Trans China Automotive

[weijian]

Cars, been consumer durables, are pretty sensitive to economic conditions and even more so for the Chinese, whom are above-norm savers by global standards.

Match the demand reduction with an abundance of supply and what Trans China Automotive, a car dealer gets, is negative gross profit for 2H23. Basically, at the end of the year, it has to throw out discounts and sell below cost to meet the quota from its brand principals.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS AND FULL YEAR ENDED 31 DECEMBER 2023

The overall Chinese economy grew by 5.2% in 20231 . Despite the headline growth, consumer sentiment is plagued by deflating property market, weak exports growth and continued geopolitical tensions with its major trading partners. The Chinese car market was a bright spot in a weak economy which saw volume grow by 5.6% to 21.7 million units, led by growth in new energy vehicles2 .

The industry is currently in an intensely competitive phase. In early 2023, leading EV brands began to aggressively discount their cars which ignited a price war. The result was that most of brands had match price cuts to attract customers. This has affected all market participants including car dealership groups. All of the large Hong Kong listed dealer groups reported first half 2023 profit declines primarily as a result of new car gross margin erosion. Meanwhile, some EV brands that have not reached sustainable volume have shut down. The government is also looking to introduce measures to reduce capacity in the industry. However, despite these developments, it is unclear when the difficult competitive conditions will subside.

https://links.sgx.com/FileOpen/TCA-FY202...eID=789963

[weijian]

Generally, one don't talk about competitors' products in their own results announcement. Maybe they are working to carry these new brands soon? Or setting the stage for an eventual VGO?

Trans-China Automotive Holdings Limited Voluntary Business Update

The emergence of EVs, many of them new entrants, have upended the market. In March 2024, EV sales reached 37.1% of total new passenger vehicle sales4. Over the last few years, there have been many electric vehicle introductions by new brands and established marques alike. Each of these brands are pricing their cars aggressively to build scale quickly. In doing so the mass market at the RMB300,000 price point and lower is extremely competitive.

Furthermore, our main markets which are located in the southern part of China have higher EV penetration because the weather is more favorable to year-around EV use whereas the cold winters in the northern and central part of China shortens the driving range for EVs. This has resulted in larger sales volume drop in our stores compared with the national sales.

In April, Xiaomi – the electronics and smart home appliance company, launched a car to much acclaim. In the initial one-month period after the launch of the Xiaomi SU7, Xiaomi secured 70,000 orders5. In response, other brands such as Tesla, BYD and Li Auto offered discounts, further intensifying the hyper-competitive conditions.

https://links.sgx.com/FileOpen/1Q2024%20...eID=802586

[weijian]

Some nice commentary from TCAH chairman about the state of affairs at China automotive industry.

1H24 is another fiscal half of negative GPMs. Once again, the Capital Cycle (supply driven) is real and impactful, especially more so when your competitors are answering the call of the Motherland (and do not need to make a profit). Taking a leaf from the ride hailing wars of many years ago, the end game will be consolidation but not before permanent damage is done.

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2024

The NEV manufacturers in a hurry to increase sales, as the vast majority are indeed unprofitable, save for rare exceptions such as BYD and Tesla, which in fact have seen declining margins and profitability, and declining sales (in case of Tesla). As a result, the current automotive industry environment in China is all about survival for manufacturers as they continue to try and grab additional sales by slashing prices while having to continuously introduce new models.

https://links.sgx.com/FileOpen/TIH_1H202...eID=815087