Nezha breaks through: Can Zhou Hongyi's traffic magic keep its valuation?

Tencent News Deep Web

2024-06-29 08:36The official account of Tencent News's "Deep Web" column

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01 Hezhong New Energy, the main company of Nezha Automobile, submitted a prospectus to the Hong Kong Stock Exchange, planning to be listed on the main board, with a valuation of about 42.4 billion yuan.

In 022022, Nezha Automobile won the annual sales championship with 150,000 units and became the biggest dark horse, but sales will begin to fall off a cliff in 2023.

03 Due to the "east wind" of shareholder Zhou Hongyi, Nezha's automobile sales have improved, and the frequency of financing and borrowing has been as high as 8 times since April this year, with a total financing of about 4.4 billion yuan.

04 Nezha Automobile has a strong performance in overseas markets, with overseas sales exceeding 20,000 units in 2023, a year-on-year increase of 567%.

05However, Nezha Automobile is still facing the dual challenges of brand upgrading and overseas expansion, and IPO financing can replenish ammunition, but if it wants to develop for a long time, it needs to reach the breakeven point as soon as possible.

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Author: Cheng Xiaoyi

Editor|Xue Fang

Produced by丨Deep Web Tencent News Xiaoman Studio

The new car-making force invested by the "red-clothed leader" Zhou Hongyi is ready to go public in Hong Kong.

On June 26, Hezhong New Energy, the main company of Nezha Automobile, submitted a prospectus to the Hong Kong Stock Exchange, planning to be listed on the main board, with a valuation of about 42.4 billion yuan.

"Finally half a foot into the IPO." A Nezha automobile investor lamented to the "Deep Web".

As early as 2020, Nezha Automobile had a plan to impact the IPO of the Science and Technology Innovation Board, but it gradually disappeared after that. If it can be successfully listed this time, Nezha Automobile will become the fifth new domestic car-making force to be listed after Wei Xiaoli and Leapmotor.

In the 10 years since it was manufactured, Nezha Automobile once stirred up the pattern and topped the sales list of new domestic forces.

In 2022, Nezha Automobile will use the strategy of "exchanging price for volume" to enter the first echelon of new domestic car-making forces, and win the annual sales championship with 150,000 units, becoming the biggest dark horse. However, after a rapid rise in 2022, Nezha's automobile sales began to fall off a cliff, and as of today, it has not returned to its peak. 

This year, Nezha Automobile began to turn around with the "east wind" of shareholder Zhou Hongyi. After Zhou Hongyi became popular because of "selling Maybach for domestic cars", Nezha Automobile took advantage of the trend to set the new car Nezha L (starting price of 129,900 yuan) as the "red version", and the new car exceeded 30,000 orders in one month, according to Zhou Hongyi, 90% of them are the top "red version". 

"Nezha's biggest problem is that there is no popularity at all, there is no mention rate, most people don't even know the name, why would everyone buy your car." Zhou Hongyi angrily scolded Daniel Zhang many times in the live broadcast, "Don't have more orders and start to float again." ”

Orders have increased sharply and sales have improved, which may have given Nezha Automobile the confidence to hit the IPO.

Financing of 22.8 billion yuan in 7 years, and the old shareholders continue to transfuse

The prospectus of about 400 pages provides a window to look at Nezha Automobile objectively:

· The price of bicycles has increased, and sales in 2023 will decline year-on-year, but revenue will increase. In 2022, Nezha Automobile sold more than 150,000 units, with a revenue of about 13.05 billion yuan, and in 2023, it sold 127,000 units, with a revenue of about 13.55 billion yuan.

· The operating loss increased year by year (4.5 billion yuan, 5.95 billion yuan, 6.76 billion yuan), but the gross profit margin improved year by year (-34.4%, -22.5%, -14.9%). By the end of 2023, the book cash is about 2.836 billion yuan, but there are still nearly 4.3 billion yuan of borrowings to be repaid this year.

· Selling cars is becoming more and more dependent on dealers. In the past three years, the sales revenue of distribution channels has increased year by year, respectively 69.6%, 74.7% and 80.4%.

· Overseas markets have become the second growth point. From 2022 to 2023, the share of revenue from overseas car sales jumped from 2.1% to 12.6%.

Nezha Automobile, which has sold 400,000 cars, does not have the ability to self-hematopoiesis in the short term, so listing has always been a must for Nezha Automobile. As early as July 2020, Nezha Automobile tried to apply for listing on the Science and Technology Innovation Board, and planned to complete the listing in 2021, but there was no follow-up after that.

Then, after many rumors that Nezha Automobile will go public in Hong Kong, in October 2023, Daniel Zhang publicly responded: Nezha Automobile has 10 billion in its account, and it is not so anxious to go public.

But five months later, Nezha Automobile suddenly accelerated the listing process.

First, on March 20, Nezha Automobile signed a contract with the government of the Hong Kong Special Administrative Region and became a key enterprise partner. The Government of the Hong Kong Special Administrative Region (HKSAR) has provided a subsidy of HK$200 million to assist in the investment of US$200 million in the cornerstone round.

Then, on April 15, Nezha Automobile obtained a tripartite joint investment agreement from Tongxiang State-owned Capital Investment and Operation Co., Ltd., Yichun Jinhe Equity Investment Co., Ltd., and Nanning Minsheng New Energy Industry Investment Partnership (Limited Partnership), providing a total investment of no less than 5 billion yuan. The investment agreement clearly states: coordinate relevant resources to support the company to achieve the IPO as soon as possible.

