Sigh! Legendary brands fall...

On the evening of April 22, Foton Motor issued an announcement that it had received a written notice from Beijing Borgward Automobile Co., Ltd. that Beijing Borgward was accepted for bankruptcy liquidation by the court on April 22, 2022.

Borgward Automobile, a century-old German car brand, was acquired by Beiqi Foton in 2014 to enter the passenger car market, and then due to the poor response of the product market, it was transferred to Lu Zhengyao's Shenzhou Youche in 2019. After several changes of ownership, Beijing Borgward eventually went bankrupt due to high debts.

Borgward's bankruptcy application was processed

On April 8, Beijing Borgward applied to the court for bankruptcy liquidation on the grounds that the company could not pay off its debts as they fell due and its assets were insufficient to pay off all its debts.

Source: Borgward Auto official website

The court held that Beijing Borgward was a qualified entity for bankruptcy and already had the reasons for bankruptcy, so this court should accept Beijing Borgward's bankruptcy liquidation application.

On December 9, 2021, due to the inability to repay the arrears owed by suppliers and other creditors, the relevant creditors applied for the seizure of relevant assets of Beijing Borgward, involving an amount of about 123.565 million yuan. The book value of the seized assets was 2.209 billion yuan, including machinery and equipment, transportation equipment, office equipment, IT equipment, tooling and molds, other equipment, construction in progress, inventory, etc.

It is reported that the seized assets are all necessary for the production and operation of Beijing Borgward, and the seizure has had a major impact on Beijing Borgward and also adversely affected the recovery of relevant creditors' rights.

According to the data, Beijing Borgward Automobile Co., Ltd. is jointly owned by UCAR and Beiqi Foton, with a shareholding ratio of 75.2% and 24.8% respectively.

Foton Motor said that the bankruptcy liquidation of Beijing Borgward will not affect the company's existing main business and will not have a significant impact on the company's continuing operations. Out of the principle of prudence, the company will make a large impairment provision for Beijing Borgward's loans, current arrears, guarantee matters and the recovery of Beijing Borgward's equity held by the company, which is expected to affect the total profit of 2021 - 4.704 billion yuan, and consider the company's equity recognition investment income due to the holding of Beijing Borgward, etc., it is expected to affect the total profit of -5.326 billion yuan in 2021.

As of press time, UCAR has not responded to this matter.

Foton failed to transform with Borgward

Borgward Automotive is a century-old car manufacturer from Germany. In 1919, the German engineer Carl Borgward founded the Borgward car brand, positioned as a luxury car brand, once on a par with Mercedes-Benz BMW, and was the third largest car manufacturer in Germany. Later, due to the decline in automotive products, poor management and other factors, in 1961, Borgward Automobile declared bankruptcy.

In 2014, Foton Motor, which specializes in commercial vehicles, began to enter the passenger car field, and spent 5 million euros to acquire the Borgward automobile brand, and in 2015, beijing Borgward Automobile Co., Ltd. was established, launching the first SUV model BX7.

It is worth noting that when Foton Motor acquired Borgward Automobile, the car company had been silent for more than half a century, and the technical design had long since ceased to be the same, out of touch with the times. This has also led to a decline in the quality and market reputation of Beijing Borgward. Foton Motor's financial report shows that from 2016 to 2018, the cumulative loss of Beijing Borgward reached 4.014 billion yuan.

In 2018, Foton Motor issued an announcement on the pre-listing transfer of 67% of the equity of Beijing Borgward Automobile Co., Ltd., and pointed out that the transfer of equity is conducive to introducing diversified capital investment, ensuring the long-term sustainable development of Beijing Borgward, and at the same time helping the company to focus on the core business of commercial vehicles, continue to consolidate Foton Motor's advantages in the field of commercial vehicles, promote technological innovation in the commercial vehicle business and further enhance its market position.

Foton Motor also said that after the completion of the listing transaction, the company will hold 33% of the equity of Beijing Borgward and will no longer include it in the scope of the company's consolidated statements, which will have a certain impact on foton Motor's profits.

Shenzhou system collapse belt collapse Borgward

In 2019, Borgward Automobile welcomed another investor, Lu Zhengyao's Shenzhou UCAR. On March 18, 2019, UCAR announced that UCAR spent 4.109 billion yuan to acquire a 67% stake in Borgward Automobile.

The emergence of UCAR has brought opportunities to revitalize Beijing Borgward. At that time, Lu Zhengyao was building a Shenzhou-based automobile ecosystem: Shenzhou Car provides users with travel services; Shenzhou Car Rental vehicles can be used for rent and can also be leased to Shenzhou Car; Shenzhou Car Purchase solves the disposal of second-hand cars of Shenzhou Car Rental; and Shenzhou Car Flash Loan provides financial loan services for car buyers. The acquisition of Borgward Automobile provides upstream vehicle supply for the Shenzhou automobile system and completes the industrial closed loop.

Benefiting from the purchase of Shenzhou orders, Beijing Borgward sales increased to 54,500 units in 2019. But the good times were not long, with the explosion of Luckin Coffee under Lu Zhengyao and the privatization and delisting of Shenzhou Car Rental, Beijing Borgward's "blood transfusion road" was interrupted, and sales in 2020 fell to 8740 vehicles, a sharp drop of 84%.

The collapse of the Shenzhou system also plunged Beijing Borgward into a debt quagmire and eventually declared bankruptcy. In January 2021, Foton Motor announced that the company had not received the balance of the equity transfer of Beijing Borgward when it was due. On September 28, 2020, Foton Motor, Changsheng Xingye and UCAR (Xiamen) Information Technology Co., Ltd. signed the Tripartite Agreement on Payment of the Remaining Transfer Price, stipulating that UCAR (Xiamen) as the debtor would join the debt of the remaining transfer price of the equity transaction, jointly bear the debt with Changsheng Xingye, and pay all the accounts payable by Changsheng Xingye totaling RMB1,359.11 million owed to Changsheng Xingye directly to the Company before December 31, 2020.

Foton Motor pointed out in the announcement that UCAR is facing the risk of delisting, which affects the ability of the relevant guarantors to guarantee the balance of the equity transfer of Beijing Borgward.