Profits Bottom Out for Fuel Vehicles as the Industry Calls for Balanced Development 📉

Recently, the China Association of Automobile Manufacturers released sales data for May. The data shows that in May of this year, the production and sales of automobiles in China reached 11.384 million and 11.496 million units, respectively, with year-on-year increases of 6.5% and 8.3%. However, behind the continuous growth in production and sales, there is a heartache for many car companies that are not making money. According to data from the National Bureau of Statistics, in the first four months of this year, the profit margin of China's automotive industry was only 4.6%, hitting a new low in nearly 7 years. Not long ago, Zeng Qinghong, Chairman of GAC Group, publicly stated: "The purpose of an enterprise is to make a profit and contribute to the country by paying taxes and providing employment." To save the continuously declining industry profits, the "abandoned child" of fuel vehicles has once again come back into everyone's view, and the call for balanced development and "equal rights for oil and electricity" is getting louder and louder.

"Increasing Revenue Without Increasing Profits" Becomes the Industry's Portrait 📈➡️💰

In 2023, China's automobile production and sales both broke through the 30 million mark, setting a historical high. Such an impressive market size has made China's total automobile output value reach 11 trillion yuan last year, accounting for nearly 10% of the national GDP, surpassing real estate for the first time and becoming China's first economic pillar. However, with the world's largest automobile market, the profit margin of China's automobile industry last year was only 5%, lower than the average profit margin of industrial enterprises at 5.8%. Liu Yan, Deputy Secretary-General of the China Association of Automobile Manufacturers, said that internally, the current automobile industry is extremely competitive, "involution" is serious, and the market order needs to be standardized, and many enterprises are in a predicament of "increasing revenue without increasing profits."

According to financial reports, in 2023, GAC Group's net profit was 4.429 billion yuan, a significant decrease of 45.08% year-on-year; SAIC Group achieved a total revenue of 744.704 billion yuan last year, with a net profit of only 14.106 billion yuan, a decrease of 12.48% year-on-year; Great Wall Motor achieved a revenue of 173.212 billion yuan in 2023, but its net profit fell by 15.06%, only 7.022 billion yuan; Dongfeng Group even encountered a loss for the first time in 18 years of listing last year, with a net loss of about 3.996 billion yuan for the year... According to relevant data, among the 18 listed car companies in China in 2023, 12 companies made a profit, but the total net profit of these companies was less than 90 billion yuan, only 40% of Toyota's net profit in the fiscal year of 2023.

So far this year, the situation has worsened further. Data from the China Passenger Car Association (hereinafter referred to as "PCA") shows that from January to April of this year, the revenue of the automobile industry reached 3,074.2 billion yuan, but the profit margin is still at a low level, with a profit margin of only 4.6% in the first four months, lower than the average profit margin of industrial enterprises at 5%. Secretary-General Cui Dongshu of the PCA pointed out that from January to April, the profit of the automobile industry mainly came from exports and the high-end luxury market, and the profits of most other companies have declined significantly, with some companies facing increased survival pressure.

This quarter, Changan Automobile achieved an operating income of 37.023 billion yuan, a year-on-year increase of 7.14%; the net profit was only 1.158 billion yuan, a year-on-year decrease of 83.39%. GAC Group achieved an operating income of 21.346 billion yuan in the first quarter, a year-on-year decrease of 19.12%; the net profit attributable to shareholders of the listed company was about 1.22 billion yuan, a year-on-year decrease of 20.65%. JAC Motors achieved an operating income of 11.265 billion yuan in the first quarter, a year-on-year increase of 4.61%; the net profit attributable to shareholders of the listed company was 105 million yuan, a year-on-year decrease of 28.72%.

The poor profitability of car companies also makes life difficult for downstream dealers. Recently, Shen Jinjun, President of the China Automobile Circulation Association, frankly stated in an interview with the media: "American car dealers all say that 2023 is very good, and they have made a lot of money. Car prices around the world are going up, but we are going down." He said that dealers generally reflect that 2023 is the most difficult year since the new century. Since this year, the difficulties of dealers have continued. Dealers mainly for fuel vehicles generally have unreasonable outlets, frequent warehouse pressure, insufficient profitability, and tense manufacturer relations.

The "2024 China Car Dealer Development Report" shows that the overall sales of the top 100 dealers reached 7.07 million in 2023, an increase of 4.8% year-on-year. However, the increase in sales did not bring an expansion of the revenue scale. In 2023, the total revenue of the top 100 dealers was 1931.7 billion yuan, basically the same as in 2022. Last year, the loss ratio of the dealer group reached 43.5%.

Even in 2020, when the new crown pneumonia epidemic was severe, the operating income profit margin of China's automobile industry was 6.25%, 0.33 percentage points higher than the manufacturing industry. Now it has all the way down to 4.6%, which shows how poor the current profitability of the automobile industry is. However, Cui Dongshu believes that the current automobile industry is in a period of transformation and adjustment, and it is normal for the profit margin to hover at a low level. With the further adjustment and reshuffling of the entire industry, companies with weak competitiveness will gradually exit the market, and the industry loss area will continue to decrease. Zhang Xiang, a visiting professor at Yellow River Science and Technology College and Director of the World Digital Automobile International Research Cooperation Center, also said that compared with the old automobile powers such as Europe, America, Japan, and South Korea, the current Chinese automobile industry still has too many car companies, which still needs 5-10 years of survival of the fittest, and finally about 20-30 car companies will be left, and the industry can have stable profits.

Fuel Vehicles Bear the Burden of Profits 🚗💰

"The current new energy automobile industry is still in the early stage of climbing, and it is inevitable for the whole vehicle companies to reach the bottom of the profit level. Most car companies have just passed the threshold of 100,000 vehicles a year, and this level is difficult to form a scale effect." Zhang Hong, Secretary-General of the New Energy Branch of the China Automobile Circulation Association, said that the industry is trapped in the quagmire of "increasing revenue without increasing profits," which is related to the current low profitability of new energy vehicles.

It is understood that now only a few new energy vehicle companies can make a profit, and most are still in the stage of "making a loss and shouting." Since Tesla fired the