On October 17th, Huawei's Richard Yu revealed that ZunJie will soon debut at the Guangzhou Auto Show next month, and is planning to officially launch in the spring of next year, as a high-performance car priced at over 1 million yuan.

This news once again stimulates the sensitive nerves of the capital markets, with Jianghuai Automobile's stock price hitting the upward limit the next day and continuing its upward trend. In fact, since September 24th, Jianghuai Automobile has accumulated a 60% increase, repeatedly setting new historical highs. Looking at the longer timeframe, the current price has surged over 220% from the low point in February this year.

To some extent, this expresses whether the capital markets see Jianghuai Automobile as the next Chongqing Sokon. Is such pricing too optimistic?

01

In early 2021, Yu Chengdong once boasted: “We will offer even higher versions in the future, annihilating the space of Mercedes-Benz, BMW, and Audi cars ranging from hundreds of thousands to over a million.” At that time, no car company or investor took this statement seriously, despite Huawei's full support for Chongqing Sokon Industry Group stock, with SF5 sales only a few dozen units per month.

In just a few years, Yu Chengdong's bragging has become a reality again. From April to August this year, Hongmeng Zhixing has ranked first for five consecutive months in the average transaction price of China's high-end car market. In August, the average transaction price was 0.399 million yuan, surpassing traditional luxury models like BBA.

This impressive performance is thanks to Wanjie M9's success. Since its launch, M9 has received over 0.15 million pre-orders in less than 10 months, becoming a "phenomenon" product. It's worth noting that this model has been the top-selling luxury car above 0.5 million in the Chinese market for five consecutive months from April to September this year.

Huawei-enabled Chongqing Sokon Industries has turned the tables. In the first nine months of this year, the sales of new energy vehicles including M5/M7/M9 reached as high as 316,713 units, a whopping 364% year-on-year increase. The capital market is also very optimistic, with a market cap approaching close to 150 billion yuan, surpassing established manufacturers like Chang'an and GAC, standing on par with SAIC Motor Corporation, once the "king of automobiles."

In addition to Wanjie, Huawei's joint ventures with BAIC, Enjoyjie, and Chery, Zhijie, have both achieved impressive results. Among them, Enjoyjie's pricing range is 0.4 million yuan-0.45 million yuan, with 8,000 pre-orders placed within 20 days of launch, directly competing with BBA luxury cars. Zhijie S7 is a coupe SUV, with a price range of 0.2598 million yuan-0.3398 million yuan, garnering 0.02 million pre-orders within 14 days of its release.

The success of several flagship models has further convinced the capital market of Huawei's solid strength in building high-end automotive brands, leading to optimistic pricing expectations for the upcoming Zunjie. Once it goes public, it is also expected to be a huge success.

So, can Zunjie have the upper hand and overturn BBA in the luxury car sector?

In 2023, the total sales volume of luxury cars above 0.6 million yuan in China reached 0.53 million units, an 18% year-on-year increase. If we simply calculate based on 0.8 million yuan per unit, the size of this high-end car market will reach 420 billion yuan, making the market truly sizable.

In the luxury car market, domestic brands are currently in a disadvantaged position. Among them, BMW, Mercedes-Benz, Porsche, Land Rover, and Audi have market shares of 26%, 25%, 12%, 10%, and 8% respectively. In addition, foreign platforms such as Volvo, Toyota, Volkswagen, Lexus, and Tesla have also secured a share.

Yongjiang was the first Chinese brand to launch a million-dollar luxury car. From November to December last year, Yongjiang achieved a high sales volume of 2001 units in two months, marking the first shot in China's competition for dominance in the luxury car market.

In the first four months of this year, Yongjiang's sales maintained a strong momentum, but starting from May, the sales have been declining monthly. By September, the monthly sales dropped significantly to 294 units, compared to the historical peak monthly sales of 1652 units.

However, Yongjiang's achievements have been amazing. The U8 sold 50.55 million units in the first half of the year, surpassing Mercedes-Benz GLS with 3853 units, Mercedes-Benz S-Class with 3610 units, Cayenne with 3559 units, and BMW 7 Series with 2703 units, all million-dollar luxury car models.

Overall, to establish a strong presence in the luxury market, apart from product strength, brand power and marketing capabilities are also crucial, requiring continuous development to solidify consumer recognition of the ultra-high-end positioning, which takes time to accumulate. The luxury market is the final fortress for foreign companies like BBA, not as easy to replace as imagined.

With the strong support of Huawei, Zunjie's future market performance to achieve the same success as Wenjie is uncertain. Because the consumer base in the 0.5 million price range is different from the 1 million range, the latter may place more value on the brand's halo, and the demand for smart driving technology may not be as high as expected. In the market segment above 0.6 million in 2023, the penetration rate of electric vehicles is only 9.3%, significantly below the industry average, indicating certain issues.

However, the current capital markets, based on optimistic expectations, have made a more thorough deduction and pricing of the situation where dongfeng automobile's future sales are booming.

02

Behind the deep partnership with Huawei, anhui jianghuai automobile group corp.,ltd. has actually experienced significant growth challenges over the past years.

Starting from 2016, anhui jianghuai automobile group corp.,ltd.'s revenue has been on a continuous decline, dropping from a peak of 52.53 billion yuan to 36.58 billion yuan in 2022, a cumulative decline of over 30%. Net income performance has been under great pressure, with a cumulative loss of nearly 1.5 billion yuan from 2017 to 2022.

