Great Wall Tumbles Most in 5 Years After Delays of Haval H8

Jan 14, 2014 3:19 am ET

(Updates with closing share price in second paragraph.)

Jan. 14 (Bloomberg) -- Great Wall Motor Co., China’s biggest sport utility vehicle maker, fell the most in more than five years in Hong Kong trading after the company pushed back the debut of its Haval H8 to fix technical deficiencies.

The stock plunged 12 percent to close at HK$34.45, its biggest decline since November 2008. The company said in a statement late yesterday that it’s pushing back the H8 for three months to fix eight deficiencies ranging from insensitive door stoppers to low steering resistance.

The delay is a setback for billionaire Chairman Wei Jianjun, whose emphasis on discipline and frugality helped Great Wall generate higher operating margins than any listed carmaker in the world. Analysts at Jefferies Group LLC and HSBC Holdings Plc cut their ratings on Great Wall, while Sanford C. Bernstein said the move is indicative of the company’s growing pains.

“Great Wall’s ambitions to move up a league in the auto industry rest on this vehicle, which has already been delayed unofficially in the last year,” Max Warburton, an analyst at Sanford C. Bernstein, said in a report. “The latest and very public delay will not be taken well by the market as it confirms Great Wall is struggling with technology and quality.”

More Spending

Warburton estimated the delay may cost Great Wall about 500 million yuan ($83 million) in unrealized operating profit and engineering expenses in the near term. For the pessimist, the reputational damage may be longer lasting and the H8 delay may signal the company will need to crank up its research and development spending, he wrote.

The H8 was projected to account for about 10 percent of the company’s revenue and gross profit in 2014, according to estimates by Paul Gong, an analyst at Citigroup Inc. Still, the delay has more impact on investor sentiment than on the company’s fundamentals and will likely have “limited impact” on the broker’s 2014 earnings estimate for Great Wall, he wrote.

Other shortfalls of the H8 include an engine setting with no significant difference between sport and economy modes, long brake-operating distance and excessive noise, the company said. Great Wall said it had exhibited the SUV at the Guangzhou Auto Show on Nov. 21.

Great Wall is among a handful of Chinese automakers independent of foreign partners and government, sparing it from having to split profits and endure extra bureaucracy. With the stock surging in the past five years, Wei became Asia’s wealthiest car executive, with his fortune climbing to as high as $9.2 billion, according to the Bloomberg Billionaires Index.

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--Tian Ying. Editors: Chua Kong Ho, Young-Sam Cho