On the evening of October 11, Chery Automobile (09973.HK) issued a statement titled "Explanation Regarding OMODA 5 Vehicle Issues in Malaysia," responding to a recent incident in Johor Bahru, Malaysia, involving a 2023 model OMODA 5 whose rear axle trailing arm tore.
The company confirmed that, following an investigation by its technical team, vehicles in the affected batch had insufficient weld strength at certain local welding positions on the rear axle trailing arm, creating a risk of weld seam tearing under extreme operating conditions. This structural version of the model has now been discontinued. Chery's Malaysian subsidiary has cooperated with Malaysia's Road Transport Department (JPJ) to initiate a recall of 8,878 affected OMODA 5 vehicles, inspecting the relevant components and replacing them free of charge where necessary. The company also said it has launched preventive risk inspections of OMODA 5 vehicles from the same batch in China and related markets.
This is not the first time the OMODA 5 has encountered the same type of problem in the Malaysian market. In April 2024, a unilateral rear axle fracture occurred on the same model in Malaysia, at which point Chery recalled about 600 vehicles for factory inspection, with the investigation concluding that a supplier's welding equipment calibration error was to blame. The same structural location, the same failure mode, recurring after two and a half years — the problem was not eradicated after one round of handling, and this is the most noteworthy signal in the current incident.
Regulatory Stance Escalates Markedly, from Recall to Sales Ban
Compared with 2024, Malaysian regulators have responded notably more severely this time. JPJ not only ordered a recall but also announced a temporary freeze on the OMODA 5's vehicle type approval, prohibiting new vehicle registrations, until the technical investigation is completed. JPJ also required a technical audit of Chery's production and assembly lines as well as the rear axle component supplier, covering whether production processes comply with good manufacturing practices, quality control systems, and welding joint inspection procedures. The scope of the audit has expanded from a single parts batch to the entire manufacturing process, reflecting that regulators have upgraded their characterization of the issue from a "batch defect" to a "systemic concern."
For Chery, which is accelerating its expansion in Southeast Asia, the OMODA 5 is its volume-driving mainstay model in Malaysia, and the type approval freeze means a direct blockage of new vehicle sales channels.
Overseas Revenue Accounts for Nearly 70%, and the Contagion Risk of a Quality Incident in a Single Market Should Not Be Underestimated
Chery Automobile's current fundamentals are highly dependent on overseas markets. In the first half of 2026, the company achieved operating revenue of 143.28 billion yuan, up 1.2% year on year; overseas market revenue reached 98.968 billion yuan, up 51% year on year, accounting for 69.07% of total revenue. In September alone, Chery's export sales reached 200,928 vehicles, accounting for 73% of total monthly sales, setting a new record for single-month exports by a Chinese automaker. The high growth of overseas business is the core driver behind Chery's gross margin rising from 13.0% to 16.1%, and a key support for its net profit margin of 6.3%, which far outperforms the industry average.
But the other side of this revenue structure is that quality incidents in overseas markets hit the company far harder than those in the domestic market. For domestic consumers facing a recall, the impact is mostly limited to the service experience; overseas consumers are making a trust decision about a foreign brand. When the same structural component fractures twice in the same market in the same way, overseas consumers will not distinguish whether it is a welding process issue or a design issue — what they remember is a brand-level safety risk. If the OMODA 5 recall and type approval freeze in Malaysia spread to other Southeast Asian markets or trigger follow-up reviews by regulators in other regions, the impact on Chery's overseas sales will have an amplifying effect.
Supply Chain Control Flaws Exposed, Root Cause of Repeated Same Problem Remains Unresolved
After the 2024 incident, Chery's investigation concluded that a "supplier's welding equipment calibration error" was responsible, and the handling approach was to recall 600 vehicles and replace the rear axle assemblies. That solution pointed to an occasional problem at the production execution level. But after the current incident, Chery's wording changed to "vehicles in this batch had insufficient weld strength at local welding positions on the rear axle trailing arm," and it emphasized that "this structural version of the model has now been discontinued." The difference in wording between the two instances is worth pondering.
"Welding equipment calibration error" points to an equipment condition problem, while "insufficient weld strength" points to a process standard problem. If the process standard is inadequate, then the issue may involve the sufficiency of weld strength verification during the design validation stage, not merely production deviation in individual batches. Chery did not clearly address this question in its statement: with the same structural location experiencing weld seam tearing twice within two and a half years, is it insufficient strength margin at the design level, or a sustained failure of the supplier control system? If this fundamental question cannot be clearly answered, even if this recall completes component replacement, the risk of similar incidents recurring cannot be entirely ruled out.
Long-Term Erosion of Brand Reputation Should Not Be Ignored
Chery has performed outstandingly in global quality evaluation systems in recent years. Among the five core studies published by J.D. Power, Chery ranked first among domestic Chinese brands in all of them, and a total of 71 of its vehicles have obtained various global five-star safety certifications, the highest number among Chinese brands. These quality endorsements are an important source of Chery's premium pricing power in overseas markets.
However, building brand reputation takes years, while damaging it can happen overnight. Images of rear axle fracture accidents are highly viral on social media, and some users on Malaysian social media have already directly associated the OMODA 5 with the phrase "the rear axle will fall off." Once such brand perception forms, the cost of repairing it far exceeds the financial expense of the recall itself.
From a financial perspective, Chery currently has ample funds on its books, with cash and cash equivalents reaching 63.419 billion yuan as of the end of the first half. The recall cost for 8,878 vehicles has a limited impact on current-period profit. But what truly deserves attention is whether the supply chain control flaws exposed by this incident are systemic. For a global automaker with nearly 100 billion yuan in overseas revenue in half a year and exports accounting for more than 70% of sales, whether its product quality control system can support such rapid overseas expansion is a proposition that warrants more cautious assessment by investors than the cost of a single recall.
Before JPJ's technical audit conclusions are published and the results of domestic inspections are finalized, within the investment logic surrounding Chery Automobile, the quality risk variable — previously obscured by high-growth data — needs to be given greater weight.
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