Produced by | Tankechuxing

Artistic Design | Qianqian

Editor | Songwen

The downfall of traditional automakers can happen in an instant.

In the first half of this year's financial results, GAC Motor revealed the "cover-up" of traditional automakers in the era of new energy vehicles with its near-bottom revenue and profit growth rates.

Data shows that GAC Motor's revenue for the first half of the year was 45.808 billion yuan, a year-on-year decrease of 25.62%; net profit attributable to shareholders of listed companies was 1.516 billion yuan, a year-on-year decrease of 48.88%.

The decline in net profit after deducting non-recurring gains and losses was even more pronounced. In the first half of the year, the company's net profit after deducting non-recurring gains and losses was -338 million yuan, a year-on-year decrease of 112.51%.

As China's new energy vehicle market undergoes rapid transformation, traditional automakers are increasingly struggling with the challenges of new energy vehicles. Amidst the turmoil, GAC Motor is under greater pressure than ever before.

Although GAC Motor attributes the decline in performance primarily to the impact of price wars in the domestic automotive industry and increased business and political investments, price wars are, after all, an industry-wide issue, and it is rare to see companies like GAC Motor experiencing simultaneous declines in both revenue and profit.

Looking at GAC Motor's business performance, its joint venture brands, GAC Honda and GAC Toyota, have been significantly affected by price wars, while its independent brand, GAC Aion, has also seen a year-on-year decline of 30% in monthly sales.

"GAC Motor's slowdown is all-encompassing and strategic, requiring a root cause analysis to clarify the direction," said Zhang Xiang, Secretary-General of the International Intelligent Transportation Technology Association.

Dramatically, amidst such urgent transformation needs, GAC Aion has embarked on a campaign of "black and red marketing".

On September 19, a topic titled #AION RT Takes on Mona 03# appeared on social media platforms. While the topic had no moderator, it generated significant discussion. Media reports revealed that the topic had a high degree of overlap with keywords in a GAC Aion press release.

This "bashing" behavior sparked heated debate within the industry. Moreover, prior to this, GAC Aion had also engaged in controversial collaborations, such as with online celebrity Sima Nan.

Under these circumstances, GAC Aion seems to be grasping at straws in desperation.

According to multiple media reports, including Wangshangcheshi, GAC Motor will change its existing management and control model and implement integrated operations for its independent brands, shifting towards operational management and control. At that time, GAC Motor's existing headquarters staff will relocate from the GAC Center in Guangzhou's CBD to the GAC Research Institute in Panyu, Guangzhou.

It is clear that GAC Motor's new round of reforms has already begun.

1. Sales Decline, Joint Ventures Retreating

GAC Motor can no longer afford to lose.

Based on current sales levels, GAC Honda and GAC Toyota account for over 60% of the group's overall sales and are undoubtedly the pillars of sales. However, even these once-strong joint venture brands are now struggling.

Data shows that GAC Honda sold a total of 207,900 vehicles in the first half of 2024, a year-on-year decrease of 28.28%; GAC Toyota sold 336,000 vehicles, a year-on-year decrease of 25.8%. Notably, GAC Honda's July sales of 33,300 vehicles marked the lowest level in nearly a decade for the brand.

(Image source: GAC Honda's official Weibo account)

Despite ongoing promotions and discounts by the two joint venture brands, they have failed to achieve significant results. In the first half of the year, the rate of decline even accelerated notably. According to Tankechuxing, the landing price of GAC Honda's flagship model, the Accord, which has a guide price starting at 179,800 yuan, has dropped to around 120,000 yuan, with a discount of nearly 60,000 yuan. Meanwhile, GAC Toyota's prices remain relatively stable, with discounts of around 30,000 yuan for its best-selling model, the Camry.

The price war sweeping through the automotive market has long affected joint venture brands, and the decline in sales of GAC Honda and GAC Toyota was foreseeable. In 2023, GAC Honda's annual sales declined by 13.66% year-on-year, while GAC Toyota's sales declined by 5.47% year-on-year.

Behind the decline in sales lies not only the relentless push of price wars but also strategic missteps in the transition to electric vehicles. In the past, Honda and Toyota were leaders in hybrid technology in the global market, but they have fallen behind in China's new energy vehicle industry chain. At the same time, unclear electrification plans have left the two brands without definitive electric products on the market, with their new energy vehicles relying heavily on introductions from GAC Motor.

