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:

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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:

• Haval

• WEY

• ORA

• TANK

• 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.

Haval H6 (Source: Great Wall Motor) Interior of the Haval H6 (Source: Great Wall Motor)

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.

WEY Mocca (魏摩卡) (Source: Great Wall Motor)

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).

ORA Good Cat (欧拉好猫) (Source: Great Wall Motor) ORA Ballet Cat (欧拉芭蕾猫) (Source: Great Wall Motor) ORA Punk Cat (欧拉朋克猫) (Source: Great Wall Motor) ORA Lightning Cat (欧拉闪电猫) (Source: Great Wall Motor)

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.

TANK 300 (Source: Great Wall Motor) TANK 500 (Source: Great Wall Motor)

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.

GWM POER (长城炮) (Source: Great Wall Motor) GWM Wingle (长城风骏) (Source: Great Wall Motor)

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.

GWM Saloon Mecha Dragon (机甲龙) (Source: Yiche/易车) Example of Mecha Robot (Source: Gundam)

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.

Data Source: GWM Annual Reports (click image to enlarge)

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.

Data Source: GWM Annual Reports (click image to enlarge)

#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.

Data Source: GWM Annual Reports (click image to enlarge)

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.

Data Source: GWM Annual Reports (click image to enlarge)

#4: GWM Has Made Some International Diversification Efforts, Although Revenue Generation Is Still 90% Concentrated in China

For the most part of the last ten years, more than 90% of GWM’s revenue was generated by domestic sales in China. International sales decreased during the first half of the decade, before rising again during the second half with a particular jump in 2021. Top overseas buyers come from Russia, Australia, South Africa, Saudia Arabia, and Chile, although GWM has exported cars to over 170 countries in total.

Data Source: GWM Annual Reports (click image to enlarge)

#1: GWM Sold 1.2 Million Automobiles Globally in 2021

GWM’s total sales volume doubled over the past decade from 621,438 cars sold in 2012 to 1,280,951 cars sold in 2021.

Data Source: GWM Annual Reports (click image to enlarge)

#2: Most Cars Sold Were SUVs, Followed By Pick-Up Trucks and Sedans

Management provides a breakdown of each year’s car sales by vehicle type. SUVs (namely the Haval range) accounted for more than 80% of GWM’s sales volume during 2015 to 2019, before dropping to 71%-74% over the past two years as sedans (namely the ORA range, which was launched in 2018) started gaining traction. Notably, although the Haval range continues to be a bestseller in the SUV category in China, the product line’s sales peaked in 2016 when more than 930,000 Haval cars were sold.

Interestingly, although GWM consistently ranks first nationally in terms of pick-up truck sales, pick-up trucks only comprise 10% to 20% of the company’s total number of cars sold. Moreover, we also see a declining trend in the number of pick-up trucks sold during the first half of the decade, which then increased again from 2016 onwards with a noticeable jump in 2020. The revival in sales is perhaps attributable to the new Great Wall POER product line launched that year, and/or improvements in the existing Wingle line which increased the product’s appeal to consumers.

Data Source: GWM Annual Reports (click image to enlarge)

Note: the Others type refers to multi-purpose vehicles and special purpose vehicles

#3: The Domestic Market Accounts For More Than 90% of Total Car Sales

More than 90% of GWM’s automobile sales come from the domestic China market, with this percentage reaching as high as 99% in 2016. International sales exhibit a fluctuating pattern with export volumes declining towards the middle half of the decade, before rising again during the latter half. GWM made substantial international diversification efforts in 2021, with a record high overseas sales figure of nearly 140,000 cars.

Data Source: GWM Annual Reports (click image to enlarge)

#4: Both Domestic and International Sales Are Driven By SUVs and Pick-Up Trucks, Although There Are Differences in Sales Patterns Across Markets

Although both export and domestic sales are predominantly driven by the SUV and pick-up truck categories, the China market and overseas market exhibit some differences in trend (perhaps partly due to differences in sales strategies and product offerings). Since the domestic market accounts for most of GWM’s sales, we see similar trends in the number of cars bought by type in the China market as in the aggregate data presented previously above, while export sales trends exhibit somewhat greater variability.

