Great Wall Motor (601633.SH) currently finds itself ensnared in a conundrum where revenue expansion clashes with a decline in profits. In 2025, the company witnessed a simultaneous increase in sales volume and revenue. However, its net profit attributable to shareholders plummeted by 22.07% year-on-year, placing it in the precarious position of experiencing revenue growth without corresponding profit gains. The expansion of the direct sales system, coupled with brand enhancement and promotional activities, led to a staggering 43.93% surge in sales expenses, reaching RMB 11.273 billion. This surge emerged as the primary culprit behind the profit stagnation.

Securities Star observed that Great Wall Motor's lackluster competitiveness in the new energy sector has impeded its market share expansion, with its core business still heavily reliant on fuel vehicles. In light of this, the company has pivoted towards overseas markets for growth. Since the beginning of the year, overseas sales have accounted for nearly half of the total. Nevertheless, the rapid growth in overseas business cannot mask underlying concerns, as its gross margin has consistently lagged behind the domestic market for two consecutive years. Moreover, exchange rate fluctuations have precipitated a significant profit decline in the first quarter of this year.

01. 'Brand Upgrading' Fails to Propel Profits, Vehicle Gross Margin Declines

According to available information, Great Wall Motor is a global intelligent technology company engaged in the design, research and development, production, sales, and service of vehicles and components. The company boasts brands such as Haval, Tank, WEY, ORA, Great Wall Pickup, Great Wall Soul, and Great Wall Commercial Vehicles, covering a diverse range of categories including SUVs, sedans, pickups, MPVs, motorcycles, and heavy trucks.

The 2025 annual report reveals that Great Wall Motor achieved sales of 1.3238 million vehicles, marking a 7.23% year-on-year increase. Revenue soared to RMB 222.824 billion, up 10.2% year-on-year, setting a new record high. However, despite steady growth in sales and revenue, the company's profitability took a nosedive, with net profit attributable to shareholders falling to RMB 9.865 billion, down 22.07% year-on-year.

The surge in sales expenses emerged as the linchpin behind the profit decline. In 2025, Great Wall Motor's sales expenses skyrocketed to RMB 11.273 billion, up 43.93% year-on-year, far outpacing the revenue growth rate and surpassing the RMB 10 billion mark for the first time since its listing. Great Wall Motor attributed this surge primarily to the accelerated construction of a new direct-to-consumer channel model and increased promotional activities for new models and technologies aimed at bolstering the brand. During the same period, research and development expenses grew by 12.13% year-on-year to RMB 10.432 billion, also surpassing RMB 10 billion for the first time. The rapid growth in expenses significantly eroded profit margins.

The new direct-to-consumer channel model pertains to direct sales. Amidst the dual pressures of the new energy transition and market changes, Great Wall Motor embarked on laying out a direct sales system in 2024, with a focus on the direct sales expansion of its high-end new energy brand, WEY. According to media reports, WEY New Energy Direct Sales (formerly Great Wall Smart Selection) opened over 500 outlets within one and a half years. The system construction investment reached RMB 2 billion, and the aggressive expansion rhythm temporarily inflated operating costs, with significant increases in store construction and personnel training investments.

Securities Star noted that 'brand upgrading' has been one of Great Wall Motor's paramount strategic focuses in recent years, mentioned repeatedly in the 2025 annual report. China Business Journal disclosed that in 2025, Great Wall Motor's sales of models priced above RMB 200,000 reached 534,000 units, an increase of 91,000 units from 2024, accounting for 41% of total sales, up 6 percentage points year-on-year.

The upward shift in product price levels bolstered overall vehicle revenue. In 2025, the company's automotive sales revenue reached RMB 195.848 billion, up 11.6% year-on-year. However, the gross margin of the automotive sales business was only 17.29%, down 2.18 percentage points year-on-year. Consequently, the company's overall gross margin fell by 1.47 percentage points year-on-year to 18.04%.

