• Fri
  • Sep 19, 2014
  • Updated: 9:12am
BusinessChina Business
CARS

Mainland Chinese car brands worry over competition

Despite good earnings growth, domestic carmakers are cautious about prospects as they feel intense pressure from ventures of foreign marques

PUBLISHED : Monday, 24 March, 2014, 4:45am
UPDATED : Monday, 24 March, 2014, 6:30am

Mainland car brands are coming under increasing pressure as they lose their price advantage amid intensified competition from the joint ventures of foreign carmakers.

Despite decent profit growth last year, Geely Automobile and BYD said they were cautious about the outlook, an indication of mounting worries over competition.

Olive Xia, an analyst with brokerage Core Pacific-Yamaichi International, said domestic carmakers were feeling the pressure because the quality of their products could not compete with joint-venture brands.

"Local brands enjoyed price advantages with their low-priced models in the past, but joint venture are also seeking to boost market share by launching more affordable models customised for the Chinese market," Xia said.

Geely chairman Li Shufu said in the company's results announcement he expected competitive pressure would intensify considerably because foreign brands had been strengthening their mainland presence through aggressive pricing strategies.

Geely, which owns Swedish brand Volvo, posted better-than-expected profit growth of 31 per cent last year.

BYD chairman Wang Chuanfu predicted a 96 per cent year-on-year fall in first-quarter earnings this year, with the firm, known for its electric cars, seeing a sluggish outlook for low-end cars and a shrinking market share for domestic brands.

Sales of domestic brands grew 11.4 per cent last year to 7.2 million vehicles, slower than the 15.7 per cent growth for overall sales.

Eva Yip, an analyst with Sun Hung Kai Financial, said demand remained strong despite purchase limits imposed by some cities due to concerns about pollution, but domestic marques were coming under intense pressure because their quality lagged that of joint-venture brands.

Domestic manufacturers such as Geely and Great Wall Motor had stepped up efforts to adjust their product mix to include high-performance vehicles to boost margins and competiveness, but that would cause a slowdown in sales volume growth, Yip said.

"Local makers are more cautious in tapping the higher-end market in which joint-venture brands have a strong presence," she said. "It's not easy for local companies to compete with quality."

Great Wall's delay in launching its H8 luxury sport utility vehicle showed the company's conservative strategy, Yip said.

The mainland's top SUV maker posted 44.5 per cent growth in profit to 8.2 billion yuan (HK$10.2 billion) last year and said it expected to launch the H8 model - its first to cost more than 200,000 yuan - this year.

Great Wall sold 770,619 cars last year, up 24 per cent, boosted partly by the growth in SUV sales.

Geely has also stepped up its efforts in the higher-end market, implementing structural changes in its sales channels and product mix in the middle of last year.

Yao Wei, an analyst with Bocom International, said the reforms caused a decline in Geely's car sales in the first two months of this year, and the impact would be felt for two to three more months.

However, the reforms would help boost future sales and margins, he said.

"The company may see the positive impact of its reforms in the second half of this year," Yao said.

Compared with domestic brands, Xia is more upbeat about Brilliance China Automotive and Dongfeng Motor, which have foreign partners.

"The demand for European-branded cars will remain strong in the Chinese market," she said, noting that the quality of joint-venture brands had better recognition among mainland motorists.

While Japanese brands were popular, geopolitical disputes between China and Japan might take a toll on sales, she said.

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