Dongfeng Motor's independent brands are finally showing signs of momentum.

According to data disclosed by Dongfeng Motor, its independent brands LANTU and Dongfeng Yipei sold 10,001 and 10,010 vehicles in September, respectively, with both exceeding 10,000 sales.

Since the implementation of the 'Three-Year Action Plan for Transformation and Upgrading' in 2023, Dongfeng Motor has completed one year of transformation and upgrading. Judging from the sales of its independent brands in recent months, the results have been quite satisfactory.

However, unlike the gradual momentum of independent brands, Dongfeng Motor's joint venture business is declining rapidly. Taking Dongfeng Nissan, a larger player, as an example, it sold 46,479 vehicles in August this year, a significant year-on-year decline of 28.39%. From January to August this year, Nissan's cumulative sales in China reached 435,603 vehicles, also down 9.8% year-on-year.

Previously, Kanjian Finance mentioned in its analysis of Guangzhou Automobile Group that joint venture business is an important 'cash cow' and the main source of profit for automakers, which also applies to Dongfeng Motor. Currently, after Dongfeng Motor shifted its focus to independent brands, several major independent brands are indeed gaining momentum. However, faced with the declining joint venture business, independent brands obviously cannot make up for the profit gap. Before independent brands grow to sales of over 100,000 vehicles, Dongfeng Motor still needs to endure for some time.

Joint venture business 'lost'

Dongfeng Motor has not been doing well in recent years.

In terms of performance, Dongfeng Motor achieved revenue and net profit of RMB 51.14 billion and RMB 684 million, respectively, in the first half of this year, representing year-on-year growth rates of 12.06% and -47.95%, respectively. Although revenue achieved double-digit growth, net profit nearly halved.

In 2023, Dongfeng Motor suffered a net loss of RMB 3.996 billion, its worst performance in the past decade.

The reason for the huge loss is closely related to the decline of the joint venture business. Dongfeng Motor's business can be divided into two categories: independent brands and joint venture brands. Looking back, Dongfeng Motor's predecessor was the 'Second Automobile Manufacturing Plant', China's first large-scale comprehensive automobile manufacturing plant designed entirely independently and one of the first large state-owned automobile factories in China to initiate cooperation with foreign brands to manufacture vehicles, having partnered with foreign automobile brands such as Peugeot Citroën, Nissan, Honda, Kia, and Cummins.

As mentioned above, the joint venture business is an important 'cash cow' for Dongfeng Motor and the main source of profit, especially Dongfeng Nissan and Dongfeng Honda. Taking Dongfeng Honda as an example, it contributed more than RMB 4.7 billion in direct profit to Dongfeng Motor Group in 2019. Looking at a longer period, Dongfeng Motor earned substantial profits during the years when joint venture brands were highly sought after. From 2016 to 2019, Dongfeng Motor's net profit exceeded RMB 12 billion each year, peaking at RMB 14.06 billion in 2017.

However, as domestic automobile brands such as BYD, Geely, and Chery have gradually risen in recent years, the besieged joint venture brands have rapidly declined. Taking Nissan as an example, its sales in China were 1,381,494 vehicles in 2021, down 5.2% year-on-year; in 2022, sales in China were 1.045 million vehicles, down more than 20% year-on-year; and in 2023, sales in China fell sharply again, with annual sales of 793,800 vehicles, down nearly 25% year-on-year. As of 2024, Nissan has shown no signs of stopping the decline. From January to August this year, Nissan sold 435,603 vehicles in China, down 9.80% year-on-year. Based on the current trend, Nissan is highly likely to experience a fourth consecutive annual decline in sales.

The decline of joint venture brands has had a significant impact on Dongfeng Motor. According to its disclosed semi-annual report, the net profit attributable to Dongfeng Motor Group from its joint ventures decreased from RMB 1.403 billion last year to RMB 753 million in the first half of this year, a year-on-year decline of 46.33%. It is worth noting that during the peak period of joint venture brands in 2017, the net profit attributable to Dongfeng Motor Group from its joint ventures once reached RMB 13.57 billion and has since remained above RMB 10 billion, but it plummeted to RMB 513 million in 2023.

Currently, the decline of joint venture brands is an 'inevitable trend,' and Dongfeng Motor is aware of this, so it began cultivating independent brands early on.

Independent brands 'relay'

Currently, the decline of joint venture brands is an 'irreversible' trend.

According to media statistics, in 2020, independent brands accounted for only 35.8% of the overall automobile market share, while mainstream joint venture brands accounted for 51.1%. By August 2024, the market share of independent brands had risen to 63.4%, while that of mainstream joint venture brands had fallen to 28.8%.

For Dongfeng Motor, the decline of joint venture brands is undoubtedly bad news but a fact that it must accept.

In recent years, Dongfeng Motor has been undergoing 'transformation.' For example, in April last year, Dongfeng Motor launched the 'Three-Year Action Plan for Transformation and Upgrading,' aiming to fully electrify all new models of Dongfeng's independent passenger car flagship brands by 2024 and to achieve a sales ratio of 1:1 between Dongfeng's independent passenger cars and joint venture brands, each reaching 2 million vehicles, by 2025, with new energy vehicles accounting for 50% of independent brand sales and 70% of independent passenger car sales. In August, Dongfeng Motor made significant adjustments to the management system of its independent passenger car new energy business, announcing the group's integrated management of the marketing, manufacturing, product planning, and project management of three product series brands under the 'Dongfeng' brand: Dongfeng Fengshen, Dongfeng Yipei, and Dongfeng Nano.

With the advancement of a series of 'transformations,' Dongfeng Motor's independent brands have gradually gained momentum. According to data, LANTU sold 10,001 vehicles in September, and Dongfeng Yipei sold 10,010 vehicles, with both independent brands exceeding 10,000 sales simultaneously.

However, compared to joint venture brands, although the sales of independent brands have improved, they have not yet reached the level to take over from joint venture brands. Taking the high-end new energy automobile brand 'LANTU' as an example, its cumulative sales in the first eight months were 41,300 vehicles, representing a year-on-year growth of 86.03%, but the average monthly sales were just over 5,000 vehicles. Although this sales figure is not too bad, there is still a huge gap compared to leading new energy automakers such as Lixiang One, NIO, and Xpeng.

Furthermore, according to media statistics, among Dongfeng Motor's three brands 'Dongfeng Fengshen, Dongfeng Yipei, and Dongfeng Nano,' Dongfeng Fengshen's average monthly sales in the past six months were only 8,500 vehicles; Dongfeng Yipei's cumulative sales since March, when sales data became available, were 21,900 vehicles; and Dongfeng Nano's current monthly sales are less than 4,000 vehicles. From the sales data, although Dongfeng Motor has many new energy brands, few of them are selling well.

It is worth noting that in order to promote the sales of independent brands, Dongfeng Motor has significantly increased its sales expenses in recent years. In the first half of this year, Dongfeng Motor's sales and distribution costs were RMB 4.165 billion, an increase of RMB 527 million or 14.5% compared to RMB 3.638 billion in the same period of 2023. In 2023, Dongfeng Motor's annual sales and distribution costs were as high as RMB 8.221 billion, a significant increase of RMB 1.652 billion or 25.15% compared to RMB 6.569 billion in 2022.

Currently, although independent brands are gaining momentum, they obviously cannot make up for the profit gap caused by the declining joint venture business. Before independent brands grow to sales of over 100,000 vehicles, Dongfeng Motor still needs to endure for some time.