GAC Embraces Long-termism, Seeks Growth by Adjustments

On the evening of August 30th, GAC Group disclosed its financial report for the first half of 2024. Behind the report card, there are two issues that everyone is more concerned about: 1. What is the confidence that supports GAC's adherence to long-termism? 2. How is the long-term value of a quality enterprise proven?

The report shows that in the first half of 2024, GAC Group's consolidated operating income was approximately 181.142 billion yuan. After consolidation, the total gross profit increased by 5.5% year-on-year, and the gross margin increased by 1.38% year-on-year.

To understand GAC Group's confidence in adhering to long-termism, it is necessary to first deconstruct its business layout.

In terms of vehicle energy composition, GAC Group has fully covered a variety of energy structure products, including EV (pure electric), PHEV (plug-in hybrid), and HEV (hybrid electric), which allows it to respond more flexibly to rapidly changing market demands. In the first half of the year, the sales proportion of GAC's new energy and energy-saving vehicles has increased to 40.63%, and it is further optimizing the structure of its own brand's new energy products, planning to launch several PHEV and REV models by 2025.

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This adjustment is also in line with the global trend of rapidly increasing demand for hybrid vehicles. The report shows that GAC Group is expanding into overseas markets, with exports increasing by 190% in the first half of the year, and will accelerate the completion of overseas multi-energy structure product layouts.

It is based on this that GAC Group's differentiated + long-term strategy gives the outside world an opportunity to understand its layout and confidence.

I. Proactively Implement Structural Adjustments

Comprehensively layout multi-energy technology and products

One of the cores of competition in the automotive industry is volume. Affected by insufficient effective demand, when domestic car sales growth is under pressure, price wars become the reaction of car companies facing sales anxiety.

The author noticed that in the first half of the year, GAC Group took active inventory reduction measures, optimized the healthy state of channels, and promoted terminal sales. The terminal sales of all major car brands were better than wholesale sales. Among them, the group's overall car wholesale sales were 863,000 units, and terminal sales were 938,000 units, showing that inventory levels are being optimized. Coupled with the higher gross profit margin brought by export business, GAC Group's overall gross profit level in the first half of the year was able to maintain a growth trend.More important than inventory reduction is the potential for future sales growth. The foundation for achieving this leap is the insight into the automotive industry's vision for the layout of various types of energy products after the electrification transformation.

Reviewing research reports shows that the diversity and differentiation of energy structures in various countries determine that the transformation of automotive power is a gradual long-term process, and no important technological direction should be overlooked. In terms of the overall national energy strategy, the automotive industry's over-reliance on a single energy route may pose certain risks, and the automotive route is considered to be moving towards a new stage of diversified symbiosis.

On the one hand, hybrid vehicles still have a certain cost advantage over pure electric vehicles at this stage. For example, for companies, based on the battery pack price of 900 yuan/kWh, the powertrain system cost of PHEV can be about 30% lower than that of pure electric. For consumers, the economic use of PHEV compared to fuel vehicles is more obvious. Therefore, the hybrid route can help companies reduce costs and open up sales. On the other hand, replacing old fuel vehicles with hybrid vehicles can bring obvious emission reduction and carbon reduction effects.

As the Auto Hundred Think Tank said, looking back at 2023, different from the past two years of China's new energy vehicles doubling growth rate, the year-on-year growth rate and penetration rate of pure electric passenger cars have entered a plateau, but the market for plug-in hybrid and extended-range hybrid vehicles has shown a high growth trend. Data shows that in the first half of the year, the new registration volume of HEV models in the EU increased by 22.3% year-on-year, and the sales volume of China's PHEV (including extended-range) models increased by 85.2% year-on-year, accounting for 38.9% of the sales volume of new energy vehicles.

According to GAC Group, it has been focusing on multi-energy technology since 2013, and the technology has now fully covered EV, PHEV, HEV, REV, FCV, etc. In the first half of 2024, GAC Group had a total of 24 new energy vehicles and energy-saving vehicles on sale, accounting for 48% of the model proportion, and the sales proportion increased to 40.63%. GAC Aion's terminal sales rank in the top three of the mainstream pure electric market; GAC Trumpchi's PHEV model sales are about 24,000 vehicles, a year-on-year increase of nearly 440%.

In addition, GAC Toyota's terminal sales rank third in the domestic market among joint venture car companies and first among Japanese car companies, among which the terminal sales proportion of new energy and energy-saving models has been greatly increased to 44%, and the terminal sales of HEV continue to maintain the first place in the domestic market. GAC Honda has launched a brand new pure electric model e:NP2, and the HEV hybrid model has sold more than 500,000 units since its launch.

The day after the release of the semi-annual report, GAC Group General Manager Feng Xingya said at the 20th China Automotive Industry Development (Taida) International Forum that by 2025, GAC Group plans to launch several new PHEV models and REV models, achieving extended-range, direct drive, parallel, and pure electric driving modes.

Second, internationalization growth is obvious, with a year-on-year increase of about 190% in the first half of the year.

