Tencent will have a hard time recreating JD.com

The giants in the automotive industry chain are going to have one more. On January 24, Tuhu Yangche officially submitted its application for listing on the Hong Kong Stock Exchange and officially began its IPO journey.

The maintenance giant, which has the blessing of luxury capital groups such as Tencent, has taken a capital road similar to that of an Internet company for many years: first spend money to expand the scale, accumulate users, and then impact the listing.

Since 2013, Tuhoo has carried out 16 rounds of financing before the IPO, raising a total of more than 9.1 billion yuan, and Tencent is the largest shareholder, which makes Tuhu the lucky one to survive after the industry reshuffle.

After using the "banknote ability" to burn money for publicity, quickly shop, and occupy the commanding heights of industry scale, franchise-style expansion is also eroding profit margins and service quality. At the same time, Tuhu is also facing the challenge of switching fuel vehicles to the maintenance of new energy vehicles. How to retain customers and improve profit margins is a headache for Tuhu. This is related to the solidity of its foundations.

In addition, Tuhu in the Year of the Tiger faces not only the difficulties of its own advancement and promotion, but also the competition from its peers. The king of the subdivision industry chain of automobile maintenance is far from being stable.

In the past, Tencent invested in supporting and strengthening JD.com, but time shifted easily, and the dream of recreating a JD.com was difficult to realize in Tuhu.

At a time when the development of new energy vehicles is in full swing, one company has taken a different path and cut into the field of car maintenance. It is The Tuhu Car.

According to Tianyan, Tuhu is a B2C e-commerce platform that focuses on after-car services and car maintenance, and has a self-built logistics fleet to ensure the quality of distribution services, and the operating model is similar to JD.com.

On January 24, Hong Kong Stock Exchange documents showed that Tuhu Yangche, an auto aftermarket service company, had submitted a listing application, and market sources said that it was expected to raise about $700 million.

The domestic auto service market space is huge. Tuhu's prospectus shows that the compound annual growth rate from 2016 to 2020 is 12.3%, the world's largest growth rate, and the market size will reach 1.7 trillion yuan in 2025. According to the data of China Insight Consulting, the size of the auto service market, including automobile repair and maintenance, beauty, etc., has exceeded 1 trillion yuan in 2020.

Tuhoo is a fast-growing, intensive car caretaker. Before its emergence, there were no centralized and efficient maintenance companies in the market, and most of the brands were fighting their own battles, and the buyers and sellers were full of contradictions.

The auto service market has the characteristics of low threshold and opaqueness, the services provided by each company are uneven, and the 4S shop system that holds the dominant power has the advantage of customer base and technical foundation, but it is often criticized in terms of service and price. The small workshop-style maintenance shops spawned by the cracks are still common, the industry is full of chaos, and customers who do not understand the car are stepping on the pit and being slaughtered.

In this environment, users urgently need a worry-free and transparent service channel. In view of the pain points, Tuhu initially used the Internet model to provide high-quality and low-cost tires online, and customers went to the nearest physical store for free installation after placing an order, the price was much cheaper than the 4S store, and the quality also had a higher guarantee, taking tire sales as the entry point to quickly enter the market.

With the continuous growth of tire-related business, Tuhu Car has gradually expanded its business, involving chassis parts replacement, maintenance, repair, car beauty and other all-round automotive aftermarket business. With sufficient prospects and a comprehensive layout, Tuhu has won the favor of mainstream capital.

Since 2013, a number of capitals have invested in Tuhu. Referring to its prospectus, Tencent holds 19.41% of the shares as the largest shareholder, Joy Capital holds 8.98%, Sequoia China holds 7.56%, CICC holds 2.32%, and Baidu holds 2%.

Relying on the power of capital, Tuhu has blossomed and laid storefronts all over the country. According to the prospectus, as of September 2021, the number of stores has jumped to 36,592. Compared to the full year of 2020, the number of stores increased by 42% in 9 months.

As a result, Tuhu has taken the top spot in the automotive service industry, and as of December 31, 2020, Tuhu Car has ranked first in the number of stores and car service revenue in China's independent automotive aftermarket.

After the scale effect appeared, Tuhu's income from raising cars also rose. According to the prospectus, in 2019 and 2020, the company achieved revenue of 7.040 billion yuan and 8.753 billion yuan respectively. In the first three quarters of 2021, revenue was as high as 8.44 billion yuan, an increase of about 42% year-on-year.

