The second submission of the Hong Kong Stock Exchange's Auto Street is finally one step closer to a successful listing.
Not long ago, according to the disclosure of the Hong Kong Stock Exchange, Auto Street passed the listing hearing, with CITIC Securities and Haitong International as joint sponsors. Focusing on B2B auctions of second-hand cars, Auto Street has become the largest second-hand car trading platform in China by relying on online and offline simultaneous auctions, online auctions, live auctions and other modes. With the intensifying competition in the market and the continued pressure on the second-hand car market, can Auto Street replicate the success of the world's largest B2B car auctioneer Meihan in China by virtue of its listing?
01
Net profit has been declining year after year, and the listing seeks to break the situation
Founded in 2014, Auto Street was jointly initiated and funded by Meihan and Runhua Investment, a subsidiary of Cox Automotive, a leading platform for automobile trading and second-hand car auctions, and the core top 100 dealer groups under the leadership of the China Automobile Dealers Association. In 2019, Auto Street attracted investment from Internet giants such as Tencent and JD.com, and completed a $15 million Series A financing; In 2022, Auto Street received a $15 million Series B financing from CR Matrix Limited, a subsidiary of Huaxing New Economy Fund.
According to the prospectus, the revenue of the automobile street mainly comes from the second-hand car auction commission and service fee, second-hand car value-added services, second-hand car collection and sales arrangement, exhibition business and other major sectors, of which the second-hand car auction commission and service fee are the main source of revenue of the automobile street. However, in recent years, the volume of used car transactions in Auto Street has not been satisfactory. In 2021, the transaction volume of used cars in Auto Street reached 261,000 units, but in 2022, it fell sharply to 160,000 units, and in 2023, it will rebound to 176,000 units. The so-called "largest in China" is actually not far behind other companies. It is reported that in 2022, the market share of the top five used car trading service providers in China will be 12.6%, 12.2%, 11.9%, 11.1% and 5.5% respectively. Auto Street became the first place with 160,000 vehicles, but it was only 6,000 units away from the 154,000 units in second place.
Poor business performance led to a year-on-year decline in net profit. According to the prospectus, in 2021~2023, Auto Street will achieve revenue of 670 million yuan, 467 million yuan, and 492 million yuan respectively; The net profit was 165 million yuan, 68 million yuan and 9.26 million yuan respectively. In this regard, Auto Street explained that the company's net profit declined in 2021~2022, mainly due to the sharp decline in second-hand car trading volume in 2022 due to the outbreak of the new crown epidemic, and the increase in labor costs caused by the company's hiring of more auctioneers and appraisal inspectors; The decline in net profit in 2022~2023 was due to the company's fair price change loss of RMB 7.5 million on financial liabilities measured at fair value through profit or loss.
According to Cao He, president of Quanlian Auto Dealer Investment Management (Beijing) Co., Ltd., driven by Internet capital forces such as Tencent and JD.com, no matter how good the business performance is, Auto Street has no choice but to go public. "Looking at the domestic A-share market alone, the performance of dealers is generally poor, not to mention that the auto street is only focusing on second-hand car trading. However, it is certainly not enough to rely on the capital support behind it, and it is necessary to go public to seek a way out and expand business influence. He said.
Lang Xuehong, deputy secretary-general of the China Automobile Dealers Association, believes that the twists and turns in the business of the automobile street in the past two years are actually caused by multiple factors such as the new crown epidemic and the fierce competition in the new car market. However, in the medium and long term, the second-hand car market must develop in the direction of scale and standardization, and the professional service platform in the field of second-hand cars will actually have a lot of room for development.
Lang Xuehong told reporters that as one of the leaders, the automobile street is more standardized in terms of batch disposal and procurement of vehicles, and has reached a certain scale, and the future development prospects are promising. By the end of last year, Auto Street had set up 79 auction venues in 74 cities across the country, and provided offline services covering 317 cities across the country. According to the prospectus, Auto Street is the trading platform with the highest performance rate, the lowest dispute rate and the highest efficiency among all used car trading service providers in China.
02
Used car auctions in mainland China are gradually on track
Different from the well-known second-hand car platforms such as Guazi and Uxin, the slightly low-key Auto Street has always been positioned in the 2B business, earning income from commissions and service fees from transactions with 4S stores and professional buyers. Its unique "lane auction model" is derived from Meihan, which uses online trading platforms and satellite information synchronization transmission equipment and other second-hand car auction technology products to provide a full set of auction services for users in global auction houses, and provides customers with value-added services such as car licensing, inspection, refurbishment, financing, and training.
