Some do­mes­tic brands strug­gle on thriv­ing SUV, NEV seg­ments

Global Times - Weekend - - AUTO - By Wang Cong

It was not long ago when scores of do­mes­tic car­mak­ers rush to the thriv­ing seg­ments of sports util­ity ve­hi­cles (SUVs) and new-en­ergy ve­hi­cles (NEVs) and grab a sub­stan­tial share, but that might have come to an end.

Fi­nan­cial re­ports of 15 do­mes­tic com­pa­nies for the first half of the year high­lighted in­creas­ingly com­pet­i­tive mar­kets for both seg­ments and some com­pa­nies’ rev­enues and prof­its have been se­ri­ously plagued by the com­pe­ti­tion.

BYD Auto Co, one of the largest NEV mak­ers in the coun­try, re­ported a year-on-year 23.75 per­cent de­cline in its net profit for the first half of the year to a lit­tle more than 1.7 bil­lion yuan ($259.9 mil­lion), while rev­enue fell 0.2 per­cent to 45 bil­lion yuan, ac­cord­ing to the com­pany’s fi­nan­cial re­port re­leased on Au­gust 29.

In the re­port, BYD at­trib­uted the sharp fall in net profit to “a cer­tain de­gree of de­cline” in NEV sales dur­ing the pe­riod, due mainly to ad­just­ments to sub­si­dies for the NEV sec­tor, though the com­pany re­mained the top NEV seller in the coun­try, with a to­tal of 19.5 per­cent of the do­mes­tic mar­ket.

Data from the China As­so­ci­a­tion of Au­to­mo­bile Man­u­fac­tur­ers (CAAM) showed that BYD sold 35,500 NEVs in the first half of the year, down 27 per­cent from last year.

BYD is hardly alone. An­other do­mes­tic car­maker that has been dragged down by slow NEV sales is Chongqing-based Li­fan Group.

Li­fan’s listed unit re­ported on Au­gust 23 that net profit for the first half of the year fell more than 32 per­cent year-on-year, af­ter sales of NEVs plunged nearly 60 per­cent to a mere 1,624 units.

JAC Mo­tors head­quar­tered in He­fei, cap­i­tal of East China’s An­hui Province, also citied slow growth in NEV sales for a year-on-year 40 per­cent de­cline in net rev­enue, specif­i­cally pointed out the phas­ing out of sub­si­dies for NEV sec­tor.

SUV woes

Apart from NEV, the SUV seg- ment, which has been a high­light of the Chi­nese auto mar­ket for the past few years, also dragged down sev­eral do­mes­tic car­mak­ers in the first half of 2017.

Great Wall Mo­tors saw its net profit plung­ing nearly 50 per­cent year-onyear in the first half of the year. The com­pany said in its fi­nan­cial re­port re­leased on Au­gust 25 that ris­ing pres­sure and costs in the SUV seg­ment con­trib­uted largely to the fall in net profit.

Af­ter a year-on-year 9 per­cent fall in June, Great Wall Mo­tors’ SUV sales in the first half grew 4.2 per­cent yearon-year, sig­nif­i­cantly slower than over 20 per­cent growth seen in the same pe­riod last year.

Great Wall is the na­tion’s top SUV seller with its widely pop­u­lar Haval models.

Ac­cord­ing to an es­ti­mate by Car Prophet, a car in­dus­try me­dia out­let, SUV sales ac­count for nearly 95 per­cent of Great Wall’s over­all sales.

JAC Mo­tors was also se­verely hit by sharp de­clines in SUV sales in the first half. The com­pany, which has been ru­mored to pur­chase Fiat Chrysler, saw a year-on-year 50 per­cent drop in its SUV sales to 67,200 units dur­ing the pe­riod.

Zo­tye Auto also saw a year-on-year 18 per­cent de­cline in its SUV sales for the first half of the year, though the com­pany said its net profit nearly quin­tu­pled in the first half to 222 mil­lion yuan, ac­cord­ing to fi­nan­cial re­ports it re­leased on Au­gust 21.

How­ever, an­a­lysts say the surge in net profit was due mainly to a pur­chase of Yongkang Zo­tye Auto Co’s full stake and the merger of their fi­nan­cial re­ports.