This slow pace has left them far behind domestic brands.

Industry insiders have analyzed that China's new energy vehicle industry chain has reshaped the industrial landscape. In the past, the fuel economy and hybrid advantages of Japanese cars were not significant, and they were even surpassed by brands like BYD and new-energy vehicle startups, with diminished brand power.

More seriously, amidst weak sales, the two joint venture brands have resorted to layoffs to reduce costs and increase efficiency. Last July, GAC Toyota initiated a large-scale layoff in the Chinese market, affecting over a thousand employees. At the end of the year, GAC Honda also announced layoffs, affecting around 900 employees. In May of this year, layoff news surfaced again, with GAC Honda laying off over 1,700 additional employees, bringing the cumulative layoff scale to approximately 20% of its employees in the Chinese market.

Joint ventures are no longer the "evergreen tree" of GAC Motor. Previously, GAC Motor's joint venture projects with Fiat Chrysler, Acura, and Mitsubishi ended in failure, and now Honda and Toyota are caught in a dilemma of development.

2. Poor Performance, IPO Snafu

Similar to the situation of its joint venture "elders," GAC Aion is also struggling.

As a core business segment of GAC Motor, the poor performance of Aion, its self-developed new energy brand, has put significant pressure on GAC Motor.

Data shows that in the first eight months, Aion sold a total of 186,400 vehicles, a year-on-year decrease of 37.74%. Both monthly and cumulative sales declines were the highest among GAC Motor's internal brands. As of August this year, Aion's completion rate for its planned annual sales target of 700,000 vehicles was only 26.63%.

The declining sales have affected Aion's revenue. In the first half of this year, Aion's revenue was 12.401 billion yuan, a year-on-year decrease of 44.61%.

Specifically, Aion's higher-selling models are the AION Y and AION S, which are also Aion's main models in the ride-hailing market.

However, constrained by market saturation and intensified competition in the ride-hailing market in the first half of the year, coupled with the continuous price reductions of brands like BYD, Aion's competitiveness in the ride-hailing market has also declined. Meanwhile, the higher-priced AION V and AION LX have struggled to sell in significant numbers.

(Image source: Aion AION's official Weibo account)

Mr. Chen, an Aion Y ride-hailing car owner, told Tankechuxing that while Aion vehicles have ample space and good quality for ride-hailing purposes, they are not a choice for personal use due to their heavy ride-hailing label. "Ride-hailing cars are too distinct from private cars," he said. Industry insiders also noted that branding is crucial for a brand. "Apart from ride-hailing, Aion doesn't seem to have a more valuable product tag," they said.

The launch of Aion's new premium brand Hyperion in 2022 further shattered Aion's "premium dream". To date, Hyperion has launched three models - the Hyperion SSR, Hyperion HT, and Hyperion GT - but none have made a significant impact on the market. In 2023, Hyperion's cumulative sales were only 8,087 vehicles.

Struggling to shed its ride-hailing label and break into the mid-to-high-end market, Aion has resorted to unconventional marketing tactics.

In June this year, Aion invited online celebrity Sima Nan to visit its factory, but the news sparked backlash due to Sima Nan's controversial reputation. In July, when 360 Group's President Zhou Hongyi experienced the electric doors of the Hyperion HT, he accidentally got his hand caught, leading to a "reverse endorsement" effect.

Such tactics have become Aion's go-to method for attracting attention.

Aion's aggressive push into the mid-to-high-end market is not only to achieve better performance but also to obtain a higher valuation and enter the capital market. However, similar to Aion's current sales and performance dilemma, its IPO journey has been fraught with challenges.

At one time, Aion leveraged its cost-effectiveness and ride-hailing strategy to achieve solid sales. In 2022, GAC Motor Chairman Zeng Qinghong clearly mentioned that Aion's mixed-ownership reform was progressing smoothly, with Series A funding officially listed, and that the focus would be on advancing Aion's IPO efforts. After several rounds of funding, Aion's overall valuation exceeded 100 billion yuan.

However, a year later, the attitude of the capital market began to shift, and the progress of the IPO encountered setbacks.

In August this year, the Beijing Equity Exchange issued an announcement on the equity transfer of Guangzhou Automobile Group New Energy Co., Ltd. The announcement stated that the company planned to transfer part of its equity through the Beijing Equity Exchange, with China Cinda Asset Management Co., Ltd. as the main investor. However, the number or proportion of shares to be transferred was not mentioned, and the period was from August 1 this year to January 22 next year.

