This article is based on publicly available materials and is for informational purposes only and does not constitute any investment advice.
Fast "racing", the auto aftermarket leader finally came to the IPO spotlight.
The protagonist of this IPO, Tuhu Car, is a survivor after the reshuffle of the automotive aftermarket, and it is also a dark horse favored by capital.
In fact, since 2020, there have been many rumors in the circle about the IPO of Tuhu Car. The submission of the prospectus also means that the rumors of the listing of Tuhu Yangche have been settled.
On the morning of January 24, Tuhu Yangche officially submitted its application for listing hearing on the Hong Kong Stock Exchange, and the co-sponsors were Goldman Sachs, CICC, Midland Securities and UBS Group.
Source: Prospectus
Behind the industry's close attention is the consideration of corporate strength and capital.
01
Sell tires to start, layout the new energy vehicle aftermarket
Perhaps many people first contact Tuhu car because of its tire replacement business.
In fact, when Tuhu Was founded in 2011, its main business was tire sales. Customers browse and place orders online, and then go to the nearest physical store to install, the price is much cheaper than the 4S store, and the quality is also higher, which also makes it quickly enter the market.
Until now, tires are still the main business of Tuhu Yangche. The company works with almost all of the best-selling tire brands and offers a variety of brands and models, making it the largest tire retailer in China. In the first nine months of 2021, tires and chassis parts also contributed 3.7 billion yuan in revenue to the company, accounting for nearly half of the country.
With the continuous growth of tire-related business, Tuhu Car has gradually entered the car maintenance market, and has quickly become bigger and stronger, becoming the largest oil retailer in China. In the first nine months of 2021, the automobile maintenance business represented by oil replacement contributed 2.8 billion yuan to revenue, accounting for 32.7%.
Along this route, Tuhu Has successfully expanded its business into the entire automotive aftermarket, meeting the full range of automotive service needs from tire and chassis parts replacement to car maintenance, repair, and car beauty.
In the first nine months of 2021, the integrated automotive products and services to the C-end achieved revenue of 8 billion yuan, plus the income brought by platform services such as franchise fees and advertising service fees, Tuhu Car Has a total revenue of 8.4 billion yuan, an increase of 41.8% compared with the same period in 2020.
According to this growth rate, it is not a problem for Tuhu to raise cars in 2021 to reach a scale of 10 billion. This volume is already quite impressive, but in the huge automotive aftermarket, this is not the ceiling of Tuhu's car, and the future imagination space is still not small.
China's auto service market has great potential, with a compound annual growth rate of 12.3% from 2016 to 2020, the world's largest growth rate, and the market size will reach 1.7 trillion yuan in 2025.
The growth driver behind it is mainly in two aspects: on the one hand, as more and more people in China become car owners, the per capita car ownership is increasing rapidly; on the other hand, the average age of Chinese cars is also increasing, from 4.5 years in 2016 to 5.6 years in 2020. This also means that in the future, more and more cars will need to be repaired and maintained, and the growth potential of the market is huge.
According to the China Insight Consulting report, by the end of 2020, 69.9% of passenger cars in China have reached the warranty period, and this number is expected to increase to 77.2% by the end of 2025. These cars that have exceeded the warranty period may prefer to choose a high-quality and affordable car maintenance platform like Tuhu Car.
It is worth noting that in recent years, the automobile market has also rushed out of the "dark horse" of new energy vehicles.
The emerging new energy vehicle market represents a change in the demand for automotive services, and is also a huge potential market for Tuhu to raise cars.
New energy vehicles do not have internal combustion engines and exhaust systems, and will no longer need to replace maintenance services such as oil, filters, and ignition parts, but battery-related maintenance services have increased significantly.
In addition, the system of plug-in hybrid vehicles is more complex than that of pure electric vehicles, in addition to motors and batteries, as well as engines and fuel tanks, so the complexity of repair and maintenance increases. Accordingly, according to the report of China Insight Consulting, the annual expenditure on regular maintenance and repair of plug-in hybrid vehicles is about 13% higher than that of fuel vehicles.
The nationwide service network, as well as the customer resources and operational capabilities accumulated over the past decade, are the advantages accumulated by Tuhu Touhu to provide services to new energy vehicle owners. In August 2020, Tuhu Yangche also established Xinxiang Yuhu Information Technology Co., Ltd., which covers the wholesale of auto parts and the sales of new energy vehicles.
At the same time, the strategic cooperation between Tuhu Yangcheng and new energy vehicle companies is also in full swing.
In August and October 2021, Tuhu Yangche signed strategic cooperation agreements with Zero Run Automobile and Jihu Automobile respectively, which will provide these two new energy vehicle companies with a one-stop after-sales service ecosystem for new energy car owners.
Tuhu Yangche's layout of the new energy vehicle aftermarket has not stopped, and part of the funds raised by the company will also be used for the construction of new energy vehicle maintenance services in this IPO.
02
"Burning money for the market", the net loss of less than three years exceeded 10 billion
As a major representative of "burning money for the market", the speed of Tuhu Car in recent years is also quite amazing. In the first nine months of 2021 alone, the number of stores grew by 42%.
