Author: NE-Times
Translation/edit: MoneyballR
Source: http://www.ne-times.com/web/article/17892
With 33,094 unit sales in November, Hongguang MINI became the first EV to break 30K sales mark in a single month.
Based on SGMW monthly production plan of 20K-30K units, annual sales should be at around 300K, which are actually fantastic numbers compared to around 1M EV market in China. Of course, this is provided that these monthly sales continue in future.
However, the more consumer market gets excited, the more SGMW might be worried as this car losses money with each unit sold. People in the industry revealed to us that RMB 28.8K Hongguang MINI not only does not make any money, but it losses it a lot.
Hongguang MINI is not making money
We have used previously published supplier data and got an estimate of its total component cost to be at RMB 14,950–23,000. Just to be clear, this data is for reference only as these are the sums of value for part of components — part of them has not been published and naturally could not be considered, while part of values has been derived from company’s financial statement and market prices.
These are only the costs for part of components, so when you add taxes, R&D, management, labor, transport and sales expenses, the cost is higher.
End of October, Hongguang MINI motor supplier, Shuanglin, said Q1-Q3 Hongguang MINI supply made RMB 19.22M (mass production started in June) or 0.8% of company’s business revenue. It made 1.59% or RMB 2.65M of company’s loss. Only on motors, Shuanglin lost close to 14% of its turnover on Hongguang MINI.
When it comes to EDS, Hongguang MINI has close to ten suppliers: four suppliers provide cells, two provide motors, four provide controllers. With so many suppliers competing for 10K-20K units of monthly sales, Hongguang MINI’s upper hand in negotiations with suppliers is obvious. Otherwise, it would be impossible to make a car at 30K-40K price, especially since many car makers are saying it is impossible to make a car at that price.
In order to have multiple suppliers cut the prices, the condition is that they hope the volume will eventually increase and after R&D, manufacturing and other expenses are allocated, the profit will naturally appear. This might be one of the methods Hongguang MINI is using to cover the costs as much as possible. However, it still cannot be denied that this car is losing money. So, if it is losing money, why are they still producing it, and even announcing production expansion?
If it is not money, what are they after?
Big part of the reason might be NEV credit pressure. When we look at 2019 CAFC-NEV credit system, SGMW does not comply. It produced 83,109 negative credits and based on current credit prices, we are talking about RMB 100M expenses.
In 2019, SGMW produced -184,868 CAFC credits and 101,759 NEV credits. Corresponding production was 1,155,423 and 56,261 respectively. Basically, 21 ICEVs were produced for each NEV. This has improved in the first 10 months of this year as in that period 4.5 ICEVs were produced for each NEV. The smaller ratio was mainly due to Hongguang MINI as it made 70% of Jan-Oct production. It is believed that this share will only increase in future. This means that Hongguang MINI has taken off a lot of credit pressure.
Based on current production ratio, SGMW’s 12% NEV credit ratio requirement is already achieved thanks to excellent Hongguang MINI sales. But, beside achieving basic credit requirements, Hongguang MINI brought another gain.
Based on the current policies, each Hongguang MINI unit should get 0.54–0.87 credits, and surplus credits can be used for trade, i.e. not only can the model tackle non-compliance penalties, but can bring RMB 1K/vehicle income. So, this might be the reason why SGMW is making Hongguang MINI — to meet credit requirements and get an income from them.