However, this news was quickly denied by Aion, and the announcement has since been withdrawn. An insider close to GAC Aion said that the equity transfer was not directly related to the IPO, and the progress of the IPO would depend on GAC Motor's announcements. Nowadays, the competition in the industry has intensified significantly. The IPO plan, which has been talked about for two years, has become increasingly challenging over time.

3. The Elephant Turns: GAC Needs a New Prescription

The aggressive marketing tactics and sluggish business growth reflect GAC Motor's anxiety about performance.

The group's interim report shows that apart from the decline in sales, the specific performance data is also unimpressive. The interim report revealed that the company's net profit after deducting non-recurring gains and losses turned from profit to loss, dropping from 687 million yuan in the previous quarter to -338 million yuan, a sharp decline of 149.20% quarter-on-quarter.

In addition, the company's supply chain management and profitability are also inadequate.

In the first half of the year, GAC Motor's gross profit margin on vehicle sales was only 2.19%, with an average gross profit per vehicle of only 776 yuan. Compared to the double-digit gross profit margins of most industries, GAC Motor faces considerable pressure. The low gross profit margin also reflects GAC Motor's difficulties in reducing costs and increasing efficiency within the supply chain.

Today, GAC Motor faces a comprehensive disadvantage across almost all business units.

In the past, GAC Toyota and GAC Honda were barometers of GAC Motor's performance. However, amid the intense competition in the automotive market and the collapse of joint venture brands, the two joint ventures have lost their former luster and urgently need to transition to new energy vehicles. On the other hand, Aion's brand premiumization has faltered, and its ride-hailing business is gradually losing ground to brands like BYD.

In September this year, the auction of GAC Motor's joint venture brand GAC FCA's Changsha factory failed for the third time due to a lack of bids.

GAC Motor's high-quality assets are dwindling.

At present, among all GAC Motor's brands, only GAC Trumpchi has relatively stable sales, but its average monthly sales of over 10,000 vehicles cannot solve GAC Motor's growth challenges.

(Image source: GAC Trumpchi's official Weibo account)

In today's increasingly competitive market, there are few opportunities left for GAC Motor to make mistakes.

In June this year, GAC Motor Chairman Zeng Qinghong said at the China Automotive Chongqing Forum that engaging in intense competition was not a solution. "What is the purpose of a business? It's to make a profit. And why do we make a profit? To contribute to society, including paying taxes and providing jobs. But now? Everyone is laying off employees, including GAC Motor," he said.

He expressed that GAC Motor is not opposed to price wars and is not afraid of them, but they must be rational and have a bottom line, not excessive.

While this seems to be an explanation of industry issues, Zeng Qinghong's "lament" also underscores the pressure faced by GAC Motor.

By October this year, the term of Zeng Qinghong, who is 63 years old, will come to an end. Ahead of him lies a market and industry pressure that GAC Motor has not faced in the past eight years of his tenure.

After the retirement of the former Chairman of SAIC Motor Corporation Chen Hong, Zeng Qinghong has become the last 63-year-old chairman of a state-owned automotive group.

However, according to an announcement issued by GAC Motor on September 30 regarding the postponement of the general meeting elections for the board of directors and supervisory board, the elections for the sixth board of directors and supervisory board will be appropriately postponed, and the terms of the special committees and senior management of the board of directors will also be extended accordingly.

Meanwhile, the latest news indicates that GAC Motor's reforms are underway. Recently, GAC Motor's headquarters will collectively relocate to the GAC Research Institute in Panyu, Guangzhou.

In response, GAC Motor told Jiemian News that the company is formulating a plan for deepening reforms, and the specific content of the plan is still being refined. It will be implemented in stages in the near future to ensure a smooth transition. "The implementation of the plan will help quickly respond to market demands, further improve operational efficiency and investment enterprise synergies, reduce operating costs, and promote the company's growth and high-quality development," the company said.

With shrinking joint venture brands and sluggish new energy transition, GAC Motor is indeed lacking a sufficiently robust growth point.

While the price wars in the market seem to have subsided, the underlying turmoil remains. How can GAC Motor find a foothold and get its development back on track? It remains to be seen how the market will ultimately test it.

*The lead image in this article is from the official website of GAC Motor.