Improving Profitability

The Matthew Effect among automakers is intensifying.

According to incomplete statistics, out of the 2024 financial reports or performance forecasts released by 15 listed automakers, 7 have achieved positive net profit growth, and 2 have narrowed their losses, reversing the trend of "selling cars without making money" seen in recent years to a certain extent.

The three private automaker giants, BYD, Geely, and Great Wall, recorded a combined net profit of 70 billion yuan for the year. Among new carmaking forces, Li Auto achieved a net profit of 8.7 billion yuan, with both gross margin and vehicle gross margin hovering around 20%. Thalys expects a net profit of 5.5 billion to 6 billion yuan, reversing the net loss of 2.45 billion yuan incurred in 2023. XPeng incurred a net loss of 5.79 billion yuan for the year, a significant narrowing compared to the 10.8 billion yuan loss in 2023. Leapmotor's loss narrowed significantly to 2.35 billion yuan.

Cui Dongshu, Secretary-General of the Passenger Car Association, recently noted that with the promotion of the country's dual-new policy, automaker sales in 2024 showed robust quarterly growth, and the gross margin and profit efficiency of major automakers also continued to improve.

In sharp contrast, Dongfeng Motor Group turned losses into profits, while SAIC Motor, GAC Group, and Changan Automobile saw intensified profit declines.

Data shows that Changan Automobile's net profit in 2024 declined by 35.37% year-on-year, SAIC Motor is expected to decline by 90% year-on-year, Beijing Automotive Group by 68.5% year-on-year, and GAC Group by 81.4% year-on-year.

As technological innovation gradually emerges as a profit growth point, the impact of the "price war" is gradually weakening. However, for some companies, they still have not found the balance point between the dividends of the intelligent era and may fall behind again in the increasingly fierce "knockout competition".

Profitability Improved Significantly

According to data from the Passenger Car Association, China's automotive industry had a total revenue of 10,647 billion yuan in 2024, an increase of 4% year-on-year, while the profit rate of the automotive industry was 4.3%. Compared to the average profit rate of 6% for downstream industrial enterprises, the profit rate of the automotive industry remains on the low side.

Behind this figure lies the shift in market share between joint venture brands and Chinese brands. The status of joint venture brands as "cash cows" is gradually becoming a thing of the past. Although "price wars" have emerged endlessly in recent years to compete for the market, significantly impacting automaker profits, according to 2024 financial reports, this impact is gradually fading.

BYD achieved revenue of 777.102 billion yuan in 2024, an increase of 29.02% year-on-year; net profit attributable to shareholders of listed companies reached 40.254 billion yuan, an increase of 34.00% year-on-year. Benefiting from in-house production and research and development across the entire industry chain, as well as meticulous cost and efficiency control, BYD's gross margin reached 19%.

Great Wall and Geely's revenue and net profit also hit record highs. Great Wall achieved revenue of 202.2 billion yuan in 2024, an increase of 16.73% year-on-year, with a net profit of 12.69 billion yuan, surging over 80% year-on-year, and a gross margin of 19.51%; Geely's revenue for the year was 240.2 billion yuan, with net profit surging over 200% year-on-year to 16.6 billion yuan, and the gross margin also increased to 15.9%.

As a new carmaking force that has taken the lead in profitability, Li Auto still achieved significant profitability in 2024, but its financial performance was not as strong as the previous year. In 2024, Li Auto achieved total operating revenue of 144.46 billion yuan, an increase of 16.6% year-on-year, and a net profit of 8.045 billion yuan, a decrease of 31.9% year-on-year. The gross margin fell from 22.2% the previous year to 20.5%.

Thalys staged a remarkable "comeback story." In 2024, Thalys achieved revenue of 145.176 billion yuan, an increase of 305.04% year-on-year; the net profit attributable to shareholders of listed companies was 5.946 billion yuan, compared to a net loss of 2.45 billion yuan the previous year.

This is not only the first time Thalys' annual revenue has exceeded 100 billion yuan but also the first time it has achieved profitability in the past five years. Over the past year, Thalys' transition from a loss of over 2 billion yuan to a profit of nearly 6 billion yuan has once again demonstrated the rapid development and opportunities of China's new energy sector.

Another automaker worth noting is Dongfeng Motor, which also turned losses into profits. In 2024, Dongfeng Motor achieved revenue of 106.197 billion yuan, an increase of 6.86% year-on-year. The net profit attributable to shareholders of listed companies was 58 million yuan, compared to a loss of 3.887 billion yuan for the same period last year, a remarkable achievement.

In addition, XPeng and Leapmotor significantly narrowed their losses and are just one step away from profitability based on their current development trends. In 2024, XPeng's annual revenue reached 40.87 billion yuan, an increase of 33.2% year-on-year, with a positive gross margin of 14.3%. The net loss narrowed by 44% to 5.79 billion yuan, successfully achieving a rebound in performance.

Thanks to its dual strategy of full-scale in-house research and development and cost control, Leapmotor achieved a qualitative leap in 2024. Its annual revenue soared 92% to 32.16 billion yuan, and its net loss narrowed significantly by 33.18% to 2.82 billion yuan. Especially in the fourth quarter, it achieved profitability for the first time, with the gross margin surging to 13.3%, a record high since the company's inception.

The Watershed Is Widening

In contrast, the situation of several automakers with continuously widening losses is becoming increasingly worrying.