The shortage of funds should be an important reason for Nezha Automobile to speed up the listing process. According to the statistics of electric observers, Nezha Automobile has frequently raised money since April this year, with financing and borrowing frequency as high as 8 times, with a total financing of about 4.4 billion yuan.

The old shareholders of Nezha Automobile who are willing to help in times of crisis are basically the old shareholders of Nezha Automobile, such as local state-owned assets and suppliers CATL from Tongxiang in Zhejiang, Yichun in Jiangxi, and Nanning in Guangxi.

According to the prospectus, since October 31, 2017, Nezha Automobile has received about 22.8 billion yuan in financing through 10 financings. In addition to the above four regions, Hefei High-tech and other local state investment companies also participated in the investment.

In the in-depth cooperation, the local industry fund is not only the shareholder of Nezha Automobile, but also its region has become an important market for Nezha Automobile. For example, Tongxiang under Jiaxing City has purchased Nezha cars as official cars many times; The Nanning municipal government has also purchased 400 Nezha U as police patrol vehicles, and Nezha Automobile has also signed vehicle procurement agreements with some local companies in Guangxi, such as China Southern Power Grid Guangxi Electric Vehicle Company and Guangxi Green Shield Cloud Company.

Although Nezha Automobile has decided to gradually shift its main battlefield from the B-end to the C-end since 2021. However, according to the disclosure in the prospectus, Nezha Automobile's B-end revenue is increasing year by year, and B-end revenue will account for 14% of total revenue in 2023.

Nezha Automobile's sales channels are divided into four types in the prospectus, direct sales, Nezha city partners, key account dealers and overseas dealers, which correspond to the income of directly operated stores, retail dealer stores, wholesale income (for online car-hailing, taxis, home schools and other organizations), and overseas dealer store income.

Heavy focus on Southeast Asia, there are already 3 factories in Southeast Asia

Since the brand name was changed from "Hezhong Automobile" to "Nezha Automobile" in 2018, Nezha Automobile has been taking a completely different path from the new forces in the same period.

First of all, it chose to start with low-end cars below 100,000 yuan, mainly for the public market, and sought cooperation from travel platforms and local governments. Then, after the public market became saturated, in 2022, while trying to turn to the C-end market in China, it will expand overseas to Southeast Asia and other regions.

Under the influence of various factors such as the impact of the domestic price war, the upward strategy of the Nezha automobile brand failed, and domestic sales began to slump from the end of 2022. In May this year, although Nezha Automobile returned to monthly sales of 10,000 units, its sales volume still fell by 22% year-on-year compared with May last year.

The feedback from the Southeast Asian market has been diametrically opposed to that of the domestic market. In 2023, Nezha Automobile's overseas sales will exceed 20,000 units, a year-on-year increase of 567%. According to data from Thailand's Autolife, the top three electric vehicle sales in Thailand in the first half of 2023 are BYD ATTO 3, Nezha Automobile NETA V, and Tesla Model Y, with market shares of 35.2%, 18.8%, and 11.5%, respectively. 

According to the CIC Consulting report, in terms of the amount of risk, Nezha Automobile will rank among the top three new energy passenger vehicles in Southeast Asia in 2023, and the Nezha AYA series will rank first in sales of small pure electric vehicles in Southeast Asia, with a market share of 52%.

In contrast, Nezha Automobile chooses to invest more resources and energy in overseas markets.

One of the main uses of Nezha Automobile's IPO fundraising is "strategic expansion of overseas markets", in addition, Nezha Automobile also explained in the prospectus that the main reason for the year-on-year decline in domestic sales from January to May this year is: in order to further promote overseas expansion, so it is simplifying domestic production capacity and global supply structure, so it temporarily affects automobile production.

Previously, Nezha Automobile had factories in Tongxiang, Yichun, and Nanning, and according to the prospectus information, Nezha Automobile currently only retains the Tongxiang Factory, a domestic self-operated factory, with an annual production capacity of about 200,000 vehicles by the end of 2024. Overseas, the company has added a plant in Malaysia to its two existing plants.

Nezha Automobile's Thailand plant and Indonesia plant have already started production. According to various media reports, the annual production capacity of the Thai plant is expected to reach 20,000 units, and the annual production capacity of the Indonesian plant is expected to reach 30,000 units. The third plant in Malaysia is expected to start production in 2025. 

The second Nezha X series, which is ready to be launched in overseas markets, is also ready. According to the prospectus, the Nezha X series has obtained EU certification, and plans to enter the Thai and Indonesian markets in July 2024, the Hong Kong market in August, and the South American market in the fourth quarter of 2024.

Under the heavy bet, Nezha Automobile also has eager expectations for the growth of overseas markets. In 2023, overseas revenue will account for about 12% of total revenue, and Nezha Auto hopes that this number will continue to expand in the future. In addition, in the next 1-2 years, Nezha Automobile's overseas sales target is about 100,000 units.

The more aggressive overseas expansion plan may be an important reason why Nezha Automobile quickly spent "10 billion on the account".

The soldiers and horses did not move, and the grain and grass went first. At present, Nezha Automobile is facing the dual challenges of brand upgrading and overseas expansion, and every battle is crucial. IPO financing can undoubtedly replenish ammunition, but if it wants to develop for a long time, Nezha Automobile still needs to reach the breakeven point as soon as possible.

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