Select Language:
Chinese automakers, including leading companies such as BYD and Geely Automobile, reported significantly increased foreign exchange losses in the first quarter, driven by rising international sales and exports that exposed them more to the appreciation of the yuan.
During the quarter, the yuan’s spot exchange rate appreciated by over 1.1%, strengthening to 6.9081 against the US dollar from 6.9890, with a peak of 6.8310 on February 26—the strongest rate within that period.
BYD experienced forex losses exceeding CNY2 billion (approximately USD276 million), while Geely Automobile reported nearly CNY500 million (roughly USD69 million) in net foreign exchange losses, according to their financial disclosures.
Industry experts note that automakers are expected to heighten their use of hedging strategies and accelerate local production overseas to better manage the volatility caused by currency fluctuations.
Profit Margins Show Widening Impact Across Leading Automakers
Geely’s net profit attributable to shareholders dropped 27% year-over-year to CNY4.2 billion in the first quarter, primarily affected by the forex loss, compared to more than CNY3 billion in net foreign exchange gains during the same period last year. When excluding non-core forex gains and losses, the company’s core net profit rose 31% to CNY4.6 billion.
The losses mainly resulted from the weakening of the euro and US dollar against the yuan during this period. Geely explained that its overseas subsidiaries hold monetary assets and liabilities in multiple currencies, which led to valuation losses during period-end revaluation. The company clarified that these unrealized fair-value changes did not impact actual operational cash flow.
Similarly, BYD faced substantial forex losses, with its financial expenses totaling CNY2.1 billion in the first quarter—more than tripling compared to last year—primarily due to exchange losses over last year’s gains, as detailed in its quarterly report.
Changan Automobile’s financial expenses increased by 129% to CNY314 million, mainly because of reduced foreign exchange gains. Their net profit attributable to shareholders declined by 74% to CNY351 million.
GAC Group reported a first-quarter loss of CNY656 million, a 10% decrease from the previous year, while Great Wall Motor’s net profit attributable to shareholders fell 46% to CNY945 million. Both companies identified exchange rate fluctuations as contributing to their forex losses.
Strategies Focused on Hedging and Local Expansion
Geely has consistently employed tools like hedging to actively manage foreign exchange risk, aiming to mitigate the impact of currency fluctuations across multiple currencies and keep overall risk levels manageable.
Expert opinions, including those from industry analysts, highlight that multinational automakers with global operations are inevitably exposed to cross-border exchange rate risks. Hedging financial derivatives, such as options or futures, are common strategies—for instance, using options to hedge against US dollar depreciation if paying with dollars. However, given market volatility, derivatives alone cannot fully eliminate risks. A more effective approach involves adopting a global localization strategy—diversifying supply chains across various regions to hedge currency risks more effectively.
Automakers are encouraged to increase their foreign exchange hedging ratios to between 50% and 60%, utilizing tools like futures and options to secure revenue streams. They should also promote local currency settlement options in regions like Southeast Asia and the Middle East, include contractual clauses for adjusting prices based on exchange rate movements, and shorten payment periods.
In the medium term, expanding overseas manufacturing facilities and sourcing components locally to align revenue currencies with expenditure currencies are seen as strategic moves to better manage currency risks.
ChatGPT
Perplexity
Gemini AI
Grok AI