Notably, to penetrate the high-end market, WEY has continued to unveil major new models. On May 18, the first model from the Guiyuan S platform, specifically designed for high-end vehicles, the WEY V9X, was officially launched. Positioned as an 'AI luxury six-seat flagship,' it carries a starting price of RMB 349,800. However, the large SUV market is already fiercely competitive, especially in the mainstream price range of RMB 300,000 to RMB 400,000. WEY's subsequent sales performance will not only determine the brand's success but also serve as a litmus test for the effectiveness of Great Wall Motor's direct sales model.

02. Reliance on Fuel Vehicles, Exchange Rate Fluctuations Impact Q1 Profits

Production and sales data reveal that in May alone, Great Wall Motor sold 100,400 new vehicles, down 1.79% year-on-year. From January to May 2026, sales reached 475,800 units, up 3.64% year-on-year.

According to the latest sales data from the China Passenger Car Association, in May 2026, retail sales in the domestic narrow passenger vehicle market reached 1.51 million units, down 22.1% year-on-year but up 9.2% month-on-month. Cumulative sales from January to May were 7.099 million units, down 19.5% year-on-year.

The China Passenger Car Association stated that in May, amidst intense market competition, high oil prices, and weak domestic demand, the 'decline of fuel vehicles and surge of new energy vehicles' emerged as the focal point. The steep decline in domestic retail sales of fuel vehicles propelled the new energy vehicle penetration rate to 62.9%, a record high.

Faced with the soaring penetration rate of new energy vehicles in the domestic market, Great Wall Motor's new energy transition confronts structural challenges. Relying on its deep-rooted presence in niche segments such as off-road vehicles, fuel-powered SUVs still occupy a significant position in Great Wall Motor's product portfolio. The lackluster competitiveness in the new energy sector is becoming a bottleneck restricting further market share expansion.

From January to May 2026, Great Wall Motor sold 110,000 new energy vehicles, accounting for 23.11% of total sales. Although new energy brands WEY and ORA achieved growth of 53.61% and 46.66%, respectively, their sales shares were only 7.84% and 3.28%. Notably, ORA's sales have declined sharply for two consecutive years, with overall sales still in a downturn in the first three months of this year.

Securities Star observed that faced with fierce competition in the domestic new energy sector, Great Wall Motor has vigorously expanded its overseas markets to seek new growth avenues and offset competitive pressures in the domestic market. By the end of 2025, Great Wall Motor's products had been exported to over 170 countries and regions, with more than 1,500 overseas sales channels. In 2025, Great Wall Motor sold 506,800 new vehicles overseas, up 11.6% year-on-year, a record high, accounting for 38.28% of total sales. From January to May 2026, overseas sales of new vehicles reached 231,300 units, up 46.75% year-on-year, with the sales share rising to 48.6%.

However, despite the rapid growth in overseas markets, their gross margin levels trail behind the domestic market. In 2025, the gross margin of overseas business fell by 2.06 percentage points year-on-year to 16.7%. In contrast, the domestic market gross margin was 18.61%, down 1.26 percentage points year-on-year.

Great Wall Motor stated that gross margin levels in overseas markets vary and fluctuate due to differences in taxes, fees, and transportation costs across countries and regions. The domestic market's Tank brand has delivered robust volume and profit contributions, significantly boosting the overall gross margin. Meanwhile, the Pickup brand, as a high-traffic category, has also made excellent gross margin contributions. In fact, Great Wall Motor's overseas market gross margin has been lower than the domestic market for two consecutive years.

Additionally, exchange rate fluctuations in overseas business have emerged as a significant factor affecting Great Wall Motor's performance. In the first quarter of 2026, Great Wall Motor remained ensnared in the dilemma of 'revenue growth without profit gain.' It achieved revenue of RMB 45.109 billion, up 12.72% year-on-year. However, net profit attributable to shareholders was RMB 945 million, down 46.01% year-on-year. Net profit excluding non-recurring items, which better reflects the true profitability of the core business, plummeted by 67.19% year-on-year to RMB 482 million.

Great Wall Motor explained that the year-on-year decline in net profit was primarily attributable to foreign exchange gains from exchange rate fluctuations in the same period last year. This caused financial expenses to surge from RMB -1.028 billion in the first quarter of 2025 to RMB 97 million in the first quarter of 2026, a difference of approximately RMB 1.1 billion. (This article is first published on Securities Star, Author | Lu Wenyan)

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