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Foton Automobile (600166.SH), which claims to be "China's most comprehensive and largest commercial vehicle enterprise," has experienced a downward trend amid rising sales of major industry players this year.

According to Foton's recently released production and sales bulletin, the company sold a total of 300,200 vehicles in the first half of this year, a decrease of 1.21% from the same period last year. Among them, sales of medium and heavy trucks, large buses, light buses, and passenger vehicles have all declined to varying degrees year-on-year.

Furthermore, affected by the decline in sales, Foton's performance has also been less optimistic this year. In the first quarter, operating revenue was 12.87 billion yuan, a year-on-year decrease of 14.05%; net profit attributable to shareholders was 256 million yuan, a year-on-year decrease of 13.96%.

In terms of share price, as it has basically remained around 2-3 yuan per share in recent years, significantly lagging behind other companies in the same sector, Foton Automobile has also been questioned by many investors. Some investors have left messages on the Shanghai Stock Exchange e-interaction platform questioning Foton: Why has the company consistently failed to gain recognition from the capital market, with zero share price growth in 17 years, which is truly alarming.

There have even been investors directly asking the company secretary whether the company faces delisting risks. In response, Foton Automobile stated that the company's operations and management are normal, there is no risk of delisting, and the company is confident in the future development of the industry and itself.

So, what exactly went wrong with the "large and comprehensive" Foton Automobile? Is it all due to the previous Cummins gas engine emission incident? In the increasingly competitive market environment, what measures can Foton Automobile take to regain growth?

1

Difficult to Resist Sales Decline ●

Data shows that Beijing Automotive Group Foton Motor Co., Ltd. is a leading enterprise in the production and manufacturing of domestic commercial vehicles and components. It was established in August 1996 and listed on the Shanghai Stock Exchange in June 1998.

Since its establishment, Foton Automobile has achieved rapid development, creating the "Foton speed." It is the first Chinese commercial vehicle enterprise to surpass 10 million sales and the fastest to achieve this milestone globally. It has also ranked first in sales in China's commercial vehicle industry for 19 consecutive years and first in overseas export sales for 13 consecutive years.

However, despite being an industry leader, Foton Automobile has struggled to resist the decline in sales this year. According to the latest production and sales bulletin, the company sold a total of 300,200 vehicles in the first half of this year, a decrease of 1.21% from the same period last year.

Among them, the cumulative sales of medium and heavy trucks in the current year were 54,200 units, a year-on-year decrease of 14.85%; large bus sales from January to June decreased by 8.57% year-on-year to 2,101 units; light bus sales decreased by 5.09% year-on-year to 26,000 units; passenger vehicle sales were 1,515 units, with the most severe year-on-year decline of 30.06%.

As the overall industry data for the first half of the year has not yet been released, let's move the timeline to January-May this year. In the first five months of this year, Foton Automobile sold a total of 250,200 vehicles, a decrease of 2.8% from the same period last year, when it sold 257,400 vehicles. Among them, the cumulative sales of medium and heavy trucks, large buses, light buses, and passenger vehicles decreased by 14%, 34.34%, 5.28%, and 32.57%, respectively, year-on-year.

According to data from the China Association of Automobile Manufacturers, from January to May this year, commercial vehicle sales reached 1.731 million units, an increase of 7.1% year-on-year; passenger vehicle sales reached 9.765 million units, an increase of 8.5% year-on-year. It can be seen that Foton Automobile's sales performance in the first five months of this year was not ideal, experiencing a downward trend against the overall market.

In response, many investors have begun to question Foton's sales capabilities, leaving messages on interactive platforms to inquire about the situation. Foton Automobile's response was that the overall sales decline in January-May was mainly affected by public opinion surrounding gas engines.

The so-called gas engine public opinion refers to a letter of complaint against design defects and the installation of pressure relief valves in Cummins engines that garnered widespread attention in the industry in March this year. Later, Tan Xuguang, Chairman of Weichai Group, also publicly stated that Cummins' 15-liter natural gas engine did not comply with publicly disclosed environmental information, plunging the natural gas engine into an "emission controversy."

Foton Automobile is an important partner of Cummins in China, with each company holding 50% equity in the joint venture Beijing Foton Cummins Engine Co., Ltd. Therefore, almost all of Foton Automobile's natural gas heavy trucks are equipped with Foton Cummins natural gas engines, which have also been significantly affected.

However, the impact of the gas engine public opinion incident may be only part of the reason. In addition, the fact that Foton Automobile's traditional strongholds have been impacted by price wars is undeniable, and it is expected that it will take some time for sales to recover. It is known that Foton Automobile's sales target for this year is to ensure a total sales volume of 700,000 vehicles and strive for 750,000 vehicles, but with half of the year gone, it has only achieved 42.89% of the minimum target.

2

Is the Share Price "Stagnant"? ●

Perhaps sales issues are not the biggest concern for Foton Automobile investors. Judging from the monthly sales in May and June, there has been a trend of recovery. If the company can continue to adjust its marketing strategy according to market changes, align its products, and focus on its commercial vehicle business, regaining growth is possible.

