SAIC Motor Corp. (600104.CN) reports huge profits in lieu of its joint venture with GM and VW

The biggest automaker company of China, SAIC Motor Corp. (600104.CN), on August 13, 2014, reported that its sales, during the first part of the year, went up by 18 percent. The company further said that the increase in the sales of the SAIC Motor Corp. (600104.CN) resulted due to its joint venture with General Motors Co. and Volkswagen AG.

The company further announced that its profits rose to $2.2 billion (13.6 billion Yuan) during the first six months of the year 2014. It is pertinent to note here that the profits were recorded to be around 11.5 billion Yuan during the last fiscal year.

Coming to SAIC Motor Corp.’s (600104.CN) sales of motor vehicles, the figures increased by 12 percent and reached to 2.86 million vehicles. It is important to note here that the industry average of the country was 8 percent during the first part of the year.

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The sales of the vehicles manufactured by the General Motors Co. (Shanghai) and Volkswagen Co. (Shanghai) continued to rise due to a common perception among the people of China that the products of foreign brands are better in quality than the products offered by the local companies. What’s interesting is the fact that during the first part of the year 2014, 5 of the top 10 selling vehicles of the year were built by the joint ventures of SAIC Motor Corp. (600104.CN) with VW and GM.

Analysts are expecting the company’s stock performance and earnings figures to go up in the future, owing to the fact that its foreign partners are launching the joint ventured vehicles in the country of China. Guotai Junan Securities predicts the net profit of the company to go up by 15 percent whereas China International Capital Corporation increased the price target of the company from 20 Yuan to 22 Yuan. On the last trade day, the shares of the company closed at a price of 16.32 Yuan; the stock price of the company has seen an increase of around 15 percent during the first part of the year.

Earnings data of SAIC Motor Corp. (600104.CN) pointed to the difficulties that the domestic companies face when selling their products in a market dominated by foreign companies. SAIC Motor Corp. (600104.CN) saw a decrease of 3 percent in the sales of its local made vehicles: MG and Roewe.

The automotive industry of China is also facing problems because the foreign companies are launching vehicles in China at a lower price – a domain where Chinese companies used to dominate. The leading Chinese automaker of sports vehicles, Great Wall Motor Co., announced a decrease of 3 percent in the net profits of the company. Similarly, a compact vehicle manufacturer, Tianjin Faw Xiali Automobile Co., reported a loss of around 400 million Yuan during the same time period.

The chairman of SAIC Motor Corp. (600104.CN), Chen Hong, during a recent shareholders’ meeting, said that the company would establish a joint venture firm in the region of Silicon Valley in order to boost its sales. The chairman further said that it takes a lot of time and strength to establish a brand name; and if Chinese auto makers want to make their brands popular, they need to go upscale.