According to the China Insight Consulting Report, Tuhu's monthly active users reached 10 million in September 2021, and the platform is currently the largest owner community of Chinese auto service providers, and has the largest and most accurate auto parts database in China, covering 239 brands, more than 44,000 models, and the matching accuracy is as high as 99.94%; in terms of the number of daily active users, Tuhu Yangche's proprietary storefront and technician management system Blue Tiger also ranks first in China.

Challenges remain

With the help of business model innovation and capital, Tuhu is already the largest car maintenance provider in the industry. The prospectus amply demonstrates this.

But Tuhu still faces many challenges. On the back of the bright back of the national high-speed store opening publicity brush face is that high-input marketing in exchange for the marginal decrease of the scale growth effect; the pain of the internet burning money model's early loss, the increase in revenue does not increase profits; and the difficulty of unifying the service perception standards in the franchise model.

As of the end of September 2021, Tuhu Yangche has 202 self-operated workshop stores, 3,167 franchised workshop stores, and 33,223 cooperative stores (similar to paid services).

However, the monthly growth rate of Tuhu users is much lower than the growth rate of store openings, and the prospectus shows that as of September 30, 2021, Tuhu Factory stores have increased by 55.9% in one year, while the average monthly active growth rate in the same period is only 37.4%.

Compared with Tuhu's marketing expenditure of 1.231 billion yuan in the first three quarters of 2021, compared with 838 million yuan spent in the same period of 2020, the growth rate of nearly 400 million yuan is not optimistic.

In other words, Tuhu's scale growth effect has decreased marginally, and its role in promoting actual user growth is not too large.

In addition, Tuhu is still not profitable. Tuhu's losses during the 2019 and 2020 periods were RMB3.428 billion and RMB3.928 billion, compared to RMB4.435 billion in the first three quarters of 2021, while net losses excluding changes in the fair value of convertible redeemable preferred shares were RMB1.036 billion, RMB971 million and RMB902 million, respectively.

Tuhoo's gross margin rose from 7.4% in 2019 to 15.5% in 2021, making it difficult to maintain in the conservation industry.

The above threats are always challenging Tuhu's leading position in the industry, and the expanded void foundation needs to be filled and consolidated. Tuhu Also admitted in the prospectus that if the company fails to attract and retain new customers in a cost-effective manner and increase the participation of existing customers on the company's platform, the company's business and operating performance may be adversely affected.

Hong Kong stocks hit ip public IPO, which has the consideration of restructuring profit structure. Tuhu Yangche said in the prospectus that the raised funds are expected to enhance supply chain capabilities, improve data analysis technology and improve operational efficiency; in addition, continue to expand the store network and franchisees, as well as provide new energy vehicle owners with car services for related investment and working capital.

It is worth mentioning that since 2021, new energy vehicles have ushered in a spurt of development, with a penetration rate of more than 20% for several consecutive months last year. Compared with traditional fuel vehicles, new energy has less wear and tear due to the integrated higher fly-by-wire power system than mechanical engines, eliminating the maintenance of some traditional maintenance services and related parts. Emerging markets have put forward a test for the future development of the fuel vehicle maintenance industry chain established by Tuhoo, and it is also crucial to continue to maintain its advantages and grasp the cake of new energy vehicles.

In addition to the internal worries of its own development, there are also external troubles surrounded by strong enemies. Under the temptation of more than one trillion cakes, the field of car maintenance continues to emerge Tmall car, Beijing Tokyo car club and other strength players, Tuhu currently occupies the scale, but other Internet companies' "pro-son" can use the platform to bring their own traffic, saving costs to subsidize users.

Tencent, as the major shareholder of Tuhu, holds nearly 20% of the equity, but it can no longer replicate the support model that once supported JD.com.

From the intention of the IPO, it can be seen that Tuhu card slot is eager. There are still giants around, as the "top stream" of the heel urgently need to stand firm, a little inattentive there is a risk of being overtaken by others, losing the head advantage accumulated for more than 10 years. And in the "first year" of the replacement of new energy vehicles and traditional fuel vehicles, the choice of development direction is crucial.

Tuhu's Year of the Tiger is still like walking on thin ice.