Ris­ing com­pe­ti­tion

It was ris­ing com­pe­ti­tion that th­ese com­pa­nies were trou­bled in the SUV and NEV seg­ments rather than over­all de­clines in those seg­ments that led to sales plunge, an­a­lysts said, point­ing to ro­bust sales in both ar­eas.

De­spite slow growth in pas­sen­ger car sales in the first half, SUV and NEV sales re­mained rel­a­tively strong. In the first half of the year, pas­sen­ger car sales grew by 1.61 per­cent year-onyear to a lit­tle more than 11.25 mil­lion units, but SUV and NEV sales in­creased 15.7 per­cent and 14.4 per­cent on a year-on-year ba­sis, re­spec­tively, ac­cord­ing to data re­leased by the CAAM in July.

“The trend for SUV and NEV hasn’t changed. The two seg­ments has been and will con­tinue to be the main en­gine for over­all car sales in the Chi­nese au­to­mo­bile mar­ket, at least for the fore­see­able fu­ture,” Zeng Zhiling, an an­a­lyst at Shang­hai-based con­sul­tancy LMC Au­to­mo­tives, told the Global Times on Tues­day.

Zeng said SUV is still widely pop­u­lar among con­sumers and a high­light in the coun­try’s auto mar­ket. “It’s not like the Chi­nese peo­ple all of sud­den don’t like SUVs any­more; On the con­trary, I think more and more peo­ple are into SUVs,” Zeng noted.

As to NEV, Zeng said that is the fu­ture. “No one can change that. Even if you don’t like NEVs, the gov­ern­ment will make you do so be­cause of en­vi­ron­men­tal con­cerns,” he added.

So why then th­ese com­pa­nies saw SUV and NEV as a prob­lem for their rev­enue and net prof­its?

“It was con­stantly ris­ing com­pe­ti­tion from not only other do­mes­tic brands but some for­eign-de­motic joint ven­tures,” said Wu Shuocheng, a Shang­hai-based in­de­pen­dent in­dus­try ex­pert.

Wu told the Global Times on Tues­day that the SUV mar­ket is not what it used to be, “where do­mes­tic car com­pa­nies can just jump in with a low-end, in­ex­pen­sive model and could still suc­ceed.”

He said driv­ers have be­come very picky with all the avail­able models, in­clud­ing bet­ter and more af­ford­able models from do­mes­tic-for­eign joint ven­tures such as Beijing Mercedes-Benz and BMW Bril­liance.

In the NEV sec­tor, com­pe­ti­tion is prob­a­bly even tougher as al­most all of the car­mak­ers, both for­eign and do­mes­tic, have in­vested heav­ily in the seg­ment, ac­cord­ing to Wu.

An­a­lysts also added that the gov­ern­ment’s de­ci­sion to phase out sub­stan­tial sub­sidy to NEV de­vel­op­ment and pur­chases might have also con­trib­uted to the fall of some car­mak­ers’ rev­enues and prof­its.

Road ahead

How­ever, Wu said, “You can’t say we will stop our en­deav­ors in SUV or NEV just be­cause com­pe­ti­tion is get­ting worse. Th­ese two ar­eas are not to be missed by any com­pany.”

Many Chi­nese an­a­lysts ap­pear to agree that there will be con­tin­ued growth in SUV and in what they de­scribe as the fu­ture of the car in­dus­try – NEV.

Com­pa­nies are also com­pet­ing to move ahead of each other in th­ese two ar­eas.

Zhe­jiang Geely said in its mid-year re­port that the com­pany has re­duced the pro­por­tion of sedans in its sales to 55 per­cent in the first half of 2017 from 69 per­cent in 2016.

“[We will] launch more all-new SUV models later this year and bet­ter grasp the fast-ris­ing de­mand for SUV in China,” the com­pany said in the re­port on Au­gust 16.

Even JAC Mo­tors, which was hit by SUV de­clines, said the com­pany will fo­cus on more niche ar­eas of the seg­ment.

Al­most all the fi­nan­cial re­ports from the 15 do­mes­tic brands ex­plic­itly men­tioned their fu­ture strate­gies in the SUV and NEV sec­tors.

“All have to move in this di­rec­tion, but some will gain and some will lose,” Wu said.

Photo: VCG

Great Wall Mo­tors’ new sports util­ity ve­hi­cle Pi4 VV7X de­buts at the 17th In­ter­na­tional Au­to­mo­bile In­dus­try Ex­hi­bi­tion in Shang­hai in April.

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