Once a dominant player in China's automotive market, Guangzhou Automobile Group Co., Ltd. (GAC Group) now finds itself grappling with substantial challengesFollowing a peak sales volume of 2.5 million vehicles, the company's performance has plummeted significantly, accompanied by a notable decline in both revenue and net profitsIn light of these troubling developments, the departure of longtime chairman Zeng Qinghong, who had helmed the company for over eight years, has raised eyebrowsHis successor, Feng Xingya, is now at the helm, ushering in a new era for GAC Group, albeit one fraught with obstacles.
On February 5, GAC Group announced Zeng Qinghong's resignation due to retirement, reflecting a period of transition in the organizationHaving served in various capacities for 28 years, Zeng leaves behind a complicated legacy marked by profitability juxtaposed with dramatic sales declines in recent years.
Zeng's tenure saw GAC Group at one of its most prosperous spells, culminating in 2016 when the company's sales reached 1.65 million units, marking a significant growth of almost 27% year-on-year, a staggering feat compared to its domestic competitorsThe subsequent year marked further milestones; GAC surpassed two million units in both production and sales for the first time, maintaining growth momentum in a challenging market landscapeBy 2018, sales had ascended to approximately 2.148 million units, with GAC remaining relatively insulated from the sector’s general downturn during the tough times of 2019. However, they seem unable to avoid the inevitable decline that struck just a few years later.
Despite earlier successes, the tide turned sharply in 2024, as GAC Group's sales plunged by over 20%, a staggering drop that reverses the figures back to 2017 levels, with total units sold dropping to merely 2.003 million
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The disheartening trend reflects broader struggles faced by subsidiary brandsGAC Honda reported a 26.5% drop in sales, while GAC Toyota saw a decline of 22.3%. The GAC Aion brand, known for its electric vehicles, didn’t fare much better, with sales down nearly 22% as wellThe only silver lining came from GAC Trumpchi, which managed a slim increase, selling 414,600 vehicles, achieving a modest growth of just under 2%.
The performance downturn coincided with a steep drop in net profitDespite enjoying a successful run between 2016 and 2018 when net profits soared past RMB 60 billion and exceeded RMB 100 billion, GAC Group's financial health began to deteriorate drastically post-2019. Although 2022 saw a revenue rebound exceeding RMB 100 billion, profits were not keeping pace; the full-year 2023 net profit fell by a staggering 45% year-on-year.
Forecasts for 2024 paint a grim picture: GAC anticipates net profits between RMB 800 million to RMB 1.2 billion, a decline ranging from nearly 73% to a frightening 82%. Adjusted for non-recurring items, they expect to report losses that could reach up to RMB 47 billion, marking a historical low since 2012.
The slumping numbers are attributed to fierce competition and drastic pricing pressures faced by the industry, prompting GAC Group to invest upwards of RMB 18 billion in additional sales incentives to retain market share, thereby compressing profit margins further.
In response to these challenges, new chairman Feng Xingya, who has been with GAC since 2004, faces a daunting task amidst dramatic declines in both sales and performance
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The need for strategic evolution is urgentFeng's strategy appears to pivot around partnerships aimed at modernization; for instance, a collaborative venture with tech giant Huawei has been announced, representing a joint effort to develop a range of intelligent, electrified vehicles.
Launched on January 14, 2025, this collaboration between GAC and Huawei involves a registered capital of RMB 1.5 billion, with aspirations to produce a high-end electric smart vehicle priced around RMB 300,000. Yet, whether this collaboration can act as a lifeline to pull GAC back to profitability amidst fierce market pressures remains to be seen.
Further complicating matters, GAC’s portfolio includes a 25% stake in Hozon Auto, which itself is experiencing dire financial troubles; by the end of November 2024, reports indicated a staggering 75% drop in revenues with cumulative losses approaching RMB 3 billion over two yearsGAC has had to step in by providing loans for salary payments and facilitating aftersales services for Hozon’s products through its own GAC Aion.
By early December 2024, GAC also made headlines by announcing the divestiture of an 18.82% stake in joint venture Guangzhou Jiuwan Technology, another significant entity suffering financial setbacksJust in the previous year, Jiuwan reported losses amounting to RMB 530 million.
As the automotive industry rapidly pivots towards electrification and smart technologies, GAC’s ambitious goals set during the '14th Five-Year Plan’—aiming for production to reach 3.3 million by 2025 and 4.75 million by 2030, with a target of over 25% for new energy vehicles—seem increasingly unattainable in light of recent trends.
From a macroeconomic perspective, fluctuations in commercial vehicle demands, heavily influenced by regulatory changes and pandemic-related disruptions, have added another layer of complexity to GAC's challenges
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The commercial vehicle segment saw sales dip significantly since 2021, with projections showing yet another decline in market performance due to low freight rates and insufficient demand.
In the face of declining sales and performance, the GAC Group has seen its stock price plummetBeginning in 2021, the shares began to exhibit a worrying trend, with A-shares hitting highs of RMB 13.50 only to spiral down to approximately RMB 7.80 by February 2025—a staggering drop of 42%. Similarly, in Hong Kong, shares fell from HKD 10.50 to about HKD 6.20, approximately a 41% decline.
The repercussions of this decline extend to the group's market capitalization as wellOnce valued at nearly RMB 100 billion at the beginning of 2021, GAC's A-shares have plummeted to around RMB 63.68 billion, a 36% reductionThe Hong Kong market follows suit, with a total capitalization dipping approximately 64% from its prior levels.
Investor sentiment has waned significantly, reflected in institutional holdings dwindling from five major public funds holding around 10% of A-share circulation at 2021’s end, to merely two, now encompassing just 5% by the end of 2024.
This dramatic erosion of market capitalization alongside reduced institutional investments foreshadows potential challenges for future financing avenues, placing GAC Group further at risk.
Analysts from various financial institutions have narrowed down the upward risks for GAC Group to emerging profits within self-operated brands, while noting that declines in joint venture brands present a tangible downside threat.
By September 2024, the penetration rates for electric vehicles among mainstream joint venture brands remained a mere 7%, resulting in dwindling market shares, tumbling to a historical low of 28.3%. Japanese brands, once seen as the profit stalwarts for GAC Group, have also seen their share drop to 12.6%. Adding to this gloom, the net profit attributable to the company recorded significant losses, further exacerbating the financial malaise.
In conclusion, as GAC Group prepares to shift gears under the new leadership of Feng Xingya, the question remains as to whether the firm can overcome the dual declines in sales and performance, alongside its beleaguered stock prices and shrinking market capitalization
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