SAIC Motor Group, a Chinese automobile company, has won the top spot in Chinese automobile sales for 18 consecutive years, but the capital market doesn't seem to be buying it.

Currently, SAIC Motor's market value is only around 167 billion yuan, far behind BYD's 630 billion yuan and Great Wall Motor's 230 billion yuan. The market gave it a valuation of 11.9 times, which is also far lower than 20.7 times and 22.9 times the latter two.

SAIC Motor's stock price peaked in 2018. Since then, it has fluctuated and declined, and the current price has retreated by about 50% from its historical peak. In the same period, BYD soared by more than 230%, and Great Wall Motor surged by more than 140%.

Currently, the SAIC gasoline and fuel vehicle business continues to shrink, dragging down the basic performance market; on the other hand, the NEV business, which has been given high hopes, does not have many highlights.

Why are there major changes in the alternation of old and new oil and electric cars, and where are its future breakthroughs?

01

In 2013-2018, SAIC Motor's total sales volume continued to rise, and the national market share remained at a high level of 23% to 25%.

However, after 2018, the company's development ushered in a turning point. Since then, sales declined all the way, to 5.02 million units in 2023, down more than 2 million units from its peak. The decline was as high as 28.8%. The market share also fell further to 16.7%, which is still higher than that of large automobile groups such as BYD, Changan, and Guangzhou Automobile, but the gap has narrowed markedly.

Looking at the sales structure, the share of new energy vehicles continues to increase, reaching 22.4% in 2023, but the absolute value is still low. The total sales volume of new energy vehicles last year was 1.123 million units, up 4.6% year on year, far below the national average of 37.9%. Among them, the Wuling Hongguang MINI EV is its handlebar, with sales volume of 329,000 units, accounting for about 30% of total sales of new energy. However, the model was priced at a low end and could not contribute much to the Group's profits. It is positioned as a relatively high-end independent brand called Zhizhi and Extraordinary Auto, and its sales performance is not as good as expected.

As overall sales continued to decline, SAIC Motor's performance also continued to weaken. In 2023, revenue was 744.7 billion yuan, which was basically the same as the previous year, down 17.5% from the peak in 2018. Net profit attributable to mother was $14.1 billion, down 12.5% year on year, and down more than 60% from 2018.

Obviously, SAIC Motor's net profit declined far higher than its revenue margin, indicating a deterioration in profitability. Judging from the data, as of the end of the first quarter of this year, gross sales margin was 8.84% and net margin was 2.05%, down 4.4% and 3.4% respectively from 2018. Furthermore, the return on net assets last year was only 4.98%, the lowest since listing in 1997 (excluding the 2008 subprime mortgage crisis).

Taken together, SAIC Motor's core operating indicators such as revenue, return to mother profit, gross profit margin, and net interest rate all showed varying degrees of decline. Against this backdrop, it is reasonable for SAIC Motor's valuation level to move downward. Currently, SAIC Motor's PE is only 11 times higher, and PB has been broken continuously for many years, falling from 3 times in March 2018 to 0.57 times today.

02

Over the past many years, SAIC Motor has taken advantage of the joint venture era and won for many years. Today, the pattern of China's automobile industry has undergone drastic changes, and the challenges of joint ventures are yet to come.

As of April this year, Chinese brand passenger cars have continued to rise, and the monthly market share and cumulative market share have surpassed 60%, a record high, a significant increase of 22.3% from 38.4% in 2020.

Meanwhile, the share of joint venture car brands has been reduced to 40%. Among them, Japanese car brands saw the sharpest decline, falling to 12.2%. German car brands are also showing significant Waterloo, which is currently only 16.6%.

At BYD's 2023 earnings report and investment conference, Wang Chuanfu boldly predicted that in the next three to five years, the market share of Chinese joint venture brands will drop sharply from the current 40% to 10%, and this 30% will be filled by Chinese brands.

If interpreted according to Wang Chuanfu's statement, SAIC Motor, as one of the largest joint venture automobile groups, will be prepared for pressure and crisis.

China's domestic brands continue to rise, stemming from new energy track overtaking curves. In the first half of April 2024, 260,000 new energy vehicles were sold, and the penetration rate exceeded 50% in history, 11 years ahead of the planned target of more than 50% in 2035. You need to know that the penetration rate was only 5.4% in 2020, surpassed 25.6% in 2022, and continued to rise above 30% in 2023. This far exceeded market expectations.

In the Chinese NEV market, the top ten NEV manufacturers in 2023 have nine domestic brands. Among them, BYD's market share is as high as 35%, which is far higher than the 7.8% share of the second-place Tesla. Other manufacturers include GAC Aian, Geely Automobile, SAIC-GM-Wuling, Changan Automobile, etc.

