Zero-run car gross margin - 44.3% Three years of cumulative losses of more than 4.8 billion, impact on the Hong Kong stock IPO can be successful?

"Circle Layer" Fan Jun

Edit soup towel

On April 1, Zhejiang Zero Run Technology Co., Ltd. (hereinafter referred to as "Zero Run Car") released March sales data on the WeChat public account showed that the delivery of zero run cars exceeded the 10,000 mark in March 2022, reaching 10,059 units, an increase of 193% month-on-month, the monthly delivery volume increased by more than 200% for 12 consecutive months, and the cumulative delivery volume in the first quarter of 2022 was 21,579 units, an increase of 410% year-on-year.

The increase in the delivery of zero-running cars seems to be the confidence and confidence of the company to apply for listing in Hong Kong. On March 17, ZeroCar submitted a listing application to the Hong Kong Stock Exchange for listing on the Hong Kong Stock Exchange, with CICC, Citi, JPMorgan Chase and CCB International as co-sponsors of the IPO.

Following NIO Motor (9866. HK), Xiaopeng Automobile (9868. HK) and Ideal Auto (2015.HK), zero-run cars may become the fourth new domestic car-making force to go to Hong Kong for IPO. However, from the perspective of delivery, there is still a big gap between the annual delivery of zero-running cars and "Wei Xiaoli", and there is still a long way to go from the goal of "the overall sales of zero-running cars in 2025 to reach 800,000 vehicles".

At the same time, zero-run cars are still in a state of loss, with a cumulative loss of more than 4.8 billion yuan in net profit in the past three years. In addition, in the case of the capital market's continuous "blood transfusion" of its car, the products of Zero Run Automobile have also encountered complaints from users on platforms such as black cat complaints and car quality networks.

Ranked in the second echelon of new energy vehicle companies

According to Frost & Sullivan's report, zero-run cars are currently the only emerging electric vehicle companies in China with global independent research and development capabilities, and they are also the emerging electric vehicle companies with the highest degree of vertical integration in China. In terms of deliveries, zero-run cars are the fastest growing of China's leading emerging electric vehicle companies.

According to public information, zero-run cars were established in 2015, mainly focusing on the high-end mainstream new energy vehicle market with prices ranging from 150,000 yuan to 300,000 yuan.

In the past three years, ZeroCar has delivered three models, namely the first production model, the Smart Pure Electric Coupe S01, which began delivery in July 2019, the T03, a smart pure electric mini car, which began delivery in May 2020, and the C11, a medium-sized smart pure electric SUV that began delivery in October 2021.

As of December 31, 2021, ZeroCar has delivered a total of 2,708 S01, 46,162 T03 and 3,965 C11s (22,536 units ordered).

Frost & Sullivan's report shows that according to the single pure electric vehicle model C-end insurance volume launched by China's emerging electric vehicle companies in 2021, the T03 model ranks third among the best-selling models.

Specifically, T03 is the main model of zero-run cars, each priced at 68,900-84,900 yuan after subsidies, with sales of 39,149 units in 2021; the price of each C11 model after subsidies is 15.98-19.98 million yuan, and sales in 2021 are 3,965 units.

According to the prospectus, in 2020, zero-run cars delivered a total of 8,050 electric vehicles; in 2021, a total of 43,748 electric vehicles were delivered, an increase of 443.5% year-on-year. Among them, the T03 model will account for nearly 90% of the total deliveries in 2021.

The sharp increase in sales of zero-run cars T03 models has driven the market position of zero-run cars to rise rapidly, but its sales volume is still quite different from "Wei Xiaoli". According to public data, the sales of NIO, Ideal Auto and Xiaopeng Automobile in 2021 will be 91,000, 90,000 and 98,000 units respectively, compared with only half of the annual sales of zero-run cars.

Previously, in July 2021, Zhu Jiangming, CEO of Zero-Run Automobile, revealed in the announcement of the company's 2.0 strategy that the company's future goals include "surpassing Tesla in three years with self-driving technology" and "overall sales of 800,000 vehicles in 2025". However, from the perspective of sales, the gap between zero-running cars and Tesla is still very large. The data shows that Tesla delivered a total of 936,200 vehicles in 2021.

At present, zero-run cars belong to the second echelon of new car-making forces. In March this year, data released by the Association of Passenger Vehicles showed that the retail sales of the new energy passenger car market reached 624,000 units in January-February 2022, an increase of 153.1% year-on-year, and the penetration rate in the passenger car market reached 18.8%. Among them, with a sales volume of 11,520 vehicles, zero-run cars ranked 15th in the list of the top 15 new energy vehicle sales of car companies in January-February 2022.

In fact, the second echelon of new energy vehicles is also catching up quickly. Recently, Nezha Automobile, Zero Run Automobile, Extreme Krypton Automobile and Lantu Automobile have successively released delivery data, and sales in March reached 12026 units, 10059 units, 1795 units and 1400 units respectively. Among them, the monthly delivery volume of Nezha Automobile and Zero-run Automobile has exceeded 10,000.

In the prospectus, ZeroCar said it plans to launch eight new models by the end of 2025 at a rate of one to three models per year in the future, covering sedans, SUVs and MPVs of various sizes. Zero-Run also plans to launch a smart pure electric medium and large sedan C01 in the second quarter of 2022, with deliveries starting in the third quarter of 2022.

Zero-run car product launch plan

(Source: Zero Run Auto Prospectus)

The cumulative loss in three years exceeded 4.8 billion yuan

In recent years, with the increase in automobile sales, the operating income of zero-run cars has also increased year by year. According to the prospectus data, from 2019 to 2021, the total revenue of zero-run cars was 117 million yuan, 631 million yuan and 3.132 billion yuan, respectively, and the operating income growth rates in 2020 and 2021 were 439.74% and 396.13%, respectively.

