In the first half of the year, YoY profit turnaround, the joy and worry hidden behind WULING MOTORS' performance

An earnings forecast has once again caused a stir in the stock price of Wuling Motors (00305). At the close on July 27th, the company's stock price was HKD 0.73, touching the 60-day moving average. So far, the stock price has been declining for about 5 months from its peak of HKD 1.077, and the bottom turning point seems to be yet to appear.

Relying on the "hot-selling" model Wuling Hongguang MINI EV, Wuling has become one of the most prominent new energy vehicle companies in the past two years. However, as of 2023, the sales of Wuling Hongguang MINI EV have plummeted, and there is no subsequent product that can generate the same level of attention as Wuling Hongguang MINI EV, which has led to a continuous decline in the market valuation of the company.

In this predicament, how Wuling Motors will rescue its declining performance will become a decisive factor in the subsequent trend of its stock price in the secondary market.

Significant decline in revenue, turning losses around by cost reduction?

According to the Zhitong Finance APP, Wuling Motors, listed on the Hong Kong Stock Exchange, is officially known as "Wuling Motors Group Holdings Limited." It was initiated and invested by Liuzhou Wuling Motors Co., Ltd. and Junshan Development Co., Ltd. in 2007, and was listed in Hong Kong in September of the same year.

Recently, Wuling Motors announced its performance forecast for the first half of 2023. The announcement stated that the company is expected to achieve a net profit of no more than RMB 12 million in the first half of 2023, turning losses into profits compared to a net loss of RMB 139 million in the same period last year. The profit attributable to owners of the company is expected to be approximately RMB 1 million, which is also an improvement compared to the owner's loss of RMB 80.545 million in the first half of 2022.

According to the disclosure, the recovery of performance in the first half of 2023 is mainly due to the decrease in raw material costs and the increase in sales of high-gross-margin products in the automotive powertrain division, which has improved the group's gross profit margin. In addition, the implementation of several restructuring projects and cost control measures has also led to reductions in various expenses of the group, including sales and distribution, general and administrative, and research and development, compared to the same period last year.

Although the performance forecast shows some optimistic signs, the company's revenue has shown a gradual downward trend in recent years. The net profit attributable to the parent company has been negative for three consecutive years from 2019 to 2021, and a net profit of RMB 22.61 million was recorded in 2022.

In 2022, the company's revenue was approximately RMB 12.596 billion, a decrease of 12.6% compared to the previous year. The profit attributable to owners of the company was RMB 22.611 million, while a loss of approximately RMB 24.148 million was recorded in 2021. The earnings per share was 0.69 cents, and the final dividend per share was 0.3 Hong Kong cents. According to the annual report, the decline in revenue in 2022 was mainly due to the decrease in income from the automotive parts and other industrial services division and the commercial vehicle division, and the business volume of the commercial vehicle division was also affected by the restructuring project of the group's new energy vehicle business. In addition, the company's gross profit margin also slightly decreased from 7.5% in the same period last year to 7.2%.

In terms of business segments, the company's automotive parts and other industrial services division had a full-year revenue of 6.048 billion yuan, with an operating profit of 52.742 million yuan, still the company's largest source of revenue; the automotive powertrain division had a full-year revenue of 2.896 billion yuan, recording moderate growth, with an operating profit of 30.155 million yuan, achieving a turnaround from loss to profit.

Among them, the high thermal efficiency Atkinson engine achieved mass production in April, and the high-efficiency and cost-effective HEV hybrid powertrain also achieved mass production in June. Both exceeded expectations in terms of sales volume throughout the year and were important milestones for the company's transformation and upgrade from traditional fuel-powered vehicles to new energy vehicle hybrid power.

The company's turnaround to profit can be largely attributed to cost reduction. In terms of costs, the company's sales and distribution costs in 2022 were approximately 116 million yuan, a decrease of 50% compared to the same period last year; general and administrative expenses were approximately 488 million yuan, a decrease of 15.5% year-on-year; research and development expenses were 319 million yuan, a decrease of 21.8% year-on-year, mainly due to the completion of the restructuring project of the new energy vehicle business, with research and development expenses related to new energy vehicles being allocated by the joint venture Wuling New Energy.

According to the Zhitong Finance APP, affected by various unfavorable factors such as continuous chip shortages, high oil prices, supply chain disruptions, and reduced bulk consumption, the growth rate of China's domestic automobile industry production in 2022 was the same as that of the same period last year, while the growth rate of sales volume decreased by 1.7 percentage points. According to data released by the China Association of Automobile Manufacturers, the domestic automobile production and sales volume in 2022 were 27.021 million and 26.864 million vehicles, respectively, an increase of 3.4% and 2.1% year-on-year; among them, the production and sales of passenger vehicles reached 23.836 million and 23.563 million vehicles, respectively, an increase of 11.2% and 9.5% year-on-year.

Due to the overall pressure on the industry, only 18 out of 34 listed car companies achieved revenue growth in 2022, accounting for 52.94% of the total; 21 automotive concept stocks achieved positive net profit attributable to the parent company. New energy vehicles have become the main driving force behind the overall growth of the industry. Data shows that in 2022, China's production and sales of new energy vehicles reached 7.058 million and 6.887 million units respectively, with year-on-year growth rates of 96.9% and 93.5% respectively. Among them, the production and sales of pure electric vehicles reached 5.467 million and 5.365 million units respectively, with year-on-year growth rates of 83.4% and 81.6% respectively.