At present, Tuhu Yangche has more than 3,300 Tuhu workshop stores and more than 33,000 cooperative stores in the country, covering most prefecture-level cities, and its number of stores ranks first among independent domestic after-sales service suppliers.
The expansion of Tuhu Yangche has not stopped, and one of the purposes of this IPO is to further expand the store network.
After a major expansion in recent years, Tuhu Has successfully expanded its market and revenue, but the ensuing large-scale losses are also staggering.
In 2019 and 2020, the company achieved revenue of 7.040 billion yuan and 8.753 billion yuan respectively. In the first nine months of 2021, the revenue was as high as 8.44 billion yuan, approaching the annual revenue of 2020, an increase of about 42% year-on-year.
Even if it has handed over a bright "report card" in terms of revenue and scale, Tuhu Has not yet made a profit. From 2019 to 2020, the company's losses for the period were 3.428 billion yuan and 3.928 billion yuan, respectively. In the first nine months of 2021, in the case of high revenue growth, the loss also reached a new height - 4.435 billion yuan, an increase of 63% year-on-year.
In this way, Tuhu Car has accumulated a loss of 11.791 billion yuan in the past two years.
However, if you look at the company's adjusted net loss, the total amounted to 2.909 billion yuan. So where does this part of the adjustment loss come from?
In fact, this part of the loss was mainly due to the change in the fair value of the convertible redeemable preferred stock. This is not a new concept, and convertible redeemable preferred shares are one of the most common financing methods for technology companies that raise and list overseas or Hong Kong stocks.
To put it simply, this part of the fair value is the present value of the common stock that investors can obtain after the conversion of shares in the future at a certain discount rate, reflecting the market's valuation of Tuhu Yangche. According to the relevant accounting standards, this part of the value is recognized as a financial liability in the statement of Tuhu Car, resulting in such a huge reduction in the statement of Tuhu Car.
During the aforementioned period, the loss of this indicator reached 1.9 billion yuan, 3 billion yuan and 3.5 billion yuan respectively. The greater the loss, the higher the value of the common stock after the future conversion, that is, the higher the market valuation of Tuhu Car, and the higher the return that investors can expect in the future.
Therefore, when adjusting the company's net loss, the loss caused by the change in fair value of this part is added back. After the adjustment, the company's annual loss remained around 1 billion yuan, and it still "increased revenue without increasing profits".
03
"Tencent-related" companies, with a total of more than 9.1 billion yuan
In order to penetrate the automotive aftermarket industry, scale is needed, continuous investment, and a steady stream of financial support is needed. It is precisely because of the continuous help of capital that Tuhu Car can continue to expand in the case of long-term losses.
To understand the financial support behind Tuhu car, we must start from the ownership structure of Tuhu car.
Chen Min, the founder of Tuhu Yangche, is also currently the chairman and CEO of the company. However, Chen Min only holds 11.76% of the company's shares. Another co-founder, Hu Xiaodong, holds a 3.22% stake and holds the position of president.
In the list of shareholders, Tencent is not only impressively listed, but also became the largest shareholder of Tuhu Yangche with 19.41% of the shares. Of course, Tencent only plays the role of a strategic investor in it, and only occupies a non-executive director seat among the 6 directors.
In addition, Joy Capital, Sequoia China and Fangyuan Capital hold 8.98%, 7.56% and 5.46% of the shares respectively, while Carlyle Group, CICC, Qiming Capital, Baidu, etc. also hold minority shares in Tuhu Yangche.
Tencent has indeed invested in Tuhu Car many times, and it has been featured in the C, D, E, and F rounds of financing. Among them, in September 2018, Tencent led the Tuhu E round of financing (a total of US$450 million).
However, the relationship between Tencent and Tuhu does not stop there.
After receiving tencent investment, the two sides reached a cooperation. At the end of 2018, Tencent and Tuhu Yangche released the "2018 China Auto Aftermarket Industry Internet Solution" (that is, "Tenghu Plan 1.0"). The content covers online and offline car owner marketing, store smart retail and auto parts manufacturer services:
In terms of precision car owner marketing, based on Tencent user population behavior data and Tuhu user consumption data, "Tenghu Plan 1.0" uses Tencent's online WeChat, social advertising system and Tuhu offline store services to achieve coverage and reach of more than 100 million car owners in China.
In terms of smart retail in stores, based on online system tools such as store SaaS and offline management networks, Tencent and Tuhu integrate the existing capabilities of Tencent and Tuhu to achieve a series of functional modules such as store intelligent site selection, customer acquisition, procurement, delivery, technician management, supply chain management and store finance, to create an integrated owner service scenario and store management system.
In terms of all-round brand services, the plan also covers solutions such as "one product and one code" intelligent goods management system, brand public number and mini program full-link service, and realizes three major marketing systems with brands: product tracking, consumption scene recording, and owner information collection.
The above plan is indeed being implemented step by step.
In June 2019, Tuhu, Tencent and Shell Helix joined forces to launch a new service of "one thing, one yard".
For car owners, "one thing and one yard" undoubtedly optimizes the process of car maintenance and reduces the corresponding time cost.
