文 | Financial Street Laoli
At the beginning of 2022, China’s capital market hit rock bottom, with the automotive sector being hit the hardest. Laoli has always maintained that industrial development affects the capital market, but the capital market does not affect industrial development. Despite being the worst over the past three years, this has not hindered the steady rise of China’s new energy vehicle industry.
The culprit that led to the market’s freeze was global inflation. Additionally, unstable factors such as public health incidents and the Russo-Ukrainian war have added insult to injury to the already fragile global economy, bringing new challenges to countries around the world. The more chaotic things get, the more “weird things” appear worldwide. In the capitalist market, taxation is the best way to mitigate economic pressure.
Recently, US President Biden proposed to tax the domestic bourgeoisie. In terms of wealth, the first to get hit will undoubtedly be Tesla CEO, Musk. Based on market value, Musk will have to pay $24.2 billion (approximately RMB 153.65 billion) in taxes, equivalent to penalizing one XPeng Motors car. “Foreign leek is still a leek,” resonates in Laoli’s mind.
Penalizing one XPeng car is not a joke. Even traditional giants may not be able to withstand the impact of such policies. How impactful is this policy? Great Wall Motor announced its 2021 financial report the day before yesterday. The report shows that Great Wall’s revenue was as high as RMB 135.4 billion in 2021, which is still lower than the tax Musk has to pay. The tax Musk needs to pay is nearly 20 billion more than Great Wall’s annual revenue.
It should be noted that Great Wall Motors is one of the top 10 global automotive companies in terms of market capitalization. Even General Motors and Ford in the United States are in the same market capitalization category as Great Wall Motors. If this policy is implemented, Laoli cannot help but worry about the US automotive industry.
As is well-known, the overall trend of the domestic automotive market is that the market share of fuel vehicles is gradually declining while the market share of new energy vehicles is constantly increasing. If we are looking for a company among Chinese vehicle companies that develops both fuel and new energy automobiles, while also considering overseas expansion and core supply chain barriers, then no company deserves this label more than Great Wall Motor.
In March and April, major companies will release their annual reports. Laoli has been tracking the financial reports of various companies. In Laoli’s view, Great Wall Motor has released its best annual report to date.To say the best of it, there are two reasons for why Great Wall Motors outperforms all other domestic new energy and fuel vehicle companies in terms of financial performance: Firstly, it ranks second only to BYD in terms of financial reports among all domestic new energy vehicle companies. Secondly, it excels way beyond BYD as the best financial performer among all fuel vehicle companies in China. As a joke, Partner Li once said that Great Wall Motors is the best in new energy vehicles among fuel vehicle companies, and the best in fuel vehicles among new energy vehicle companies. This statement has been agreed upon by many fund managers.
Following the principle of being concise, let’s first evaluate Great Wall Motors’ core annual report data from the perspective of capital:
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Revenue: In 2021, Great Wall Motors achieved a revenue of 136.4 billion yuan, with a YoY growth rate of 32.04%. This is the growth rate of a growth stock. Partner Li has always said that we should view Great Wall Motors with a growth perspective. Last year, Great Wall Motors’ growth rate and market value were basically positively correlated. Comparatively speaking, in 2020, Great Wall Motors’ YoY revenue growth rate was only 7.38%.
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Net profit: In 2021, the company’s net profit was 6.73 billion yuan, with a YoY growth rate of 25.41%. Although the net profit growth rate is lower than the revenue growth rate, Great Wall Motors’ overall expense ratio is narrowing. Coupled with the expectation of revenue growth, its net profit for next year should look very good.
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Number of R&D personnel: In 2020, Great Wall Motors had 19,000 R&D personnel. In 2021, the number of R&D personnel reached 21,000, which basically indicates the company’s development trend. Many friends have always mentioned R&D investment. Partner Li would like to say that talents are the foundation of technology. As of the end of last year, the total number of employees at Great Wall Motors was 78,000, with a YoY increase of 23.4%. The continuous growth in the number of employees, especially R&D personnel, leaves us with more room for imagination.
Just from the perspective of the industry, Great Wall Motors has already performed very well in this year’s annual report. After the release of the report, the secondary market still gave it a high rating.