However, profit and share price issues may not be as easily resolved, and they are currently the most concerning and worrisome for Foton Automobile investors.

For example, regarding profitability, some investors have left messages on interactive platforms stating that regardless of brand, market share, scale, technology, and other aspects, Foton Automobile is a top-tier player in China, but why is its profit always low? Although profits improved in 2023, they began to decline again in the first quarter of this year, disappointing value investors who did not benefit from the company's growth.

Financial report data shows that in 2023, Foton Automobile achieved operating revenue of 56.097 billion yuan, an increase of 20.78% year-on-year; net profit attributable to shareholders was approximately 909 million yuan, an increase of 1262.27% year-on-year. However, in the first quarter of this year, Foton Automobile's operating revenue was 12.87 billion yuan, a year-on-year decrease of 14.05%; net profit attributable to shareholders was 256 million yuan, a year-on-year decrease of 13.96%.

In response, Foton Automobile explained that the year-on-year decline in net profit attributable to shareholders in the first quarter of this year was mainly due to the company's increased investment in research and development of new energy products and core components, resulting in increased R&D expenses for the period. However, the company continued to promote cost reduction across the entire value chain, with continuous improvements in gross margin and selling expense ratio, and welcomed investors to conduct on-site investigations into the company's intrinsic value.

Regarding share prices, even more investors are concerned. Many investors have asked: Will Foton Automobile's share price continue to fall, even to the point of delisting? Can the company introduce and implement a repurchase and cancellation plan as soon as possible to stabilize share prices and boost investor confidence? Given the current share price situation, does Foton Automobile have any measures related to market value management?

It is reported that although Foton Automobile is a leader in the industry, its performance in the capital market has always been unsatisfactory. "CarVisibility" has noticed that the company's share price has not shown significant improvement over the past decade, appearing overall like a "stagnant pond."

For example, on June 29, 2007, Foton Automobile's closing price was 2.78 yuan per share, while on June 28 of this year, its closing price was 2.25 yuan per share, and on July 9, the latest date, it was 2.28 yuan per share. Over more than a decade, the share price has not only failed to rise but has even declined slightly, which is no wonder investors are complaining, lamenting the "zero growth in 17 years" as "alarming."

Foton Automobile itself is probably quite helpless about this situation, stating that share prices are influenced by a combination of factors such as the overall market, company performance, investor judgments, and industry development. It also said that the company has always attached great importance to investor rights and market value management, having specifically established a Market Value and Securities Management Department to be responsible for the company's market value management work. In the future, it will continue to enhance its core competitiveness and intrinsic value to reward shareholders.

As for how far into the future this "future" is, it remains to be seen.

3

Transformation Still Requires Effort ●

Regarding future development, Foton Automobile stated that the company will firmly focus on its commercial vehicle business, persist in promoting the implementation of its "new energy strategy" and "overseas strategy," and continuously enhance its core competitiveness.

At the same time, the company also mentioned that the national "3060" dual-carbon strategic goal marks China's comprehensive embarkation on a green and low-carbon development path. The commercial vehicle industry is crucial to reducing emissions in the transportation sector, and green, environmentally friendly, high-efficiency, and high-safety have become the common trends in the global development of commercial vehicles. Currently, the traditional commercial vehicle market is accelerating its transformation towards the new energy market, with the new energy strategy being the company's top priority. Foton Automobile has formulated a 30•50 new energy strategic plan to guide the company's long-term development in new energy.

According to the 30•50 strategic plan, by 2030, Foton Automobile's new energy share will exceed 50%, making it a world-class new energy commercial vehicle enterprise; by 2050, it aims to achieve carbon neutrality and become a global leader in green transportation ecology.

In fact, Foton Automobile is one of the earliest enterprises in the domestic commercial vehicle sector to begin layout in new energy R&D and manufacturing. It started research and development of new energy technologies as early as 2003, established a Foton new energy vehicle design and manufacturing industrial base in 2008, founded the Zhilan New Energy Business Department in 2018, and made new energy vehicles the focus of its future strategic development in 2022.

However, despite starting early, Foton Automobile is still far from its planned goals, with new energy sales accounting for only a small portion of its total sales. Data shows that last year, Foton Automobile sold a total of 631,000 vehicles, of which 40,000 were new energy vehicles, accounting for only 6.35%.

In the first half of this year, Foton Automobile sold 20,000 new energy vehicles, accounting for 6.66% of total sales, an improvement over last year but almost negligible. At this growth rate, it will be challenging to achieve a new energy share exceeding 50% by 2030.

In addition, Foton Automobile is also making layouts in hydrogen production, utilization, and fuel cell vehicle development, planning a full range of hydrogen-fueled commercial vehicle models for different application scenarios, covering buses, light trucks, medium trucks, and heavy trucks. However, from January to April this year, the company sold a total of 185 hydrogen-powered products, which has yet to form a significant scale.

Judging from the current industry development, the task of "decarbonization" in the commercial vehicle sector is arduous, and Foton Automobile still needs to step up its efforts to lead the industry on the path of new energy transformation.

Author | Bai Yuan

Source | CarVisibility

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