Profitability is a measure of self-development

Recently, the 2014 annual financial reports of domestic auto companies have been issued one after another. Although the overall profitability has reached a record high, it is still a joint venture segment that acts as a “profit dairy cow,” and its own profitability is not only low, but it is still at a loss.

“Although the vehicle companies, which mainly consist of state-owned enterprises, have earned a lot of money through joint ventures, they have frequently invested billions and billions in investing in their own brands. However, if it is too late to be profitable, it is not only impossible to talk about sustainable development. It shows that the independent brands built on this basis have no prospects at all.” Cao He, an analyst at National Securities, told the China Economic Net Automotive reporter.

At present, companies such as FAW, SAIC, BAIC and Changan have not achieved profitability, and they all need to use the profits of the joint venture to feed back. However, contrary to large groups that have advantages in policies, technology, and financial resources, but have lagged behind in self-development, the annual net profit of the controversial Great Wall Motors in the past year was as high as 8.041 billion yuan.

“The auto industry is a economies of scale. Only by accumulating quantity can we achieve qualitative change. The development experience of the Great Wall is also the same.” In Cao Crane's view, Great Wall Motor’s success is due to the SUV’s focus strategy, which enables quantitative change to qualitative change. “State-owned enterprises have no advantage in system and cost control. Turning losses into profit as soon as possible is a difficult problem that currently plagues self-government, especially the development of independent brands under the national prefix. However, it is also a necessary stage for development. Only by doing so, can it be realized. Quality change."

Great Wall Motor’s official financial report in 2014 also clearly pointed out that increasing the proportion of SUVs and adjusting the product structure based on the market environment led the Group’s revenue to continue moving forward.

Last year, Great Wall Motor sold a total of 730,000 vehicles (including pickup trucks) and its SUV sold a total of 520,000 vehicles, an increase of approximately 25% year-on-year. Among them, Haval H6 sold a total of 316,000 vehicles and ranked first in sales of SUVs. The Haval H2 listed last year also performed well, with an average monthly sales of 10,000 units. The Haval H9, a high-end SUV model priced at nearly 300,000 yuan, also sold about 5,000 vehicles in the last two months, which not only basically reached expectations, but also indicated that Great Wall Motor’s upward strategy is steadily advancing.

Outside the Great Wall Motor, it is expected that the qualitative change will be achieved through quantitative changes, and Chang’an Automobile will be considered as one. In 2014, Changan’s autonomous passenger vehicles sold a total of 710,000 vehicles, an increase of approximately 30% year-on-year. Among them, about 330,000 cars were sold, and 149,900 units were sold by Chang'an Automobile. It was a self-owned car that sold 10,000 vehicles in a few months. About 195,000 SUVs were sold, and CS35 and CS75 (listed at the end of April last year). It sold 100,000 cars and 53,000 cars respectively; MPV sold about 185,000 cars; Changan Ono sold about 140,000 cars.

Although it is still in loss, its 2014 financial report shows that with the increase in sales volume, business operations have significantly reduced losses. At the same time, Ping An Securities analysis also pointed out that the hot sales of SUV models CS35 and CS75 have significantly increased the gross profit margin of Changan’s autonomous passenger vehicles. In 2015, with the support of SUV products and the new vehicle Yue Xiang V7, it is expected that the sales of autonomous passenger vehicles (excluding MPV) will reach 700,000 units, and the Changan passenger vehicle business segment is expected to achieve profitability.

Even so, there are also people in the industry who say that compared to the Great Wall’s annual profit of nearly 10 billion yuan, Chang’an is still far behind in the short-to-medium term. Under the pressure of joint ventures to cut prices, the situation is particularly grim. If the status quo continues, the prospects become increasingly worrying and even more fearful of facing life and death.

Cao He expressed his agreement with this. He pointed out that the production space has become narrower and narrower. Some domestic companies may have missed the development space completely, and serious ones will be eliminated in the next three years. “A long time ago, if it is difficult to solve the problem, even if it is difficult to solve the problem, how can we talk about development? High profitability is a measure of the status quo of the company. Although companies such as FAW, SAIC, etc. have invested a lot, they have actually achieved very little. Also need to reverse the development of ideas? To know that there is not much time left for everyone."

Regarding the trend of large-group self-employed plates, Cao He also said that the phenomenon of circulation of wind turbines in the local automobile ecosystem is still a problem. Although Changan Automobile is expected to achieve profitability, as a company that has just landed, it must not allow for the slightest slack.

It is reported that this year, Changan’s autonomous passenger vehicles have been targeted at 800,000 vehicles, and the SUV is the main force. CS35 variant models, the CS75 four-wheel drive version and the high-end SUV model CS95 will all be launched during the year. In contrast, the major rivals Great Wall Motor, Haval H7, Haval H8 two new SUVs will be listed during the year, and a number of existing models of refitted cars are already in the planning. Therefore, this year's competition between Changan Automobile and Great Wall Motors focusing on SUVs will be more interesting.