Once the "overlord" of the auto market, SAIC Motor encountered a setback in 2024. Not only was its sales champion throne taken away, but its financial statements also frequently flashed "red lights." SAIC Motor's performance forecast shows that it expects a net profit attributable to shareholders of listed companies of 1.5 billion to 1.9 billion yuan in 2024, a year-on-year decrease of 87% to 90%; the net profit after deducting non-recurring gains and losses is expected to be a loss of 4.1 billion to 6 billion yuan, compared to a profit of 10.045 billion yuan in the same period last year.

Regarding the reasons for the change in performance, SAIC Motor explained that the company sold 4.013 million vehicles wholesale in 2024, a decrease of 20.07% year-on-year. At the same time, due to the decline in the fuel vehicle market and the escalating price war, the company's sales revenue decreased, and its gross margin fell.

This is also a dilemma faced by many automotive groups. As the profit dividend period of joint venture brands gradually passes, independent brands have not timely supplemented their positions to open up new profit growth channels. Therefore, transformation has become a major strategic goal for several major automotive groups in 2024.

GAC Group, which also launched a three-year "Panyu Plan" in 2024, achieved total operating revenue of 107.784 billion yuan in 2024, a year-on-year decrease of 16.9%. This is the first time since 2020 that GAC Group's annual revenue has shown negative growth. Its net profit attributable to shareholders of listed companies was 824 million yuan, a significant year-on-year decline of 81.4%, and its gross margin decreased by 0.52 percentage points.

Changan Automobile achieved revenue of 159.733 billion yuan in 2024, an increase of 5.58% year-on-year; however, its net profit attributable to shareholders of listed companies declined by 35.37% year-on-year to 7.321 billion yuan, and its net profit after deducting non-recurring gains and losses shrank to only 2.587 billion yuan.

NIO achieved total revenue of 65.7 billion yuan in 2024, an increase of 18% year-on-year, a record high. Its net loss for the year was 22.4 billion yuan, an expansion of 8% year-on-year. It has cash reserves of 41.9 billion yuan, which can support operations for the next 12 months, but its current liabilities have exceeded its current assets, and its asset-liability ratio has reached 87%. If financing is unfavorable, there will be liquidity risks.

According to multiple financial reports, NIO's cumulative net loss attributable to shareholders of listed companies from 2018 to 2024 amounted to 109.2 billion yuan. Despite huge business investments, NIO has not yet found the break-even point. At the same time, the parallel operation of the three brands, NIO, Ledao, and Firefly, has led to a significant increase in investment again. According to the expectations of William Li, CEO of NIO, the company will achieve profitability in the fourth quarter of this year, and NIO is also vigorously carrying out various reforms.

Although several major brands hit rock bottom in 2024, new "vitality" is just around the corner. Both SAIC Motor and GAC Group have reached cooperation with Huawei to launch new new energy brands. Changan Automobile's independent brands have also begun to gain momentum.

On April 16, the HarmonyOS Smart Ride's fifth-generation "Shangjie" brand, a collaboration between SAIC and Huawei, was officially unveiled. Yu Chengdong, Executive Director of Huawei and Chairman of the Terminal BG, said that Shangjie will be a brand that prioritizes style, equipped with Huawei's smart travel solutions, and adopts HarmonyOS Smart Ride's strictest quality management standards for vehicle control. The first model will be officially launched this autumn.

The birth of Shangjie is not only a crucial step in Huawei's ecosystem expansion but also a microcosm of the intelligent transformation of traditional automakers. For traditional automotive groups, 2025 will also be a crucial year for testing.

Is the Era of High Growth Approaching?

In 2025, with the continuous promotion of the "two new" policies, automakers have increased their new car launches and promotional efforts, and the first-quarter auto market showed obvious signs of "warming up".

It is understood that the auto market was in a state of sales growth in the first quarter of this year. At the end of last year, a wave of discounts and promotions by automakers and dealers preemptively drained sales. In January this year, retail sales of passenger vehicles fell to 1.794 million units, a year-on-year decrease of 12.1% and a month-on-month decrease of 31.9%, giving the auto market a "low base" start this year.

However, with the support of favorable policies such as trade-ins of old cars for new ones, the auto market began to recover in February, pulling the sales of the first two months of this year back to a positive growth track, but the cumulative year-on-year growth was only 1.2%.

Subsequently, the auto market accelerated its volume in March. According to statistics, in March this year, retail sales of passenger vehicles reached 1.94 million units, an increase of 14.4% year-on-year and 40.2% month-on-month. Cui Dongshu said that the year-on-year growth rate of passenger vehicle retail sales in March this year was the highest in nearly a decade.

Image source: Geely Automobile

Among them, new carmaking forces took the lead in announcing their first-quarter sales results. Leapmotor and XPeng repeatedly set new monthly delivery records, with year-on-year growth rates "soaring" and doubling. Traditional automakers also generally welcomed positive growth. BYD's quarterly sales exceeded one million units for the first time, and Geely and Chery both achieved double-digit growth.

Regarding the reasons for the continuous high growth of independent brand passenger vehicles, Cui Dongshu believes that this is mainly due to the significant increase in the new energy vehicle market and export market for independent brands, as well as the excellent performance of mainstream automakers in transformation and upgrading. Traditional automaker brands such as BYD, Geely Automobile, Chery Automobile, and Changan Automobile have seen significant increases in market share.

Under the high-growth trend, along with the fierce competition among Chinese automakers this year, the profitability of automakers will further differentiate the auto market structure.

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