In terms of net profit, zero-run cars are similar to most new car-making forces, and have not yet made a profit since their establishment. According to the prospectus data, from 2019 to 2021, the operating losses of zero-running cars were 730 million yuan, 869 million yuan and 2.868 billion yuan, respectively; the losses attributable to equity holders during the year were about 901 million yuan, 1.100 billion yuan and 2.846 billion yuan, respectively, with a cumulative loss of more than 4.8 billion yuan in three years.

The continuous loss of zero-running cars, to maintain business operations mainly rely on investment "blood transfusion". According to the prospectus, since its inception, Zero Run Auto has completed eight rounds of financing, and the main investors include Sequoia Zhisheng, Shanghai Electric Hong Kong, Jinhua Youxuan, Changsha Nuofeng, Hangzhou Hanzhi, Zhoushan Haohai, Huzhou Jingxin, Guoshun Leading, Green Leading, Zhongjin Binchuang and CICC Chuanyu.

In terms of equity, as of the IPO, Zhu Jiangming, Fu Liquan, Liu Yunzhen (Zhu Jiangming's spouse) and Chen Ailing (Fu Liquan's spouse) had a total interest in the total issued share capital of the company in accordance with the concerted action arrangement between them, which was about 31.01%. Among them, Fu Liquan is the 002236 of Zhejiang Dahua Technology Co., Ltd. SZ) is the actual controller.

According to the prospectus data, as of December 31, 2021, the total current assets of Zero Trot Auto were about 8.955 billion yuan, and the cash and cash equivalents at the end of the year were about 4.338 billion yuan.

In contrast, the cash reserves of Xiaopeng Automobile, NIO Automobile and Ideal Automobile at the end of 2021 were 43.544 billion yuan, 55.4 billion yuan and 50.160 billion yuan respectively.

From this point of view, zero-running cars urgently need to "transfuse" again, and IPO is undoubtedly the best way for companies to raise funds. The zero-run automobile applied for a Hong Kong stock IPO fundraising, and the amount of fundraising has not been disclosed. However, according to the prospectus plan, about 40% of the net proceeds raised from the listing are used for research and development, about 25% for increasing production capacity, about 25% for business expansion and brand awareness, and about 10% for working capital and general corporate purposes.

In fact, R&D expenditure is an important component of the operating costs of zero-running cars. From 2019 to 2021, the R&D investment of zero-run vehicles will be 358 million yuan, 289 million yuan and 740 million yuan, respectively. According to the prospectus, due to the investment in research and development of new models and the expansion of production facilities and sales networks, it is expected that net losses will continue to be generated in 2022.

Compared with the "new car-making forces", the R&D investment of zero-run cars is lower. According to the data, the R&D expenses of Ideal Automobile from 2019 to 2021 are 1.169 billion yuan, 1.100 billion yuan and 3.286 billion yuan, respectively, the R&D expenses of NIO are 4.429 billion yuan, 2.488 billion yuan and 4.592 billion yuan, and Xiaopeng Motors is 2.070 billion yuan, 1.726 billion yuan and 4.114 billion yuan, respectively.

However, in 2021, the R&D investment of zero-run cars accounted for 23.63%, higher than the R&D investment of Xiaopeng Automobile accounted for 19.6% and Weilai Automobile's 12.7% in the same period.

From the perspective of gross profit margin, in the past three years, the gross profit margin of zero-run cars is -95.7%, -50.6% and -44.3%, respectively. The prospectus said that it was mainly due to the increase in the delivery of electric vehicles with higher profit margins year by year, as well as the reduction in unit costs due to economies of scale.

Compared with "Wei Xiaoli" and Tesla, in 2021, the gross profit margins of Xiaopeng Automobile, Weilai Automobile, Ideal Automobile and Tesla were 12.5%, 20.1%, 20.6% and 30.6%, respectively, which were higher than the gross profit margin of zero-run cars -44.3%.

"Circle Layer" also noted that on the black cat complaint platform, there are many car owners who complain about the delay in the delivery of zero-run cars. For example, on March 15, some car owners complained: "November 21, 2021 order to pay a deposit of 5,000 yuan, when it was said that 4 to 6 weeks can pick up the car, during the period of 5-6 sales, there is a car before New Year's Day, and then before spring break, and then at the end of February, it has been nearly 4 months, still showing processing, no statement." ”

Black Cat complaint about zero-run cars

(Source: Screenshot of Black Cat Complaint)

In addition, on the auto complaint platform car quality network, the proportion of complaints about zero-run delayed delivery is also relatively high, and in the 2021 pure electric vehicle type complaint volume ratio ranking, the complaint-sales ratio of zero-run T03 of zero-run cars is 11.2 per 10,000, ranking 23rd.

It is worth mentioning that in the case of negative gross profit margin, zero-run cars have increased the price of products. On March 26, the zero-running automobile official micro-issued a document saying that due to factors such as the rise in the price of upstream raw materials, the zero-running car will adjust the official guidance price of all T03 models and subsidies. The adjustment took effect at 00:00 on March 26, 2022, and TO3 orders that paid a deposit on the Zero Run APP before that were not affected. According to the price of the official website of zero-run car, the adjusted zero-run T03 starts at 73900 yuan / car.

Kaiyuan Securities said in the research report, "Zero-run cars submitted Hong Kong stock prospectuses, the company was incubated in Dahua Group, after years of development has become an emerging car company that covers multiple models, has a full-stack self-research, and a complete capacity marketing system, and has become a new force that cannot be ignored in the new forces of car manufacturing." ”