Great Wall SUV delay dents faith in carmaker
Shares plunge as technical problems in new car force mainland company to postpone launch
Great Wall Motor's billionaire chairman Wei Jianjun pushed back deliveries of the company's most expensive SUV after the motoring press panned the Haval H8 in test drives. It turned out to be a US$2.4 billion decision.
That's how much his company lost in market value on Tuesday after the announcement of the delay prompted Great Wall shares to plunge 12 per cent, the most in five years, in Hong Kong trading. Wei's personal net worth fell by US$51 million to US$6.9 billion.
It recovered just 0.29 per cent yesterday, closing at HK$34.55.
The stumble set back investor confidence in Wei, who has led Great Wall as its shares surged over the past five years as he transformed his firm into one that generated higher operating margins than any other listed carmaker. Jefferies Group and China International Capital Corp cut their investment ratings on the stock, while Sanford C. Bernstein said the move signalled growing pains.
"Great Wall's ambitions to move up a league in the auto industry rest on this vehicle, which has already been delayed unofficially in the last year," Max Warburton, an analyst at Bernstein, said in a report. "The latest and very public delay will not be taken well by the market as it confirms Great Wall is struggling with technology and quality."
Great Wall decided to push back the H8 by three months after detecting that its 201,800 yuan (HK$259,000) flagship model had issues ranging from the brakes to low steering resistance and excessive noise, the company announced on Monday.
"We would rather suffer huge costs and continue to improve the quality of the vehicle," Great Wall said. "We would rather let down users for a while than for eternity."
Journalists and industry professionals found "some issues" after they evaluated the Haval H8 through a week of test drives, though everyone provided "very positive feedback", Great Wall said.
Warburton estimated the delay may cost Great Wall about 500 million yuan in unrealised operating profit and engineering expenses in the near term. For the pessimist, the reputational damage may be longer lasting and the H8 delay may signal the company will need to crank up its research and development spending, he wrote.
The H8 was projected to account for about 10 per cent of the company's revenue and gross profit this year, according to estimates by Citigroup analyst Paul Gong.
