Introducing Great Wall Motor
In this article, we provide a business and financial overview of Chinese private auto manufacturer Great Wall Motor (Chinese: 长城汽车))(HKEX: 2333)(SHA: 601633). Great Wall Motor is China's leading producer of affordable SUVs (namely the Haval range) and pick-up trucks, although the brand has branched out in recent years to produce feminine electric vehicles (the ORA range), as well as high-end off-road and urban-friendly SUVs. We also discuss management's key future strategies for the company going forward.
This article is part of our China auto industry series, which includes:
An Overview of China's Auto Industry: Part 1, Part 2, and Part 3
Standard State-Owned: Changan Automobile, SAIC (Part 1 and Part 2)
Value-For-Money State-Owned: Wuling Motors
Traditional Private: Great Wall Motor, Geely, BYD (Part 1 and Part 2)
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Great Wall Motor (GWM) (Chinese: 长城汽车) was initially founded in 1984 as a car modification business, before subsequently transitioning into an automobile production company in 1993. In 1994, a new regulation was passed in China which authorized only certain registered automobile manufacturers to produce sedan cars. As GWM was not on the registration list, the company focused instead on producing pick-up trucks, which were not subject to the same regulation.
After the initial regulation was loosened as part of China's continued economic reforms, GWM expanded its product offerings with the launch of an SUV product line in 2002 and the first Haval (Chinese: 哈弗) CUV in 2005, followed by the company's first sedan car in 2010 and the bestselling Haval H6 SUV in 2011. ORA (Chinese: 欧拉), GWM's first pure electric vehicle product line, was launched in 2018.
GWM consistently ranks first in China in terms of SUV and pick-up truck sales, with the Haval product line and Haval H6 model in particular being popular among consumers.
GWM is listed on the Hong Kong Stock Exchange (HKEX: 2333) and the Shanghai Stock Exchange (SHA: 601633).
In this section, we provide an overview of GWM's brands.
Great Wall Motor has five main automobile brands:
Great Wall Pickup
We provide a brief walk-through each of the individual brands below.
Haval (Chinese: 哈弗) is GWM's longstanding and most popular product line comprising of affordable, predominantly petrol but also hybrid (i.e. electric and petrol) SUV cars. There are several cars in the Haval range, although the H6 model is by far the most popular due to its smaller size and versatility. In 2021, GWM launched the Haval Jolion (marketed in China as 哈弗初恋, which translates to "Haval First Love") model as an even more compact and affordable SUV than the H6.
WEY (Chinese: 魏) is a luxury SUV product line founded in 2017 that is named after GWM's founder, Wei Jianjun. The WEY range consists of pure petrol, pure electric, and also hybrid long range SUVs named after coffee beverages. Currently, there are three different WEY models: the Mocca, the Macchiato, and the Latte. The WEY line never gained much traction, with only 450,000 cars sold cumulatively since the product range's founding.
ORA (Chinese: 欧拉) is GWM's first electric vehicle brand launched in 2018 that was designed to specifically target (young) women. Initial models launched by the brand (the ORA iQ, ORA Black Cat (欧拉黑猫), and ORA White Cat (欧拉白猫)) are gradually being phased out, as GWM focuses on newer models including the ORA Good Cat (欧拉好猫) (called the ORA Funky Cat in European markets), ORA Punk Cat (欧拉朋克猫), ORA Ballet Cat (欧拉芭蕾猫), and ORA Lightning Cat (欧拉闪电猫).
TANK (Chinese: 坦克) was established as a (pure petrol) brand segment in 2021 to target the "high-end off-road SUV market". Two main models exist: the more compact TANK 300 (which has two additional variants, the TANK 300city and the TANK 300border), and the larger "luxury business SUV" TANK 500. During the brand's first year of establishment, 100,000 cars were sold.