During this period, anhui jianghuai automobile group corp.,ltd.'s commercial vehicle and passenger vehicle sales have been continuously declining. Among them, commercial vehicles mainly consist of light trucks under brands like Shuai Ling, Jun Ling, Kang Ling, and Wei Ling.

In fact, since 2010, there have been changes in the engines driving economic growth, with a profound shift in the logic of heavy industry growth driving the demand for freight volume growth, resulting in a ceiling for light truck sales. Against this backdrop, the light truck market has become highly competitive, with anhui jianghuai automobile group corp.,ltd.'s market share dropping from 12.5% in 2016 to 9.5% in 2022, falling behind leading companies like beiqi foton motor, chongqing Changan, dongfeng automobile.

The passenger vehicle market has also continued to face challenges. In 2016 when it peaked, the annual passenger vehicle sales were 0.365 million units, with models like the Rui Feng S2 and S3 showing strong performance and a cumulative sales of 0.25 million units, consistently leading the small SUV market.

After the peak, anhui jianghuai automobile group corp.,ltd. has been launching more and more models in the sedan, SUV, MPV and other segmented fields, but the sales volume of individual models is decreasing. On the one hand, the market competition is becoming increasingly fierce, with Haval H6 leading the SUV market share. On the other hand, in the second half of 2020, the china new energy vehicle market started to surge, with a continuously increasing penetration rate, but anhui jianghuai automobile group corp.,ltd. has not introduced any popular new energy models.

In 2023, anhui jianghuai automobile group corp.,ltd. seems to have reached a turning point in its overall business.

Commercial vehicles sold a total of 0.235 million units throughout the year, a significant increase of 19% year-on-year. Among them, the export of commercial vehicles amounted to 0.079 million units, a whopping 25% increase year-on-year, accounting for 10.3% of China's total commercial vehicle exports, second only to Beiqi Foton and sinotruk. In addition, passenger vehicles exported a total of 0.089 million units throughout the year, a 74% year-on-year growth, accounting for 2.2% of China's passenger vehicle export share, ranking tenth, contributing significantly to anhui jianghuai automobile group corp.,ltd.'s passenger vehicle main growth.

Whether it is commercial vehicles or passenger vehicles, exports have actually shown signs of rapid growth since 2021. On one hand, the Russo-Ukrainian conflict, the COVID-19 pandemic, have caused disruptions in the supply chain of European and American car manufacturers, giving Chinese brand car companies the opportunity to seize market share. On the other hand, Chinese cars are becoming increasingly recognized by consumers in belt and road initiative concept countries in terms of technology, cost-effectiveness, etc., driving domestic brands to continuously expand in overseas markets. Anhui jianghuai automobile group corp.,ltd. has also benefited from this trend.

Since 2024, anhui jianghuai automobile group corp.,ltd. has performed steadily, without continuing the high growth momentum of 2023. In the first 9 months, the total sales volume of commercial vehicles and passenger vehicles amounted to 0.315 million units, a 4.72% year-on-year decrease. Among them, there was a double-digit decline in both SUVs and MPVs in passenger vehicles, with a 9% decline in sedans.

It is worth noting that in September of this year, anhui jianghuai new energy passenger vehicle sales were only 3,044 units, a 15.9% year-on-year decline, with a cumulative total of 21,576 units in the first 9 months, a mere 1.48% year-on-year growth.

It can be seen that anhui jianghuai automobile group corp.,ltd.'s main battlefield is still in the gasoline car field and is in a precarious situation in the new energy vehicle field. It is noteworthy that in 2016, anhui jianghuai iEV pure electric car sales exceeded 0.018 million units.

It can be seen that before the IPO, saic motor corporation's absolute main business was in the light truck-dominated commercial vehicle field, with a visible growth ceiling, while the passenger vehicle business had achieved little in the new energy sector, placing it at a disadvantageous position.

The Zun Jie is about to be launched, more like a life-saving straw for Anhui Jianghuai Automobile Group Corp.,Ltd. in its operational dilemma.

03

Currently, Anhui Jianghuai Automobile Group Corp.,Ltd.'s latest PE ratio is 254.5 times, at a historically high level. The latest PB is 5.6 times, much higher than the median of 1.78 times over the past 10 years.

In the eyes of some investors, the current so-called 'overvaluation' has a certain degree of reasonableness. If Zun Jie can achieve good results, it will significantly increase the revenue scale and profitability of Anhui Jianghuai Automobile Group Corp.,Ltd., and when realized, it will greatly reduce the seemingly overvalued data now. However, if Zun Jie's listing falls short of market expectations, then the current valuation level appears to have turned into a bubble in the past, facing significant retracement pressure.

Before Zun Jie appeared at the Guangzhou Auto Show and the release of the Da Ding data, the optimistic pricing given by the market has not yet been refuted, so in the short term, the probability of continuing the previous trend is greater.

Of course, for medium to long-term value investors, it is not cost-effective to bet on Anhui Jianghuai Automobile Group Corp.,Ltd. becoming the next Chongqing Sokon Industry Group Stock. Instead, it is more important to beware that the current pricing is overly optimistic. (End of text)