Great Wall Motor Co.’s billionaire Chairman Wei Jianjun pushed back deliveries of the company’s most expensive SUV after the automotive press panned the Haval H8 in test drives. It turned out to be a $2.4 billion decision.
That’s how much his company lost in market value yesterday after the delay announcement prompted Great Wall shares to plunge 12 %, the most in five years, in Hong Kong trading. Wei’s personal net worth fell by $51 million to $6.9 billion, putting Hyundai Chairman Chung Mong Koo within striking distance of becoming Asia’s wealthiest car executive at $6.7 billion.
The stumble set back investor confidence in Wei, who’s led Great Wall as its shares surged over the past five years as he transformed his company into one that generated higher operating margins than any listed automaker in the world. Jefferies Group LLC to China International Capital Corp. cut their investment ratings on the stock, while Sanford C. Bernstein said the move signals growing pains.
Great Wall decided to push back the H8 by three months after detecting that its 201,800-yuan ($33,400) flagship model had issues ranging from the brakes to low steering resistance and excessive noise.
“We would rather suffer huge costs and continue to improve the quality of the vehicle,” the Baoding, China-based company said. “We would rather let down users for a while than for eternity.”
Bernstein’s 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 reputation 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.