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Text | Zhang Wei from Investor Network

The Hong Kong Stock Exchange may welcome the fifth Chinese "new force" in the automotive industry.

In June this year, Nezha Auto's parent company, Hozon New Energy Automobile Co., Ltd. (hereinafter referred to as "Hozon New Energy" or "the Company") submitted a prospectus for its initial public offering (IPO), intending to be listed on the main board of the Hong Kong Stock Exchange.

If it can be listed, Nezha Auto will become the fifth Chinese car-making "new force" to be listed in Hong Kong after Xpeng, Ideal, Weilai, and Leapmotor. Data shows that the listing time of Xpeng and other four companies is concentrated between 2021 and 2022. As recently as 2022, Nezha Auto was the annual "sales champion" of the "new forces" in car manufacturing. But then, Nezha Auto's sales continued to decline.

On the other hand, Nezha Auto is mired in losses and the company's cash flow is under pressure. According to the prospectus, Nezha Auto's total losses from 2021 to 2023 reached 18.373 billion yuan. As of the end of 2023, Nezha Auto's short-term loan balance was 4.317 billion yuan, and the company only had 2.837 billion yuan in funds on its account, making it difficult for cash to cover short-term loans.

In addition, Nezha Auto has long given people a low-price image, with many of its models priced at less than 100,000 yuan. Although Nezha Auto has also created the Nezha S, which is known as the "best sedan under 1 million yuan", its monthly sales are less than 2,000 units, which is in sharp contrast to the monthly sales of tens of thousands of units of a single model of Ideal and Weilai.

Ultimately, whether Nezha Auto can enhance its brand image and thus improve the company's performance through listing remains to be seen.

Continue to build low-priced models

As a latecomer in the automotive industry, new energy vehicles have captured the minds of users with their high-end and luxurious images since the beginning of their development.

For example, the Model S, Tesla's first mass-produced model, was priced at more than 1 million yuan when it was delivered in China in June 2012. Tesla has single-handedly linked new energy vehicles with high-end and luxury. As Musk's followers, new energy vehicles such as Ideal, NIO, and HiPhi are all priced at more than 300,000 yuan.

In contrast, Nezha Auto focuses on low prices, which is an alternative. For example, the starting price of Nezha Auto's first mass-produced model, Nezha N01, is only 59,800 yuan. Among Nezha Auto's other models, Nezha V, Nezha U Pro, and Nezha V Pro are all priced less than 100,000 yuan.

Why does Nezha Auto insist on creating a "civilian version" of new energy vehicles? It may be related to the founder and the company's development path.

According to the prospectus, the founder of Nezha Auto is Fang Yunzhou. Fang Yunzhou was the deputy general manager of Chery New Energy, responsible for the testing and development of Chery electric vehicles. In 2014, Fang Yunzhou left Chery New Energy and went to Tsinghua University for postdoctoral studies, and at the same time started the entrepreneurial project of Hozon New Energy.

Fang Yunzhou is also a new energy vehicle expert. It is reported that Fang Yunzhou has participated in and presided over a number of national 863 program projects, national science and technology support programs, and Anhui Province science and technology research program projects, and has won many awards such as the National Standard Innovation Contribution Award and Anhui Province Science and Technology Award. He has published many articles in the field of new energy vehicles and applied for a number of authorized invention patents in the field of hybrid and pure electric vehicle control.

In 2018, Hozon New Energy welcomed another co-founder, Zhang Yong. Unlike Fang Yunzhou, who is an expert, Zhang Yong has many years of sales experience. Zhang Yong worked at BAIC Foton and Chery New Energy for nearly 20 years, focusing on sales. In January 2018, Zhang Yong joined Nezha Auto as co-founder and CEO.

Perhaps influenced by the working backgrounds of the two executives, Nezha Auto has chosen to focus on the B-end since its inception. Sales data show that among the main models priced at 60,000 and 100,000 yuan, Nezha Auto's deliveries in 2021 increased by 362% year-on-year. During the same period, the revenue of Nezha V, priced at 50,000 to 80,000 yuan, accounted for more than 60%. Some comments said that the emergence of Nezha V and Nezha U filled the gap in the domestic affordable pure electric SUV market.

The cumulative loss in three years exceeded 18 billion

Although it focuses on low-priced products, it has also brought highlights to Nezha Auto. Sales data show that relying on the momentum of low-priced models, Nezha Auto sold 152,000 vehicles in 2022, becoming the annual "sales champion" of the "new force" in car manufacturing, which can be called a dark horse.

In 2023, the new energy vehicle industry is advancing by leaps and bounds, and the sales of peers are soaring, but Nezha Automobile lacks stamina, delivering 127,500 vehicles throughout the year, a year-on-year decrease of 16%. In the same year of 2023, the sales of the four listed peers, Xpeng, Ideal, Weilai, and Leapmotor, were 141,600, 376,000, 160,000, and 144,200 vehicles, respectively.

If the prices of the above brands are much higher than Nezha Auto, Nezha Auto will have fallen out of the top ranks of the "new forces" in car manufacturing in 2023. In 2024, Nezha Auto's delivery volume has not improved.

