Both joint ventures and independent brands are weak, GAC brings in Huawei for support
GAC Group (02238.HK) and GAC Group (601238.SH), which have been lingering at the bottom of the market for a long time, recently saw a strong rebound in their stock prices.
On December 2, GAC Group's A-shares and H-shares both surged. The A-shares opened with a limit-up in the morning session, with nearly 750,000 lots of buy orders. The H-shares, which have no price limit, rose even more sharply, closing up 25.17% for the day, reclaiming nearly two months of losses in just one trading session.
The sudden spike in stock price may be attributed to a major announcement from GAC Group.
Joining Forces with Huawei: A Turning Point in Fate?
Huawei's automotive "circle of friends" has added a new member: GAC Group.
On November 30, GAC Group announced on its official website the signing of a deepened cooperation agreement with Huawei to jointly create a new high-end intelligent automotive brand.
On the same day, GAC Group and Huawei signed a deepened cooperation agreement, under which GAC Group will establish a new high-end intelligent new energy vehicle brand alongside its existing brands Trumpchi, Aion, and Hyper. GAC Group will leverage this new brand to combine its strengths with Huawei's, collaborating in product development, marketing, and ecosystem services to deliver cutting-edge intelligent experiences to users.
GAC Group has high expectations for this collaboration with Huawei, stating, "It is foreseeable that the new model of deep cooperation between 'Huawei's intelligence + GAC's manufacturing' will undoubtedly achieve new milestones in the new energy vehicle sector."
Reportedly, the collaboration is broader and deeper than before, covering R&D, marketing, and services. The two parties will integrate market demand and product competitiveness, starting with Huawei's intelligent and electrification solutions, to conduct comprehensive in-depth cooperation in product development, marketing, and ecosystem services, creating a new automotive brand and launching a series of intelligent new vehicle models.
Judging from the collaboration details, GAC Group and Huawei's partnership is no different from Huawei's current deep cooperation models with other automakers: the new brand will not be owned by Huawei, but the collaboration will span the entire lifecycle of the new brand.
These automakers include Seres (601127.SH), Changan Automobile (000625.SZ), JAC Motors, BAIC Group, and BYD (01211.HK,$BYD(002594.CN)). The well-known brands jointly created by Huawei and these partners include the "Four Realms" (Aito, Zhijie, Zunjie, and Xiangjie), Avatr, BAIC BluePark's flagship model Arcfox Alpha S, and Fang Cheng Bao's Leopard 8.
Interestingly, under Huawei's "halo," most of these brands have achieved impressive sales. For instance, Seres' new energy vehicle sales surged 255.26% YoY to 389,600 units from January to November this year, while Avatr's November sales reached 11,600 units, up over 180% YoY. The strong sales of these brands owe much to Huawei's substantial support.
Huawei's technological prowess in intelligent driving is well-known, and GAC Group has a solid foundation in R&D, production, and marketing of new energy vehicles. Therefore, the market has high expectations for their collaboration in developing a new high-end intelligent new energy vehicle brand.
Independent Brands Urgently Need to Step Up
For years, GAC Group and Huawei have maintained a strategic partnership, collaborating in hardware, software, products, and R&D.
This collaboration is undoubtedly closer and deeper than before. For GAC Group, it is time to develop a new brand to seek incremental growth for the group. The reason is that GAC Group has been constrained by the "decline" of its joint venture brands and the fading glory of Aion, making it urgent to cultivate a new brand with growth potential.
Over the past three decades, GAC Group's growth has largely relied on joint venture brands such as GAC Honda and GAC Toyota, whose sales once accounted for the majority of the group's total sales.
However, joint venture vehicle sales have been sluggish in recent years. According to announcements, GAC Honda and GAC Toyota's cumulative sales from January to October this year fell by 29.6% and 23.31%, respectively, becoming a drag on GAC Group's sales growth.
As the group's long-standing "cash cow," the poor performance of joint venture vehicles has had a significant impact on GAC Group's profits. According to the company's A-share announcement, GAC Group's revenue for the first three quarters of this year was RMB 74.04 billion, down 24.18% YoY, while net profit attributable to shareholders plummeted 97.34% YoY to just RMB 120 million. If the operating performance does not improve, GAC Group is expected to incur losses.
New energy vehicles are the future trend of the automotive market, but Aion, labeled as a "ride-hailing vehicle," is no longer as strong as it once was.
Aion once emerged as a dark horse, with sales soaring from 60,000 units in 2020 to 271,000 units in 2022, a growth of over 350% in two years. However, in 2023, Aion's sales growth slowed significantly to 77%. By 2024, Aion even started moving backward. Wind data shows that Aion's cumulative sales from January to October this year were 264,900 units, down 32.51% YoY.
According to GAC Group's plan, independent new energy vehicle sales should account for 50% of total sales by 2025, and the group aims for new energy vehicles to make up 50% of total sales by 2030.
GAC Group's 2024 interim performance presentation shows that independent new energy vehicle sales accounted for 47.6% of total sales in the first half of 2024, already close to the 50% target. However, given Aion's stalled growth and the small sales scale of other new energy brands, GAC Group's 2025 target for independent new energy vehicle sales may be difficult to achieve.
Currently, the domestic new energy vehicle market is becoming increasingly competitive, and GAC Group's new energy vehicle products are struggling to compete with high-growth brands like BYD and Seres.
Therefore, collaborating with Huawei to create a new high-end intelligent automotive brand may be GAC Group's lifeline in its current predicament.
Author: Yao Yuan
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