Decreasing Income adds Difficulty in switching BAIC Self-owned SUV Brands’ Loss

Since BAIC Motor released annual report that the self-owned brands had operation loss of RMB 3.34b, discussion on when the brands would break even got great attention.
Data shows that the sales volume of BAIC self-owned brands increases 8.9% to 337,000 units in 2015, and the revenue increases 43.6% to RMB 17.8b. However, operation loss enlarges from the RMB 1.9b in 2014 to RMB 3.34b. Data also shows the sales cost related to the self-owned brands increases 54% to RMB 19.27B in 2015. High sales costs, profit loss resulted by price discounts, together with high R&D fees, are the main reasons for the loss.
BAIC Motor bet heavily on SUV market in recent years. The SUVs set a record high sales volume of 6.22m units in 2015, with self-owned brands selling 3.13m units. BAIC Motor also launches Senova X55, Weiwang S50, Senova X35 and other SUV models in the past five years, hoping to further enlarging market share. “The 2016 target is more than 200,000 units. To achieve the target, we will change our product structure and make SUV as the main sales force.” Li Feng, President of BAIC Motor said.
But some financial institutions and experts stay pessimistic on BAIC’s self-owned brands. Since the SUV market has kept high growths for many years, experts believe the market is now stepping towards a Red Sea and may face growth drop in future years. Some experts hold the view that there is a great gap in sales volume between BAIC’s self-owned SUV brands and other outstanding SUV models such as Haval H6, JAC Refine S3 and Chana CS75. For BAIC’s future, some analyst predicts that, “The SUV market is expected to touch the growth ceiling in 2018. BAIC’s strategy of inputting SUV products may take effect in at least three years. It’s possible for it to decrease loss of RMB 5m to RMB 1b in 2016, but difficult to make it RMB 1.5b to RMB 2b.”


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