Sales data show that Nezha Auto delivered a total of 53,800 vehicles in the first half of this year, a year-on-year decrease of 14%, and only completed 18% of the 300,000 vehicle sales target for the whole year of 2024. Since February this year, Nezha Auto's sales have declined year-on-year for five consecutive months. Why is Nezha Auto's sales gradually declining?

Some people believe that Nezha Auto started with a low price and relied on the misaligned competition of "big cars beating small cars" to gain a firm foothold in the early competition of new energy vehicles. However, as the price war of new energy vehicles spread to the low-priced car market, especially with the launch of models such as Seagull and Bingo by BYD and Wuling, Nezha Auto's competitive advantage has weakened.

However, although Nezha Auto's products are priced low enough, the company is not profitable and its overall losses are widening. From 2021 to 2023, Nezha Auto's revenue will be 5.087 billion yuan, 13.05 billion yuan and 13.555 billion yuan; the net losses in each period will be 4.84 billion yuan, 6.666 billion yuan and 6.867 billion yuan, with a total loss of 18.373 billion yuan in three years.

In 2021, when Nezha Auto's sales exceeded expectations for the first time, Zhang Yong said that based on the average selling price, Nezha Auto's delivery volume should be three times that of its competitors to be convincing. In Zhang Yong's view, models with a main sales price of less than 100,000 yuan should achieve an annual sales volume of 500,000 vehicles to be competitive. However, judging from the sales of 150,000 vehicles at its peak (2022) and less than 60,000 vehicles in the first half of this year, it is difficult for Nezha Auto to achieve its annual sales target of 500,000 vehicles. How can it be easy to make a profit if sales are not going up?

In addition to the fact that profitability is far away, Nezha Auto's cash flow is also tight. The prospectus shows that as of the end of 2022, Nezha Auto had 6.757 billion yuan in cash on its account and a short-term loan balance of 3.926 billion yuan. By the end of 2023, the short-term loan balance increased to 4.317 billion yuan, but the cash on the account dropped to 2.837 billion yuan. Nezha Auto's cash flow can no longer cover short-term loans.

Can going overseas "break the deadlock"?

Although sales have declined, Nezha Auto is also working hard to increase the unit price of its products. According to a report by CSI Consulting, the average selling price of Nezha Auto's vehicles will rise from 71,000 yuan in 2021 to 84,000 yuan in 2022, and to 109,000 yuan in 2023. In the first four months of this year, it has risen to 113,000 yuan.

However, Nezha Auto faces great resistance to price increases. In addition to new energy vehicles, traditional fuel vehicles also face this resistance. At present, affected by the "involution" of new energy vehicle prices, fuel vehicles including joint venture vehicles have collectively reduced their prices. Data shows that the prices of fuel vehicles including Honda Fit, Toyota Corolla, Volkswagen Lavida, Nissan Sylphy have all dropped to less than 100,000 yuan. Nezha Auto's mid-to-high-end models such as Nezha L and Nezha S are also facing competition from fuel vehicles and electric vehicles such as Accord, Teana, Camry, BYD, Leapmotor, and Xiaomi.

Nezha Auto, which is surrounded by strong competitors, also has its own bright spot, that is, going overseas. In fact, Nezha Auto has made considerable achievements in the global right-hand drive market.

The prospectus shows that in March 2023, the foundation of Nezha Automobile's Thailand factory was laid in Bangkok. The factory is an important manufacturing base for Nezha Automobile to produce right-hand drive electric vehicles and export them to ASEAN countries. At present, Nezha Automobile's Thailand factory has begun large-scale production.

In May this year, Indonesian electric car manufacturer PT NETA Auto began assembling the NETA V-Ⅱ model for Nezha Auto, marking the start of localized mass production of Nezha Auto in Indonesia. In addition, Nezha Auto is also planning to build a factory in Malaysia, which is scheduled to be officially put into production in 2025.

Sales data show that in 2023, Nezha Auto exported a total of 17,000 new energy electric vehicles, accounting for 14% of the total sales in the same year and contributing 12% of the revenue. In the first five months of this year, Nezha Auto exported a total of 16,500 new energy electric vehicles, ranking first in the export volume of China's "new forces" in car manufacturing.

According to a report by CSI 360, Nezha Auto will be one of the top three new energy passenger car brands in Southeast Asia in 2023 in terms of insurance volume. In addition to Southeast Asia, Nezha Auto has also expanded its business to South America and Africa. According to reports, on May 31, Nezha Auto held a press conference in Brazil and will enter the Brazilian market in the second half of this year. On June 26, Nezha Auto's first flagship store in Africa opened in Nairobi, the capital of Kenya.

Nezha Auto said that it plans to expand into 60 countries and regions in the overseas market by 2024, with more than 300 channels and a total of five models sold in overseas markets, striving to achieve the goal of "overseas markets accounting for one-third of the company's total revenue in 2024, and reaching more than half within one or two years."

Prior to this IPO, Nezha Auto had formed a structure with Hong Kong as its global headquarters and Shanghai as its strategic operations headquarters, and was fully committed to promoting globalization. Ultimately, whether Nezha Auto can use its listing in Hong Kong as an opportunity to start a new overseas journey and achieve a "breakthrough" of turning losses into profits as soon as possible remains to be tested by time. (Produced by Siwei Finance) ■