In the domestic market, SUVs accounted for the overwhelming majority of sales, representing more than 70% of domestic sales volume and reaching a peak of 88% of China sales volume during 2014 to 2021. In contrast, SUVs comprised only 37% to 50% of export sales during the first half of the decade, before gaining traction in the latter half presumably as a result of changes in product offering (e.g. expanding the highly popular Haval H6 model to overseas markets).

Turning to pick-up trucks, we see that the category accounted for 27% to 44% of annual export sales during the past ten years, compared with 9% to 20% for the domestic market. The China market experienced a surge in pick-up truck sales in 2020 (perhaps as a result of the launch of the new Great Wall POER line or improvements in the existing Wingle line as discussed above), while the overseas market had a similar surge in sales a year later (presumably as a result of later roll-outs of the same products).

Lastly, sedan sales declined in both domestic and overseas markets. The sedan category did make a comeback in China from 2018 onwards as a result of GWM’s launch of the ORA electric vehicle range, although international expansion of the ORA product line is still relatively limited due to capacity constraints with regards to production, as well as the effects of local COVID-19 lockdowns.

Data Source: GWM Annual Reports (click image to enlarge)

Note: the Others type refers to multi-purpose vehicles and special purpose vehicles

Data Source: GWM Annual Reports (click image to enlarge)

Note: the Others type refers to multi-purpose vehicles and special purpose vehicles

In this section, we discuss management’s three main business strategies to grow the company going forward.

Strategy #1: Brand Upgrading

GWM’s most important pillar of growth is brand upgrading. Although GWM dominates the pick-up truck and affordable SUV markets in China, the company does not have a significant presence in higher end automobile markets. Over the past few years, GWM has started embarking on a brand upgrading journey with the launch of luxury SUV brands WEY and TANK, both of which sell for double to triple the price of the popular Haval H6. GWM has also launched newer, more expensive ORA models in the past couple of years (such as the ORA Good Cat, launched in 2020) to replace older ORA models which only sold for half the price of the newer Good Cat.

ORA sales have continuously increased since the product line’s founding, while WEY sales declined year-on-year since 2018. It remains to be seen how the TANK and Saloon lines will fare in coming years, as well as whether or not GWM will be able to reduce its heavy reliance on the value-for-money Haval range and pick-up trucks in order to generate higher margins and revenue from premium cars in the long run.

GWM provides unaudited monthly and annual data on the company’s number of cars sold by product line (only the data on cars sold by vehicle type presented in the previous section is audited). We present the product line level data below for GWM’s five main automobile ranges discussed in this article, although it is noted that minor data discrepancies may exist (e.g. the unaudited data shows that 938,019 Havals were sold in 2016, while audited data only shows 932,985 SUVs sold in total the same year).

Data Sources: GWM Announcements (click image to enlarge)

Note: we focus only on the five main product ranges here and exclude phased out lines from this chart, including the Deer pick-up truck (phased out after 2013), and M series HUV and C50 petrol sedan (both phased out after 2015). We also exclude car models with negligible sales including the C30 petrol sedan and other models undisclosed by GWM. Data prior to 2013 and data for the Saloon range are unavailable.

Data Sources: GWM Announcements (click image to enlarge)

#2: International Expansion

Another key strategy GWM is likely to focus on in coming years is international expansion. Although there was a decline and lull in export volume during the middle of the past decade, GWM has gradually restored and ramped up the company’s export sales over the past five years to reach a decade high of 139,891 cars sold overseas in 2021. We think GWM stands to benefit from internationalization as Chinese brands continue to gain acceptance abroad, however significant challenges remain in the short run including GWM’s limited production capacity for increasingly popular electric vehicles and supply chain disruptions related to COVID-19 control measures. Indeed, during the Shanghai lockdown, GWM suspended orders for new ORA vehicles in certain offshore markets.

#3: Fostering Consumer Loyalty Among The Younger Generation

According to management, many of GWM’s new car models are designed to target a younger audience (e.g. the 20-40 year old age group). Whereas older consumers (e.g. 50 year olds and above) tend to be very brand loyal, younger consumers may not have formed such strong preferences, and are typically more willing to try new brands and products. Of course, a trade-off is that younger consumers usually have less purchasing power, and GWM may have to wait until these younger consumers mature before being able to sell them the company’s luxury range of products.

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