Many buyers and sellers believe that Great Wall Motors’ revenue in 2022 is expected to reach 200 billion yuan, with a YoY growth rate of over 40%. However, with the rise in raw material prices, net profit growth rate is expected to be slightly lower than that of revenue. People predict that the net profit range for next year will be between 9-11 billion yuan.
Many friends ask why the market continues to be bullish on Great Wall Motors’ revenue and profit. There are a total of three reasons for this:- The advantages of the supply chain and core technology will be successively demonstrated. Regarding Great Wall Motors’ layout in electrification and intelligent supply chain, we will not explain much here, but mainly discuss technology application. In the first two months of this year, the lemon, tank, and coffee intelligent three-platform models of Great Wall Motors accounted for 75.1% of the total, and the proportion of intelligent models increased to 88.1%, driving the proportion of models over RMB 150,000 to increase to 15.5%. These figures indicate that the core technology developed by Great Wall Motors over the past few years has been realized in the market, and it has come time to “harvest the fruit.”
- The development momentum of high-quality and high-margin products drives high revenue. When it comes to high-quality and similar terms, many friends feel that they are empty and specious, but this is really the most concise explanation. Great Wall Motors is a very pragmatic enterprise in the industry, focusing on landing. In 2021, its single-car ASP (average selling price) reached RMB 106,000, a year-on-year increase of 15.0%, of which the single-car ASP in the fourth quarter of 2021 reached RMB 115,000, a quarter-on-quarter increase of 5.8%. With the acceleration of intelligence and electrification, the single-car ASP of Great Wall Motors will continue to grow. Specifically, Tank 500, the entire DHT PHEV series of the WEY brand, Ora Ballet Cat, Lightning Cat, and Punk Cat will all become high-margin products, which will lay the foundation for high net profit.
- The marginal decline in annual cost rate and the optimistic growth rate of profits. In the annual report, Great Wall Motors’ gross margin was 16.2%, which is indeed lower than that of new forces, but we believe that it has great growth potential. There are two reasons for this. One is that its single-car ASP next year will continue to increase, bringing in high revenue. The second is that the three expenses (sales/management/finance) will narrow down. The three expenses rate in 2021 were 3.8%/3.0%/-0.3%, respectively, which decreased by 0.2 pct/0.5 pct/-0.7 pct compared to the same period last year. The expense ratio is rapidly declining, and the inflow and outflow are superimposed, making the profit growth rate in 2022 more optimistic.
- Many friends will ask when they see this, why isn’t the capital market as satisfactory as the good performance of the automobile industry and the company’s annual report? Old Li also communicated with many friends, and everyone agreed that there are rules in the capital market, and inflation is the big trend this year, so the capital market can only follow the trend. Admittedly, from a rational perspective, the lithium battery industry chain represented by Ningde Times and the vehicle benchmark represented by Great Wall Motors have reached the best investment level, and the fundamentals of enterprises have no problems, and Great Wall Motors is still developing rapidly.The problem is that, following the historical pattern of the capital market, in the short term, growth stocks are not relatively advantageous, and cyclical stocks have returned to the center of the stage in the global inflation environment. Targets such as oil, coal, and agriculture, which were abandoned by everyone in the past three years, have reappeared. As for how long they can last, we still need to see the changes in the macro environment.
To be frank, no one in the market can judge the time of style transformation now, but after communicating with Mr. Li and many friends who study macro strategies, there is still a certain consensus that for growth sectors such as Great Wall Motors with excellent performance, they are accumulating strength for the medium and long term under the trend of inflation. For example, in the slow bear market of 2018, a group of enterprises such as Guizhou Moutai fell to historical lows after a half-year correction, but ushered in a bull market for more than two years. The same is true for Great Wall Motors.
As for where the turning point is? According to the current trend, the time may be 3-6 months, and the market’s turning point lies in the trend of new energy vehicles and the trend of Great Wall Motors. When the monthly penetration rate of new energy vehicles exceeds 40% or Great Wall Motors sells more than 150,000 units in a single month in the second quarter, the market will have funds to go against the trend, and the trend of reversal will come.
Without these signals of industry reversal, Mr. Li believes that holding good cards of growth stocks and patiently waiting for the reversal of the capital market is the best way. As for when the capital market will reverse, this is the biggest unknown of this year. As we look at the medium and long term (6-12 months) in the market’s most pessimistic time, being optimistic is the best choice.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.