Higher US import tariffs force Great Wall to redraft US sale launch plans

Last week China’s largest SUV maker posted 52.7pc rise in interim net profit to US$542m, thanks mainly to the contribution from its maiden, higher-price model

PUBLISHED : Monday, 03 September, 2018, 9:01pm
UPDATED : Monday, 03 September, 2018, 11:01pm

China’s largest sport utility vehicle (SUV) maker has been forced to rethink its strategy for entering the giant US market, officials said on Monday, after Washington slapped a 25 per cent tariff slapped on Chinese car exports to there in July.

Great Wall Motor company secretary Xu Hui admitted the escalating trade war may have a serious impact on the progress of its plans to start selling in the US by 2021.

The potential impact of that “is still unclear. It is a longer-term plan and we have yet to decide on a business model,” added Xu, “which will depend on “consumer need, regulatory requirements and costs.”

While the “technical hurdles” of selling in the US are not particularly challenging, the market’s rules and regulations on vehicles usage are among the most complicated and stringent globally, he added.

Great Wall has now dispatched a research team to the US to gather market intelligence, and it will only enter when it is fully prepared, he added.

Washington imposed an additional 25 per cent tariff on Chinese-built internal combustion engines, pure electric and hybrid vehicles on July 6, as part of duties slapped on US$50 billion worth of Chinese goods.

Great Wall views entering the US as a major milestone for its globalisation strategy, but has no concrete plans whether to set up a full manufacturing plant in the country.

Chairman Wei Jianjun said in March this year that since US tariffs on Chinese cars, at the time, were just 2.5 per cent, it might not need to build a factory there.

[The potential impact of the escalating China-US trade war ] is still unclear. It is a longer-term plan and we have yet to decide on a business model
Great Wall Motor company secretary Xu Hu

In the first half of 2018, just 3.3 per cent of its revenues came from overseas, with South Africa its biggest export market followed by Ecuador and Chile.

Its only overseas factory is in Russia due to its high tariffs. In other markets, it exports parts to be assembled.

Great Wall last Thursday posted a thumping 52.7 per cent year-on-year rise in interim net profit to 3.7 billion yuan (US$542.3 million), thanks to the contribution from its maiden, higher-price SUV model and last year’s low comparison.

Since then Nomura has cut its annual profit estimate by 14 per cent, and next year’s by 10 per cent, citing an average 8 per cent cut to projected sales and a 0.5 per cent reduction in gross profit margins.

The new upmarket ‘WEY’ brand has already been losing significant momentum in recent months, while sales of its core Haval SUV models declining 19 per cent year-on-year in the year’s first seven months, it wrote in a note issued on Friday.

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On the same day, Daiwa Capital Markets’ analysts slashed its Great Wall profit forecasts for the three years to 2020 by 16 to 33 per cent, citing a “weak pipeline” of new products that have “limited differentiation”.

Over the weekend the car major announced it was slashing its Haval model prices by between 20,000 to 24,000 yuan in an effort to boost sales after the seasonal summer lull, said Xu, and to shift stocks of older models ahead of the launch of new ones, including the R1 and R2 pure-electric saloons.

It will still “strive to” meet its full-year sales target of 1.16 million cars this year, he added, after selling 471,939 in the first half, 3.1 per cent higher year-on-year.

Great Wall shares closed 6.8 per cent lower at HK$4.5 (47 US cents) on Monday.