Summary of Key Points
Chery Automobile's revenue in the first half of 2024 increased slightly by 1.2% to 143.28 billion yuan, with the gross profit margin rising from 13% to 16.1%. However, profits decreased by 9% year-on-year (with earnings attributable to shareholders falling by 11.7%). The main reason for the decline in profits was exchange rate fluctuations (earning 3.4 billion yuan in foreign exchange gains last year and losing 2.1 billion yuan this year, resulting in a difference of 5.5 billion yuan). Nevertheless, the reduction in financial expenses and improvements in the impairment of financial assets partially offset these losses. Notable highlights include a 51% increase in overseas revenue (accounting for over 69%) and a 63.8% increase in new energy revenue (accounting for 41.4%). The company also increased its research and development (R&D) expenditures by 28.3%. Chery is using forward contracts to hedge against exchange rate risks and plans to continue advancing its globalization and electrification efforts in the second half of the year.
Detailed Analysis
The Main Cause of Profit Decline: A Dramatic Reverse in Exchange Rate Fluctuations
In the first half of last year, Chery earned 3.398 billion yuan from foreign exchange transactions; this year, it lost 2.092 billion yuan, resulting in a difference of 5.49 billion yuan—this is the most direct reason for the decline in profits.
Why did this happen? Chery receives payments for its overseas sales in US dollars and euros, which it converts into RMB for accounting purposes. If the RMB appreciates, the same amount of foreign currency will convert to less RMB, leading to losses. For example, if the RMB depreciated last year, Chery would have made a profit from exchange transactions; this year, with the RMB appreciating, it incurred a loss, creating a 5.5-billion-yuan “profit hole” that significantly reduced overall profits.
Factors That Helped Stabilize Profits
Despite the 5.5-billion-yuan exchange loss, two factors helped mitigate the impact:
- Significant Reduction in Financial Expenses: From 1.449 billion yuan last year to 549 million yuan this year, a savings of 900 million yuan (possibly due to debt repayment, lower interest rates, or reduced financing costs).
- Improvement in the Impairment of Financial Assets: From a loss of 133 million yuan last year to a profit of 186 million yuan this year, an increase of 319 million yuan (for example, due to increases in the value of previously invested stocks/bonds or reversal of previously recognized impairments).
These two factors combined to offset approximately 1.2 billion yuan of the exchange loss, resulting in a profit decline of only 890 million yuan, with the decrease being contained within 9%.
Two Key Drivers of Growth: Overseas Market and New Energy
Chery's positive performance in the first half came mainly from these two areas:
- Overseas Market Expansion: Revenue reached nearly 99 billion yuan, a 51% increase, accounting for 69% of total revenue. The gross profit margin from overseas sales was higher than that of domestic sales, raising the overall passenger vehicle gross profit margin from 12.4% to 15.6%, solidifying Chery's position as China's leading automobile exporter.
- Strong Growth in New Energy Business: Revenue from new energy vehicles increased by 63.8% to 59.284 billion yuan, with the proportion rising from 25.6% to 41.4%. This indicates that Chery's efforts in electric and hybrid vehicles are paying off, as more consumers are purchasing its new energy models.
Future Strategies: Increased R&D and Exchange Rate Risk Management
Chery’s focus for the second half of the year is clear:
- Continued Increase in R&D Expenditures: The company spent 6.672 billion yuan on R&D in the first half of the year, a 28.3% increase, mainly focusing on electrification (such as batteries and motors) and intelligence (such as autonomous driving and infotainment systems).
- Hedging Exchange Rate Risks: By using “foreign currency forward contracts,” Chery is agreeing with banks on future exchange rates in advance. This ensures that regardless of exchange rate fluctuations, transactions will be conducted at the agreed prices, preventing significant gains or losses.
- Globalization and Product Expansion: The company plans to launch more new models and further expand its overseas market presence (it currently has three production bases abroad, with a total of 12 globally).
In Summary
Chery’s revenue increased in the first half of 2024, but profits did not; this was mainly due to exchange rate issues. However, its overseas and new energy businesses helped stabilize its financial performance. Moving forward, Chery will rely on increased R&D investment and better exchange rate risk management to drive growth. For automakers, managing exchange rate risks while earning foreign currency from overseas sales is a critical challenge that must be addressed.