In September last year, the cooperation between the two sides was upgraded again, and the WeChat Jiugongge "travel service" was connected to Tuhu Touhu to divert traffic. This also means that Tuhu will fully access Tencent's ecological traffic entrance and successfully stand on the "golden pit".
Not only that, Tuhu will also access enterprise WeChat related services to empower the efficient operation of interactive lockers in offline stores.
According to the information, in July 2018, Tencent signed a "Capital Increase Agreement" with Tuhu Yangche and other relevant parties to acquire 13.88% of Tuhu's equity, and then in October 2019, Tencent signed an agreement with relevant parties to invest again. After the completion of the transaction, Tencent holds a total of 18.34% of Tuhu's equity, with a transaction amount of 980 million yuan.
In the eyes of capital, Tuhu Car is indeed a "fragrant food" and is quite favored by it.
Since its inception, Tuhu Has received 16 rounds of financing, raising a total of more than 9.1 billion yuan, and has received blessings from Tencent, Baidu, Goldman Sachs, Hillhouse Capital, Sequoia China, Qiming Venture Capital, Joy Capital, Legend Capital, CICC, Haitong Kaiyuan, CCB International and many other institutions.
Since 2013, Tuhu Has maintained an average of two rounds of financing per year. Between 2020 and 2021, Tuhu Has received more than $700 million in Series F financing.
04
There are hidden dangers behind the franchise model, and it is still facing strong opponents
In order to achieve greater geographical coverage and reach customers, Tuhu Car has indeed made a lot of efforts and "smashed" a lot of money for this.
Strategically, the current franchised factory stores are the strategic focus of Tuhu Car, enabling Tuhu to expand efficiently through an asset-light model, while the cooperative stores are complementary to the factory stores, helping to expand geographical coverage while accumulating customer insights and further improving the efficiency of the entire supply chain.
Although Tuhu Car takes this opportunity to cultivate its own scale advantages, and even in terms of maintenance and repair, it is more cost-effective according to its publicity and advertising, but while it is highly dependent on the franchise model to provide services to customers, how to do a good job in store management and ensure service quality has also become a major challenge for Tuhu Car.
In fact, in the already fishy auto aftermarket, Tuhu car breeding is also not lacking in chaotic cases.
Previously, it has been reported that consumers have encountered tuhu car maintenance traps, and many of the stores provided by the Tuhu car platform are maintenance workshops, most of which are unlicensed and unqualified, and the quality is uneven.
Previously, the suspected use of fake engine oil in a store of Tuhu Car was also boiling over, and the owner even chose to pull a banner to "discuss the explanation", but in the end it was not resolved.
In the consumer complaint website black cat complaint, complaints about Tuhu's car maintenance level, service attitude, and quality of consumer fraud accessories are not uncommon.
Source: Black Cat Complaints Website
The drawbacks of the franchise model are indeed obvious, and it is not without reason that Tuhu Car insists on expanding in this way.
With the rapid growth of China's auto market, the automotive aftermarket has grown to the trillion level. However, where there is a "big cake", it is natural to have fierce competition.
As of December 31, 2020, Tuhu Auto ranked first in the number of stores and auto service revenue in China's independent automotive aftermarket, while in China's automotive service sector, the company only occupied 0.9% of the market share, ranking fifth in the industry.
The first and second-ranked service providers also account for only 2% and 1.4% of the market share. Despite the highly fragmented market, several of Tuhu's competitors are well established.
In 2017, JD.com announced its entry into the automotive after-sales service market, and in 2018, it fully opened up the five major strategies of supply chain, system, service, logistics and financial capabilities to create a "central brain" for the automotive aftermarket. In October last year, JD.com launched the "JD Auto Parts" APP, which focuses on the omni-channel B2B trading platform.
According to Chen Haifeng, general manager of the omni-channel service business department of Jingdong Automobile, the Beijing Tokyo Auto Club has opened more than 1,400 stores across the country, and will make efforts in the future at the level of investment promotion, service deepening, teacher training, and school-enterprise cooperation in Kaicheng.
Another major rival, Ali, also established The Tmall Auto Aftermarket Company Xinkangzhong in 2018 to develop brands and businesses such as Tmall Station and Tmall Car, and also built a framework for all aspects of automotive after-sales services from store certification to accessory operations and digital integration of repairs.
Official information shows that since the official launch of investment promotion in March 2020, the number of application stores nationwide has exceeded 26,000, and after layers of review, as of November last year, more than 1,700 stores across the country have joined. In 2022, it is expected that the proportion of new stores opened by old franchisees of Tmall car owners will be higher, and it will also exert force in the sinking market.
Relying on its own strong traffic foundation and network architecture, the two major e-commerce giants have entered the layout. In the case that the industry pattern has not been fully formed, this has undoubtedly brought a lot of pressure to Tuhu to raise cars. In the face of strong opponents chasing and blocking, Tuhu Car is accelerating the "enclosure" while continuing to strengthen the construction of industrial ecology.
If Tuhu Car can successfully IPO this time, it will also set a new benchmark for the industry and form a "catfish effect". (Author: Wu Zhongxia All-weather observation)