Auto Industry

Broken down

Why carmaker Xiali is gushing red ink

Xiali w

The unloved car: Xiali

There are not many Chinese carmakers that can boast their share price is up 80% this year. In fact Kandi Technologies even saw its stock surge 10% on Monday alone.

The local maker of electric vehicles got a boost that day from headlines about a new government directive. This related to a waiver on sales tax, meaning consumers will save 10% on new energy cars purchased from this September till the end of 2017. The kicker for Kandi? The new directive indicated that only domestically-made vehicles would be eligible for the waiver – a move that could boost its competitiveness versus foreign-made electric cars.

Kandi’s management is already pointing to some pretty impressive percentage gains in its sales. During the second quarter it increased the number of vehicles sold by 238% over the previous quarter. (At this point it is worth tempering a little of the excitement – consumers bought just 4,114 of its electric vehicles in that period, versus 1,215 in the first three months of the year.)

Still, the mood at Kandi – and the view about future sales – has to be a lot brighter than over at Xiali, which was once respected as the maker of the ‘people’s car’ of China, but is now the brand that nobody wants. It has some fairly striking figures to report too, except they are negative. According to Securities Daily, Tianjin FAW Xiali has just delivered the worst year-on-year performance decline of any listed automaker in China. Get ready for it: the company’s net profit attributable to shareholders was down 10,140% (it moved from making Rmb4.58 million in the first half of 2013 to losing Rmb460 million, or $75 million, in the same period of 2014).

Securities Daily describes the scale of this percentage fall as “unique” – although it does add that Xiali’s problems reflect a wider shunning by consumers of Chinese car brands. Citing statistics from Wind – a local equivalent of Bloomberg – it notes that 49 of China’s 83 listed auto firms have issued interim earnings warnings.

But none looks to be quite so troubled as Xiali, famed for its cheap compact vehicle the N5, a model better recognised as the Daihatsu Charade by most international drivers. The N5 used to hold a fairly influential position on China’s roads. Over 1.8 million of the cars have been made since the first rolled off the assembly line in 1986, but such is their loss of appeal that 21CN Business Herald says they are losing competitiveness even in poorer fourth- or fifth-tier cities. As an industry analyst observed, “Xiali is an old brand that has been marginalised. Consumers are increasingly inclined to buy SUVs, and in the low-end of the market it faces competition from the joint ventures between local carmakers and foreign firms. For example, Dongfeng-Nissan’s Qichen brand is selling a model for less than Rmb40,000.”

Meanwhile Xiali’s efforts to broaden its range with a new series of sedans has failed to excite buyers. That category of car saw unit sales dive 63% to 6,684 vehicles in the first half.

Xiali’s decline is not a sudden phenomenon, mind you. Back in 2011 we wrote about the firm, citing an article from CBN Weekly that was headlined “Goodbye Xiali”, and explained that Xiali’s core operation was already bleeding red ink. However, back then the listed entity was able to stay in the black thanks to contributions from its stake in Tianjin FAW Toyota (in fact, what made Xiali’s most recent set of results so terrible was that this also declined).

Prior to 2007, Xiali didn’t have to pay much attention to styling new models, because most cities in China required that taxi drivers use domestically-made vehicles. Taxi sales made up half of the firm’s revenues.

But the grip on the taxi market began to slip in 2007. Beijing elected to buy Hyundai vehicles for its own taxi fleet, to boost its image ahead of the Olympics. Other cities followed suit, opting for bigger cars made by Volkswagen and Hyundai.

In the meantime younger consumers were put off by Xiali’s old-fashioned designs and lack of technical innovation.

Securities Daily says the carmaker plans to launch a SUV later this year. An analyst told the newspaper that might be a turning point. Then again, something needs to happen. If the losses continue into next year, the company faces the risk of being delisted, writes 21CN.

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