Auto Industry

Hitting the brakes

Stock plunges as Great Wall halts deliveries of it latest vehicle

Staff uncover a Great Wall Motors Haval M4 mini SUV during the media preview of the 10th China International Automobile Exhibition in Guangzhou

Not ready quite yet: Great Wall’s new SUV

In 1983 Toyota’s top executives and engineers were summoned to a meeting with Toyoda Eiji. “Can we create a luxury vehicle to challenge the world’s best?” the Toyota chairman asked them.

In response a top-secret team codenamed ‘F1’ was created. As part of the multi-year research programme a handful of engineers even rented a house in California’s Laguna Beach (to be completely thorough, they wanted to experience the affluent lifestyle of their target American clientele). After a development process involving 450 prototypes, hundreds of engineers and more than $1 billion in investment, the Lexus made its debut in 1989. It would help to make Toyota the world’s leading automaker.

Great Wall Motors has been trying to make a similar leap by challenging China’s foreign car brands in the SUV market. But its plans snagged this month when it suspended deliveries of its new Haval H8 vehicle after customers reported “knocking noises” in the transmission system when the car reaches higher speeds. It was the second setback for Great Wall’s ambitions to break into the premium market after it delayed the H8’s debut after poor reviews earlier this year.

“This demonstrates the company’s weakness in developing high-end products and in technical management. Repeated delays in delivery of the Haval H8 have hurt customers’ feelings and we feel very guilty about that,” Great Wall admitted in an impressively humble statement. “As such, the company decided to further rectify the Haval H8 which will not be launched unless it is of premium standard.”

With an initial focus on production of cheaper SUVs, Great Wall stands out for operating on its own, rather than relying on technology from foreign partners. The strategy had looked to be working, making Great Wall the fastest-growing of China’s homegrown carmakers (see WiC187). Investors were impressed and Great Wall’s shares surged to a record level last year. CBN ranked its chairman Wei Jianjun as “the richest A-share tycoon” in late 2013 with a net worth of Rmb48 billion ($7.7 billion).

According to Entrepreneur Daily, Great Wall has been planning the H8’s launch since early 2012. The vehicle – which will be priced close to Rmb200,000 – is designed to compete with the likes of Volkswagen’s Tiguan. But setbacks on the delivery date have unnerved the markets. News of the problem with the transmission system saw the company’s shares plunge by 20%, the biggest single-day decline since 2008.

Southern Metropolis Daily reckons Great Wall might have underestimated the costs of developing a premium model too. The newspaper notes that despite being the most profitable carmaker in China last year, Great Wall invests the least – less than 3% of annual revenues – in research and development.

Other analysts still believe that Great Wall has picked the correct strategy. NetEase Auto goes back to the Lexus example, reckoning that “overcoming technology challenges and making a branding breakthrough is the path that every auto giant has gone through”.

But Great Wall is struggling to build its brand abroad. Overseas sales fell 22% to about 75,000 vehicles last year. In response, it said this week it will invest up to Rmb3.2 billion to build a new production base in Russia, its biggest export market. The facility will make as many as 150,000 vehicles a year at full capacity, it also announced.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.