GAC Group has stated that it will regard internationalization as one of the five growth increments of its development. Under the trend of the continuous growth of global hybrid vehicle demand, the multi-energy structure layout is providing a foundation for GAC Group to better cope with different demands in overseas markets. In the semi-annual report, the incremental effect of the overseas market has been shown.In the first half of 2024, GAC Group's automobile export volume increased by 190% compared to the same period last year. In terms of gross profit margin, GAC Group's overseas gross profit margin in the first half of the year was 14.26%, an increase of 11.06 percentage points year-on-year.

GAC Group stated that its overseas business has covered 68 countries and regions including the Middle East, Southeast Asia, Africa, and the Americas, with a global sales network reaching 323 outlets, initially establishing a global R&D, production, sales, and service system. Currently, the group has preliminarily achieved the "two-legged" approach of complete vehicle exports and localized operations. Complete vehicle KD factories in Thailand, Malaysia, Nigeria, and other countries have been put into production, and the factory in Indonesia is also expected to start production this year.

The second-generation AION V rolled off the production line at GAC Aion's Thailand smart factory.

At the same time, the group has strengthened its cooperative overseas mechanism. GAC Trading has established logistics subsidiaries in Thailand and Mexico, and GAC Components has invested in the construction of a seat project in Thailand, further improving the international logistics and parts support system. Currently, based in the Guangdong-Hong Kong-Macao Greater Bay Area, GAC Group has shifted from "going out" to "going in." It is reported that in the second half of the year, GAC Group will accelerate the development and mass production introduction of six products overseas, speed up the completion of a multi-energy structure product layout overseas, strive to add more than 100 sales outlets, and challenge the goal of selling more than 150,000 vehicles for the year.

III. Betting on Electrification + Intelligence

High-level intelligent driving has been mass-produced and put into vehicles.

In the view of CheBai Think Tank, as the carbon neutrality goal approaches, the focus of Chinese automakers' layout will still shift towards EVs. However, in the relatively long transition period that follows, the growth rate of EVs may tend to flatten, and PHEVs and REVs are expected to maintain high growth. At this stage, including solid-state batteries and other new-generation electric vehicle technologies and hybrid technologies, are still in the ascending phase of technology and the market.

Against this backdrop, analyzing GAC Group's R&D and layout in the forefront of automotive technology may reveal its differentiated competitive trajectory.

The author has noticed that in the pure electric field, to solve core issues such as range anxiety, GAC Group has successfully achieved self-research and self-production of the "three electrics," mastering leading technologies such as super fast-charging batteries, long-range batteries, and high-safety batteries. Currently, the group has initially established the entire process of manufacturing solid-state batteries, achieving a key technological breakthrough in the mass production of vehicle-grade high-safety, high-capacity solid-state power batteries. The battery energy density can reach more than 400Wh/Kg, and it is expected to be equipped with Haobo models in 2026.

GAC's solid-state power battery model display.Beyond electrification, another driving force for the growth of the global automotive industry comes from the strong pull of the second half of intelligentization. Under the new round of technological competition, how to better convert intelligent technology investment into market sales has become particularly important.

The report shows that since 2013, GAC Group has begun to invest in the research and development of intelligent driving systems, and currently has the technical research and development and application capabilities from L2 to L4, while also laying out the "multi-sensor fusion" and "mapless pure vision" two major intelligent driving technology routes. According to the "Intelligent 2027" action plan released in April this year, GAC Group will use three years to continuously consolidate the "GAC AI Large Model Platform", "GAC Star Spirit Electronic and Electrical Architecture" and "GAC Connected Big Data Platform" three major technical foundations, and promote the rapid optimization of intelligent driving and intelligent cockpit.

In terms of results, GAC Group has the domestic leading L2++ urban high-level intelligent driving functions, which have been equipped on the three models of Haobo GT, Haobo HT, and the second-generation AION V, and plans to achieve urban NDA nationwide this year. In addition, GAC has become one of the first batch of car companies in the country to carry out L3 autonomous driving road trial pilots, and plans to launch L4-level autonomous driving for ordinary consumers in 2027.

At present, GAC Group's Robotaxi has started demonstration operations or road tests in many places in the Greater Bay Area, and has started L4 Robotaxi commercial operations through its subsidiary Ruqi Travel. The first L4 Robobus of GAC Group's subsidiary Qi Ji Automobile is also planned to achieve mass production by the end of this year.

GAC's self-developed L4 autonomous driving car Robotaxi

So far, GAC Group has accumulated more than 50 billion yuan in independent research and development investment, and the cumulative number of patent applications has exceeded 19,000, of which invention patents account for more than 42.1%. With hard technology, products, and long-termism, GAC Group has become an indispensable force in the Chinese and international markets, and has been on the Fortune Global 500 list for twelve consecutive years, making it a highly valuable investment target in the automotive field.

Facing the fiercely competitive market, how to stick to the original heart and maintain long-term stability and upward? This is the question that GAC Group is answering.