Asked to name the best-performing, most profitable carmaker in Asia this year, how many would go for Great Wall Motor? China’s car companies face fierce competition from more organised and technologically advanced foreign rivals. But there is a case that they are stepping up a gear.
Chinese car sales are accelerating once more and the bigger carmakers’ shares are following suit. Great Wall Motors has risen 60 per cent this year and last week confirmed a 75 per cent jump in first-half profits year-on-year and a net profit margin of almost 16 per cent. That puts the yen-assisted gains of Toyota (46 per cent, a doubling, and 7 per cent respectively) in the shade, considering the Chinese producer’s share price jump came off a two-fifths leap in sales against Toyota’s 8 per cent. In all, car sales in China have risen almost 14 per cent year-on-year in the first half against single-digit gains in the past two years. Globally, car sales are expected to rise by about 5 per cent this year, according to Nomura. That makes China, the world’s largest market, look even more interesting.
Full speed ahead for its carmakers? Not quite. Cutting-edge technology remains an issue for homegrown manufacturers. Getting it will be expensive and take time. Research and development costs at Great Wall, which is building a state-of-the-art testing facility, ate up 2.2 per cent of sales, against 2 per cent a year ago. Analysts at Bernstein think this will rise further. Earnings among the Chinese carmakers are not straightforward. Geely Automobile, which reported strong numbers last week, was helped by heavy subsidies. Both it and Great Wall also bolstered cash flow by seemingly cutting terms to dealers. How well that works out is open to question: this is a market still experimenting with its form, which makes it even trickier to forecast. Still, at least rising profits and improving cash flow make the sector worth a closer look.