SERES Plunges as Funds Abandon Ship

On June 25th, the market witnessed a dramatic turn of events as the shares of SERES Motor Corporation Limited, listed under the ticker 601127.SH, experienced a staggering plunge, closing at a sharp decline of nearly 100 billion in trading volume. The final recorded price stood at 85.71 yuan, resulting in a total market capitalization of approximately 129.4 billion yuan.

This significant drop in stock price was particularly noteworthy as it caused Saic Motor to relinquish its status as the leading electric vehicle manufacturer in terms of market valuation—an accolade it had only just secured a week prior. The ripple effects of this decline were felt across the market, with prominent competitors such as BAIC BluePark (600733.SH), JAC Motors (600418.SH), Dongfeng Motor Corporation (600006.SH), and Changan Automobile (000625.SZ) also witnessing downturns in their stock prices.

The joint venture with Huawei has proven to be a pivotal factor for SERES Motor's success, with the stock price soaring over tenfold since the partnership commenced. This meteoric rise reflects the bullish sentiment surrounding the sales potential of their AI-focused Wenjie series of vehicles. However, on a day when no significant negative fundamentals were reported, the market was left questioning the sudden influx of large sell orders that culminated in Saic Motor's price collapse.

Amidst this market volatility, speculation abounded regarding potential causes. Rumors circulated that Liu Gesong, a prominent fund manager from Guotai Junan Securities, was forced to sell off his stake in Saic to generate liquidity amid falling prices in the solar energy sector. When approached for comment, representatives from Guotai Junan dismissed these rumors, categorically stating that they were not true.

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The sell-off appeared concentrated in the final hour of trading. Before this, Saic Motor's price had only decreased by 1.46%, but by 1:50 PM, as trading volume surged, the stock plummeted by 8%. It didn't take long for it to hit the daily limit down—marking the first such occurrence for the stock—despite concerted efforts from buyers to stabilize prices ahead of the market's close. However, the bearish momentum proved insurmountable, leading to a drastic closing where 22,000 sell orders remained pending.

Throughout this year, Saic Motor's stock had consistently risen, earlier peaking at a historic high of 106.66 yuan on March 18. Just a week prior, it had exceeded the market capitalization of Li Auto, claiming the top spot among new energy vehicle companies.

This week, amidst the absence of any major adverse news affecting the company's fundamentals, the sharp decline in Saic's stock price left many investors bewildered and sparked extensive discussions in the market. The aforementioned rumors about Liu Gesong, which were dismissed, did little to quell the uncertainty surrounding the stock's sudden downturn.

Since the third quarter of 2021, Liu Gesong's funds have consistently appeared among the top ten shareholders of Saic Motor. As of the end of the first quarter this year, Guotai Junan's funds—namely Guotai Technology Pioneer fund, Guotai Sector Selection fund, and Guotai Small Cap Growth fund—ranked as the eighth, ninth, and tenth largest shareholders, respectively, collectively holding 1.58% of the company’s total shares.

It's worth noting that these funds' top holdings did not fare well today, with the primary investment being in Sungrow Power Supply Co. (300274.SZ), which experienced a drop of 5.31%, marking the largest decline since January 29. Additionally, another significant holding, Jinko Solar (002459.SZ), hit a new low since September 2020, while Trina Solar (688599.SH) fell 2.13%, setting a record low not seen since July 2021.

Since the fourth quarter of 2023, Liu Gesong's management has seen substantial sell-offs of Saic shares—181.13 million shares sold in the last quarter, with over 3 million shares offloaded in the first quarter of this year. The data provided by Dongfang Choice illustrates that aside from the previously mentioned funds, additional funds managed by Liu also held significant stakes in Saic Motor.

Looking ahead, the market's focus now shifts to the second quarter's earnings report. Historically, stocks that fail to meet performance expectations often encounter sell-offs leading up to the disclosure of periodic reports. Given the current situation with Saic, analysts speculate that there may be possibilities of disappointing earnings results.

In the first quarter, however, Saic Motor recorded profits, becoming one of the few profitable players in the new energy vehicle sector, posting revenues and net profits of 26.561 billion yuan and 219 million yuan, respectively, which marked increases of 421.76% and 134.12% year-on-year. This was the company's first-ever quarterly net profit, a significant achievement for the firm.

Various analysts praised Saic's profitability, believing it exceeded expectations, with brokerage firms like CICC and Galaxy Securities setting target prices at 124 yuan and 120.96 yuan, respectively, in reports published between May and June. The consensus among market players is that the accelerated deliveries of the M9 model could catalyze further profitability improvements for the company.

From recent production and sales reports, Saic's sales figures showed no signs of weakness, with total sales of 38,600 units in May—a staggering 130.8% increase compared to the same month last year. Cumulatively, from January to May, the company sold 186,600 units, reflecting a massive 154.2% year-over-year growth.

The remarkable upward trajectory of Saic’s stock price, which rose from less than 10 yuan in 2020 to a peak of 106.66 yuan, is largely attributed to the company’s strategic partnership with Huawei, which was formalized in December 2021. This collaboration introduced the Wenjie brand, making waves with its debut vehicle, the Wenjie M5. Subsequently, the partnership strengthened further with the launches of the M7 and M9 models, both of which have been recognized as smart choices endorsed by Huawei.

As an industry analyst pointed out, “The trajectory of stock prices is the cumulative result of market forces. The expectations for Saic's future profits have already been factored into its significant price increases over the past three to four years, leading to concerns that the market may have already overshot projected growth for the upcoming years. The fact that the company has only recently turned a profit in the first quarter indicates it's perhaps time for the market to realign its forecasts.”