not consolidated?

Combining the company's production and sales reports, we can see that revenue mainly comes from Trumpchi and Aion.

While Trumpchi's sales have remained stable, Aion has experienced a comprehensive decline.

At the beginning of 2024, Aion set a sales target of 800,000 units. Eight months later, sales have not even reached 200,000 units.

From 2018 to 2023, Aion's annual sales were 20,000, 40,000, 60,000, 123,700, 271,000, and 480,000 units, respectively.

Over six years, Aion's annual sales have increased by 24 times.

What happened in 2024?

The root cause is Aion's over-reliance on the ride-hailing market, especially in Guangdong Province. In 2024, as the ride-hailing market approached saturation, Aion lost its biggest source of growth, leading to a steep decline in sales.

The ride-hailing market differs from the traditional new energy vehicle market, with drivers placing less emphasis on handling, fuel efficiency, and appearance.

In competition with other new energy vehicles, especially BYD, Aion has struggled to keep up.

Of course, it is too early to write off Aion's chances of a comeback. GAC still possesses core technologies, such as self-developed battery, electric drive, and electronic control systems.

03

Going Overseas: The Only Way Out

In addition to GAC Honda's reverse exports to Japan, GAC's domestic brands are also busy expanding overseas.

Data Source: iFind; Chart: Poetry and Starry Sky

Trumpchi M8 has been launched in over 20 countries, including Mexico, the UAE, and Kuwait, while AION Y Plus has entered Hong Kong and Nepal.

Since 2024, GAC's CKD plant in Malaysia (with a standard annual capacity of 34,400 units) and Aion's plant in Thailand (with an initial annual capacity of 50,000 units) have both come online.

In the first half of 2024, GAC expanded into 26 new markets, including Uzbekistan and Azerbaijan, bringing its total market presence to 68 countries and regions with over 300 outlets.

According to GAC, the group aims to export 500,000 units by 2030. To achieve its goal of overseas sales exceeding 150,000 units in 2024, GAC plans to expand its sales network by adding approximately 300 outlets this year, bringing the total to 500 international sales outlets globally.

If the domestic market is too competitive, expanding overseas can be a viable option.

While the European and American markets have strict trade barriers, most emerging markets in Asia, Africa, and Latin America are accessible. It is only a matter of time before Chinese cars replace Japanese cars.

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Disclaimer: This article is based on the publicly available information disclosed by listed companies in accordance with legal obligations (including but not limited to temporary announcements, periodic reports, and official interaction platforms). Poetry and Starry Sky strives for fairness in the content and opinions presented but does not guarantee their accuracy, completeness, or timeliness. The information or opinions expressed herein do not constitute investment advice, and Poetry and Starry Sky shall not be liable for any actions taken based on this article.

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