When analyzing the future strategy of Wuling Motors, "new energy" is also a key term that is frequently mentioned. In terms of commercial vehicle business, the company plans to stabilize its market share in the modified vehicle market while expanding its presence in the new energy logistics vehicle, non-road vehicle, and modified vehicle businesses. By deepening cooperation with world-renowned companies, the company aims to accelerate product transformation and upgrading, develop towards lightweight, electrification, and intelligence, and enter the high-end passenger vehicle supporting field. In the component business, the company will accelerate digital research and development and manufacturing, improve the company's level of automation and intelligent equipment manufacturing, and gradually enter the high-end component supporting market.

As for the "national god car" Wuling Hongguang MINIEV, it seems to have lost its luster due to its cost-effectiveness. Looking at the entire automobile manufacturing industry, "new energy" is an unavoidable keyword for all car companies. In this segment, traditional car companies are entering the new energy business, while pure new energy vehicle companies like Tesla are also making strides, making the competition extremely fierce.

According to statistics from the China Association of Automobile Manufacturers, China's annual sales of new energy vehicles reached a record-breaking 6.887 million units in 2022, accounting for over 60% of the global market share and ranking first globally for 8 consecutive years. In China's core arena for new energy vehicles, Wuling Motors has also secured a place with the Wuling Hongguang MINIEV.

According to the Zhitong Finance APP, in 2022, the Wuling Hongguang MINIEV achieved a cumulative sales volume of over 554,000 units, ranking first in global sales for a single new energy vehicle model for the 7th time. Compared to the sales volume of less than 100,000 units for the 2nd to 4th place, it is truly outstanding.

Since its launch, the Wuling Hongguang MINIEV has been hailed as the "national god car" due to its attractive price and practicality. Its appealing price and precise positioning are the reasons why it has attracted a large number of consumers. According to the company, the Hongguang MINIEV is designed to meet the needs of users with a travel radius of 30 kilometers, specifically targeting urban commuters who drive to work and buy groceries. As a result, this model has almost abandoned all intelligent and connected functions, and has reduced battery costs at the expense of shorter range.

However, over time, the "halo" of the Wuling Hongguang MINIEV is gradually fading. According to data from the China Passenger Car Association, the sales of the Hongguang MINIEV have shown a rapid decline since the fourth quarter of 2022. From October to December 2022, the sales volume of this model decreased by 13.8%, 20.8%, and 31.7% respectively compared to the same period last year. In January, March, and April 2023, the sales volume of the Hongguang MINIEV decreased by 38.5%, 44.8%, and 27.4% respectively compared to the same period last year. The "diminished performance" of the main product has also made SAIC-GM-Wuling's performance less "impressive". In January 2023, SAIC-GM-Wuling's sales volume was only 30,000 units, with a MoM and YoY decline of 72.74% and 84.51% respectively, making it the most severely declining segment among the top four core segments of SAIC Group.

According to data from the China Association of Automobile Manufacturers, in June 2023, SAIC-GM-Wuling's monthly sales of new energy vehicles reached 29,251 units, ranking 7th among the top 10 new energy vehicle companies in terms of retail sales in June. Compared with the same period last year, SAIC-GM-Wuling's sales of new energy vehicles decreased by 32.7%.

The former "legendary car" has fallen from grace. Externally, the market space for A00-level electric vehicles has reached its peak, while internally, the competition in the micro electric vehicle field has become more intense. The main selling point of Wuling Hongguang MINIEV, which is its cost-effectiveness, does not have much technological barrier, making it easy for competitors to replicate its success.

In 2012, A00-level fuel vehicles accounted for only 3.9% of the passenger car market, and the emergence of Wuling Hongguang MINIEV drove the rapid growth of this segment. Among the top 15 new energy vehicle sales in 2021, 8 of them were A00-level pure electric vehicle models.

In 2022, a total of approximately 1.0775 million A00-level pure electric vehicles were sold, with a YoY growth of 19.8%, which is a significant decline compared to the YoY growth rate of 205.2% in 2021. In the first quarter of 2023, the cumulative sales of A00-level pure electric vehicles were 131,000 units, with a YoY decrease of 55.1%, the largest decline among all vehicle models.

The "shrinking" of the A00-level pure electric vehicle market is influenced by various factors: the rising cost of core materials such as batteries has led to an increase in vehicle prices, weakening the cost-effectiveness advantage; the price of new energy credits has dropped significantly, coupled with the reduction of new energy subsidies, the path of relying on credit income to compensate for the losses caused by the low prices of micro electric vehicles is no longer viable.

To cope with this dilemma, on the one hand, since 2023, Wuling has announced multiple price reductions for its new energy vehicle models, attempting to regain consumers and maintain its market share at a lower price; on the other hand, the company has successively launched higher-end versions of Hongguang MINIEV, such as the Macaron Edition, GAMEBOY Edition, and Convertible Edition, in an attempt to increase the selling price of micro electric vehicles.

In June, the new Wuling Bingguo was launched, with the addition of the Enjoy+ version with a range of 333km and the Lingxi Interconnected+ version with a range of 333km. The official guide prices are 80,800 yuan and 84,800 yuan respectively. According to a message released by Wuling Motors on its official Weibo account, the sales of Wuling Bingguo in June exceeded 19,000 units, with cumulative sales exceeding 62,000 units. However, compared to April 2023, the sales of Wuling Bingguo have declined for two consecutive months, and its popularity is not as high as that of the previous Wuling Hongguang MINI EV. Summary

According to the statistical data, the sales and production of automobiles in the first half of 2023 reached 13.248 million and 13.239 million respectively, with a year-on-year growth of 9.3% and 9.8%. New energy vehicles are still leading the way. With the moderate recovery of the macro economy and the continuous manifestation of policy effects, the automotive industry still has optimistic factors in the second half of the year. However, for Wuling Motors, the company is urgently seeking new growth paths as the strategy of competing in the market with low prices is no longer effective.