Meihan, who has the dual identity of an investor and a "guide" in the automobile street, also set foot in China's second-hand car auction market in the early years. In 2005, the Measures for the Administration of Auctions, drafted by the Ministry of Commerce, came into effect, allowing and encouraging foreign-invested auction enterprises to engage in commercial auction activities. Meihan immediately decided to enter the Chinese market. In 2006, Shanghai Meihan National Auction Motor Vehicle Auction Co., Ltd. was established, and Meihan officially landed in the Chinese market in the form of a joint venture. Subsequently, Meihan also established Meihan China Merchants Company in Shenzhen, and established a joint venture with BAIC Group to establish Meihan BAIC Used Car Auction Company in Beijing. However, Meihan came to China to obviously not adapt to the local situation, has been facing a state of low sales revenue and gross profit, and has withdrawn from Shenzhen, Shanghai and other markets since 2008.
In Lang Xuehong's view, Meihan's "defeat" in China was closely related to factors such as the scale of the mainland second-hand car market and the policy environment at that time. The so-called "auction" must first have a certain scale, and only on a large scale can the second-hand car auction model reflect the benefits. At that time, China's automobile production and sales showed a rapid growth momentum, and the second-hand car market had huge potential. However, due to the immaturity of the market, the lack of sources of old cars, the lack of consumer awareness, and the imperfect policies, the potential of the second-hand car market has been difficult to be released, and Meihan has suffered heavy losses.
Compared with Meihan, Auto Street was established in 2014 at the time of the rapid development of the mainland automobile market, which can be said to be a timely birth. According to Lang Xuehong, Auto Street did not completely focus on the second-hand car auction business at the beginning of its establishment, but also explored the field of new car business. Born under the background of "e-commerce fever", Auto Street was known as an "automobile O2O e-commerce platform" in the early days, and has convened more than 40 mainstream dealer groups across the country to try to build Auto Street into an open e-commerce platform.
With the gradual rise of China's second-hand car market and the gradual well-known second-hand car auctions, Auto Street began to focus its business on second-hand cars, especially the auction model. Relevant data show that in 2013~2022, the number of motor vehicle auctions in mainland China increased from 12,000 to 59,500 in the whole year, the turnover jumped from 5.956 billion yuan to 27.284 billion yuan, and the source of auction entrustment changed from completely relying on the government and judicial institutions to socialized institutions, accounting for more than 90%.
In addition to choosing the right time to enter the market, Auto Street is also constantly innovating its business model in the process of development. In 2020, Auto Street launched a new model of "online auction + live broadcast" of second-hand cars, strengthened online transactions, and created a precedent in the auction industry. It is reported that there are more than 350 merchants who watched the bidding for the first online auction + live broadcast on Auto Street, with a transaction rate of more than 50%.
03
The policy is favorable, and the future of second-hand cars can be expected
However, the current mainland second-hand car trading market is still relatively fragmented. Cao He believes that the second-hand car market is regional, fiercely competitive, the standards are not uniform, and the transaction is not standardized, and the development is still limited. Auto Street also mentioned in the prospectus that compared with mature markets such as the United States, the ratio of second-hand cars to new car sales in mainland China is still low, and the penetration rate of second-hand cars is not high. Data shows that in 2023, China's used car transactions accounted for only 35.3% of total passenger car sales.
It is difficult to popularize and standardize the auction model in the mainland in the short term. "The U.S. second-hand car market is quite mature, with a concentration of business entities, and the scale of independent second-hand car dealers is relatively large, and the authorized dealer system can account for about one-third of the entire second-hand car business. However, the number of authorized dealers in China currently reaches 33,800, and in the second-hand car business, retail and wholesale sales are counted, accounting for only about 10% of the share, and the popularity of the auction model in China will take some time. Lang Xuehong said. In her view, with the improvement of the specialization, standardization and branding of the second-hand car trading chain, third-party professional service platforms such as Auto Street will have a great future.
Although the market is not mature, the continuous introduction of favorable policies is stimulating the second-hand car market to release more consumption potential. Not long ago, the Ministry of Commerce and other 14 departments jointly issued the "Action Plan for Promoting the Trade-in of Large-scale Equipment and Consumer Goods" (hereinafter referred to as the "Action Plan"), which clearly implements the trade-in action of consumer goods, carries out the trade-in of automobiles and household appliances, and promotes the replacement of consumer goods for home improvement. Subsequently, Henan, Guangdong, Jiangsu, Inner Mongolia, Zhejiang and other provinces and autonomous regions announced follow-up and issued relevant implementation plans to promote the trade-in of old cars.
Lang Xuehong said that with the continuous breakthrough of technology, the iteration cycle of automotive products has been continuously shortened. At present, the general replacement cycle of fuel vehicles is 6~8 years, and the replacement cycle of new energy vehicles is 3~5 years, and the replacement demand is increasing. In this context, the strong promotion of the trade-in policy this year will further release consumers' demand for second-hand cars, and the second-hand car market will usher in a stage of rapid growth.
"The Action Plan points out that the used car transaction volume in 2027 will increase by 45% on the basis of 2023, and I think this expectation is still conservative, and the used car transaction volume in 2027 should at least double on the basis of 2023." Lang Xuehong said.
Text: Zhang Yiwen Editor: Jiao Yue Layout: Wang Kun
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