21 October 2018

Great Wall Motor may rev up again after adding new capacity

With its latest vehicle sales figure falling short of market expectations, Great Wall Motor (02333.HK) saw its shares fall for the fourth consecutive trading session on Monday. The investor wariness is understandable, but it may be too early to jump to a grim conclusion that the Chinese homegrown automaker has already passed its business peak.

A recent survey by the China Passenger Car Association has indicated that Great Wall Motor has fallen behind in the sport-utility-vehicle (SUV) race. While industry sales overall in the SUV segment have surged 70.3 percent in October, Great Wall posted only 52.6 percent growth.

The sales slowdown has sparked concerns that the company has begun to suffer in an increasingly overcrowded market. There are now more than 100 SUV models available in the country, compared to only 44 in 2010, as the China Business News noted.

In fact, Great Wall’s bestselling SUV – the H6 — is facing a two-front war: from joint-venture brands as well as homegrown alternatives. Joint-venture brands are scrambling to enlarge their market shares while homegrown labels such as Geely Automobile’s (00175.HK) GX7 have outperformed the H6 lately in sales growth, poses a growing threat to Great Wall Motor.

However, keener competition does not fully explain the recent underperformance of Great Wall Motor, given that SUV demand in the country is still expanding at a breakneck pace. Taking a closer look, some of the blame, in fact, can be laid at the company’s door itself, in terms of the capacity constraint faced by the Baoding-based firm.

In the first ten months this year, Great Wall Motor saw its total sales exceed 621,000 units, implying that the company is cranking out at a rate close to its capacity ceiling of 800,000 units a year. Under this circumstance, the domestic brand had no alternative but to shift into lower gear in the final quarter of 2013.

Therefore, the unsatisfactory sales in October could be more of a temporary problem rather than pointing to a long-term issue. When planned new capacity comes on stream in the next two years, such growth bottleneck for Great Wall Motor should ease considerably.

As for the stiffer competition, Great Wall Motor is actually well prepared. Its strategy is to steer away from the entry-level market and move up along the value ladder. The much-anticipated H8, the brand’s next generation flagship model targeted at the mid-range market, is about to make its debut this month. The higher-margin SUV may shore up the profitability of the company another notch.

– Contact the writer at [email protected]



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