Great Wall Pick-Up (Chinese: 长城皮卡) is GWM's oldest product line and currently comprises of two pure combustion vehicle models: the classic Wingle (风骏) and the new Great Wall POER (长城炮) launched in 2020. According to management, the POER model was developed as an innovative solution to meet consumers' needs for stylish commercial pick-up trucks and passenger pick-up trucks for leisure activities. Great Wall Pick-Up has ranked first in China in terms of domestic and export sales volume for pick-up trucks for 24 consecutive years.
In addition to the brand's five main product lines, GWM also launched a new Saloon Mecha ("Saloon") (Chinese: 沙龙) product line in November 2021 which targets the high-end pure electric vehicle market. The first vehicle launched in the Saloon range is the Mecha Dragon (机甲龙), inspired by the Japanese mecha genre of science fiction that centres on giant robots with large armours. Management plans to expand the Saloon line to include a full range of products including sedan, coupe, and SUV cars.
We next turn to a financial overview of GWM.
Revenue and Profit Margins
#1: GWM Reported Total Revenues of RMB136.4 billion in 2021
GWM's total revenue (*see below) growth is staggered, with steady growth from 2012 to 2016, followed by a certain degree of stagnation and decline during 2017 to 2020, and subsequently high growth in 2021.
*GWM adopts a rather unconventional approach to revenue reporting. The company's reported total revenue comprises of operating revenue, interest income, and fee and commission income (the latter two are only present during 2014-2019), while the operating revenue item itself can be broken down into revenue from principal operating activities and revenue from other businesses. Revenue from principal operating activities refers to revenue derived from the automobile industry, while management does not specify what revenue from other businesses refers to, except for a portion of rental income.
In the diagram above, we use the term "total revenue" to refer to GWM's reported operating revenue, which more accurately reflects the core operations of the company. Management does not provide a further explanation for the fee and commission income item, while interest income mostly derives from personal loans and advances (we are guessing this comes from GWM's financing company which facilitates auto loans for the brand's consumers) but also includes interest income from finance lease receivables and deposits with other banks. Interest income and fee and commission income contributed less than 0.01% to GWM's reported total revenue in each applicable year, except during 2018 when the two items contributed 1.4% to reported total revenue.
As shown above, revenue from principal operating activities comprises almost the entirety of GWM's total revenue.
#2: GWM's Revenues Are Predominantly Driven By Car Sales, With a Small But Growing Share of Revenue Generated By The Sale of Auto Parts and Components
More than 90% of GWM's revenue from principal operating activities is generated by automobile sales, although this share has declined slightly over the past few years (from 95% to 90%) as the sale of automotive parts and components gradually ramped up during the period. GWM also generates revenue from the sale of moulds and other products, as well as the provision of labour services, although these activities constitute a negligible portion of total revenue.
#3: The Average Profit Margin For GWM's Principal Operating Activities Declined From 26.9% To 16.1% Over The Past Decade, Largely Driven By Declining Auto Sales Margins
Management does not distinguish between a gross profit margin and an operating profit margin in the traditional sense, but rather reports only one profit margin defined as (operating revenue - operating costs)/operating revenue (GWM also does not distinguish between cost of revenues and operating expenses in the traditional sense, but rather reports a combined operating costs accounting item). We examine the profit margin for GWM's principal operating activities to find that the average profit margin across all revenue segments declined from 26.9% in 2012 to 16.1% in 2021.
Note: management claims that the drop in average profit margin going from 2020 to 2021 is predominantly due to a change in regulations which now requires the recognition of transportation expenses as part of the reported operating costs.
Comparing the profit margin for each revenue driver segment, we see that the margin for automobile sales (which drives most of GWM's revenue) nearly halved from 27.2% in 2012 to 14.9% in 2021. In contrast, the profit margin for automotive parts and components sales increased from 24.3% to the 35%-40% range over the same period.
#4: GWM Has Made Some International Diversification Efforts, Although Revenue Generation Is Still 90% Concentrated in China
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