In 2020, SAIC Motor's share of the domestic NEV market reached 23.4%, ranking first. Mainly due to the popularity of the Wuling Hongguang MINI EV back then, sales surpassed 1 million units in just a few months. However, it was overtaken by BYD in 2022, and its market share fell sharply to 11.8% in 2023, falling 23.2 percentage points behind BYD.

What is even more serious is that SAIC Motor has no foothold in the high-end NEV market. Zhizhi and Feifan Auto were established in 2020 and 2022, respectively, to impact the high-end dream. However, after a few years, sales were less than ideal.

In 2023, the two major brands sold only 38,000 units and 20,000 units for the year. You need to know that from 2020 to 2023, the penetration rate of new energy vehicles in China increased more than fivefold. The past few years have been a critical period for major manufacturers to race horses and establish high-end brands for consumers. At the time, competition wasn't as fierce as one might think.

Today, the penetration rate has reached about 50%, and competition is heating up in the domestic market. After rolling out the technical roll service, rolling out the price of the service roll, and finishing the price roll boss (live broadcast).

According to the original plan, Zhiji Auto focuses on the high-end market of 300,000 yuan or more, and Feifan focuses on the middle and high-end market between 200,000 yuan and 300,000 yuan. However, under industry scrutiny, the official guide price for the Zhiji LS6 launched in October last year started at 229,900 yuan, falling directly down to the price range of Extraordinary Auto. Faced with tight competition from brother brands, the starting price of Feifan Auto has fallen below the 200,000 yuan threshold.

SAIC Motor's path to the middle and high-end has not been smooth, and there is still a long way to go to hit the first tier in the future.

If the domestic market is never able to effectively break through the middle and high-end, how will SAIC Motor maintain the basic market of its existing business in the future?

There is another path, that is, a huge overseas market can be strengthened.

In 2023, SAIC Motor sold 1.208 million vehicles overseas (exporting 1.09 million units, ranking first), up 18.8% year-on-year, with independent brands accounting for 92% and new energy vehicles accounting for 24%. In the next three years, SAIC Motor Group will also launch 14 new energy “global vehicles” in overseas markets, continuing to expand its overseas “product lineup”.

In overseas markets, the EU NEV penetration rate is only 20.1%, and the US market is 9.4%. There is still a lot of room to increase the penetration rate, and the market pattern is not as clear as domestic. As far as SAIC Motor is concerned, there is still some chance to catch up by going overseas, but this path is bound to be bumpy and rugged.

03

The choices made 10 years ago determine the success or failure of the company today.

In the early days, BYD's Wang Chuanfu chose to use the hard money earned from the fuel vehicle business to support his lofty dream of new energy vehicles. At the time, BYD, which was carrying a heavy load, sold a total of 1 million new energy vehicles in 13 years, but now it has sold more than 1.5 million vehicles in half a year, making it the world's largest NEV company.

SAIC Motor Group entered the new energy circuit as early as 2001 and became a fuel cell sedan. In 2015, Dongfeng significantly increased the number of new energy vehicles through policy subsidies. At that time, a fixed increase of 15 billion yuan was announced, 7.2 billion yuan for NEV-related projects, 2 billion yuan for intelligent large-scale customization projects, and 1.9 billion yuan for forward-looking technology and connected vehicle projects. This made manufacturers such as BYD, NIO, and Xiaopeng, which were still very small at the time, feel pressured.

Today, BYD has risen strongly, and new power brands such as Xiaopeng and NIO have also taken a seat in the fierce auto racing market. SAIC Motor Group, on the other hand, did not have many achievements or impressive results. You need to know that in the era of fuel vehicles, SAIC Motor is the largest automobile group in China, far ahead of competitors in terms of delivery volume, total market value, and financial strength.

The power of choice and execution is limitless. SAIC has already missed the dividend period of the automobile's optimal transformation in the first half, and will continue to face future pressures and challenges.

It is foreseeable that competition in domestic and overseas automobile markets will become more and more intense, and market concentration will increase dramatically. Yu Chengdong once confessed that in the future, the main players in the Chinese automobile market may be able to win with just one hand. He judged that if companies that can survive in the future produce less than 5 million units or less than 10 million units per year, it will be difficult to gain a foothold in the times.

The major changes in the automobile industry in the past century are exciting enough. China's own-brand car companies have already overtaken corners, and their rise is unstoppable. However, SAIC Motor, a big brother in the fuel vehicle era, wants to maintain its former position or is becoming increasingly unable to do so.

The battle of life and death in the second half of the Chinese automobile industry has begun. It is still unknown who will take the lead. Let's wait and see! (End of full text)