"The best-selling Mercedes-Benz costs less than 300,000 yuan"

"Land Rover, the favorite of middle-aged men, costs only over 200,000 yuan"

"Buying a BMW for 170,000 yuan, a significant price drop for BBA"

"Camry sells for only 120,000 yuan"

……

In the past year, anyone who pays attention to the automotive market has likely been bombarded with similar headline articles.

Behind this is the reflection that, amidst the price war sparked by independent brands such as BYD, imported brands that once held a dominant position in the domestic automotive market have also been "caught up" in the competition.

However, on the other hand, Aichi, HiPhi, and WM Motor have fallen into situations of factory shutdown and insolvency, and rumors of a "knockout round" for new energy automakers have spread throughout the market.

Under these circumstances, automakers are displaying their respective prowess. Recently, the parent company of one of the new forces in carmaking, Nezha Automobile, Hezhong New Energy Automotive Co., Ltd. (hereinafter referred to as "Hezhong Automobile" or "Nezha Automobile"), submitted an IPO prospectus to the Hong Kong Stock Exchange, aiming to list in Hong Kong to replenish ammunition and expand brand awareness. China International Capital Corporation, Morgan Stanley, CITIC Securities, ABC International, and CMB International serve as joint sponsors, making for a luxurious lineup.

The only laggard among the new forces

In 2014, Fang Yunzhou, who had worked at Chery for more than a decade and had participated in leading Chery's new energy vehicle projects, left his position and joined Tsinghua University to engage in postdoctoral research work. In October of the same year, he founded Hezhong Automobile.

2014 was also the year when new carmaking forces set sail, with XPeng and NIO both being founded that year.

In 2017, Zhang Yong, the former deputy general manager of BAIC BJEV and a former colleague of Chery, joined Hezhong Automobile as president. In June 2018, Hezhong Automobile officially launched the Nezha brand, along with its first mass-produced vehicle, the Nezha N01, and the concept car Eureka 01.

At the launch event, Zhang Yong announced a mid-term strategy called "Archimedes Plan 1.0" and set a sales target of over 100,000 vehicles for 2020.

However, this small SUV, which had a subsidized price range of 59,800-69,800 yuan, did not achieve good results due to its unremarkable appearance and various factors such as the reduction in subsidies for new energy vehicles the following year. When it went on sale in early December 2018, it achieved sales of 1,206 vehicles (sales data from Gasgoo Automotive News, the same below), but only 283 vehicles in January of the following year.

The failure of the first launch had a significant impact on Hezhong Automobile and almost spelled the end for the "Nezha" brand. The second mass-produced vehicle was named Hezhong U and was released in March 2019.

On July 16, 2019, a reporter from China Business News visited Hezhong Automobile's Tongxiang factory in Zhejiang province. An employee stated, "Currently, production in the workshop is not busy. Only 100 vehicles were produced last month, and there was a holiday of more than ten days during that period."

However, during this month, the domestically produced animated film "Nezha Reborn" sparked a wave of "Nezha fever." Nezha Automobile unexpectedly caught onto this trend. Although it made many efforts in marketing, it did not have a significant impact on sales, ultimately selling only 10,066 vehicles for the entire year of 2019.

But regardless, "Nezha" was ultimately preserved, and "Hezhong U" was renamed "Nezha U," with a price range of 150,000-210,000 yuan. Deliveries began in March 2020.

In November 2020, the third model, the Nezha V, was launched and returned to the low-price segment, with an official guided price range after subsidies of 59,900-75,900 yuan.

This model quickly became the sales backbone of Nezha, and coupled with the rapid increase in electric vehicle penetration in 2021, Nezha Automobile achieved sales of 69,674 vehicles in 2021, of which the Nezha V contributed 49,646 vehicles, accounting for approximately 71.25%.

With the Nezha V, its annual sales ranked fourth among new force brands, second only to XPeng, NIO, and Lixiang, and there was even a saying of "WeiLiXiaoNa" (referring to the four leading new carmaking forces of Weimar, Lixiang, XPeng, and Nezha). It is worth mentioning that the fifth-highest sales that year belonged to WM Motor, with sales reaching 44,157 vehicles.

In 2022, Nezha's sales reached 152,073 vehicles, topping the annual sales chart for new forces and becoming the first new force brand to exceed 150,000 vehicles in annual sales, with the Nezha V contributing 98,847 vehicles.

Nezha is obviously not satisfied with hovering in the low-price market. In July 2022, it released the sporty intelligent coupe model Nezha S, priced at 199,800-338,800 yuan.

It is worth noting that the high-end market may be somewhat difficult for Nezha Automobile to expand into. Subsequently, in April 2023 and April 2024, the prices of the four-seat electric sports car Nezha GT and the intelligent super-extended range electric SUV Nezha L fell again, to 178,800-226,800 yuan and 129,900-159,900 yuan, respectively. Meanwhile, in August 2023, the Nezha V was upgraded to the Nezha AYA, with a price range of 73,800-88,800 yuan.

Although only the Nezha S was introduced in the high-end market, the overall average selling price of Nezha Automobile increased from approximately 71,000 yuan in 2021 to approximately 84,000 yuan in 2022, reaching approximately 109,000 yuan in 2023, and further increasing to approximately 113,000 yuan in the first four months of 2024.

However, as prices increased, sales declined year after year. For the full year of 2023, sales were 92,147 vehicles, a decrease of 39.41% compared to the previous year, with the Nezha V/AYA contributing only 50,926 vehicles, almost halving.

The prospectus data indicates that Hezhong Automobile's vehicle deliveries increased rapidly from 64,230 vehicles in 2021 to 124,189 vehicles in 2023 (including export data), with a compelling compound annual growth rate of 39.0%. However, it quietly omitted the milestone of exceeding 150,000 vehicles in 2022.

The sales downturn continued into the first half of 2024. According to the new energy brand delivery situation released by Sohu Auto, Nezha Automobile, along with GAC AION, became one of the few mainstream new energy brands with year-on-year declines in sales. Meanwhile, over 10 brands including BYD, Hongmeng Zhixing, Lixiang, NIO, Zero Run, ZEEKR, Deep Blue, XPeng, ZHIJI, LANTU, and AVITRA all broke their own historical highs in deliveries.

Turning from car sales back to financial performance, from 2021 to 2023 ("reporting period"), Hezhong Automobile's operating revenues were 5.087 billion yuan, 13.05 billion yuan, and 13.555 billion yuan, respectively, with almost no growth in 2023. Over the same period, its net profits were -4.84 billion yuan, -6.666 billion yuan, and -6.867 billion yuan, respectively, accumulating a loss of approximately 18.374 billion yuan over three years.

However, price increases are not without benefits. During the reporting period, Hezhong Automobile's gross profit margins were -34.4%, -22.5%, and -14.9%, respectively, still unable to turn positive but showing an annual increase.

More importantly, a large number of cars are sitting in Hezhong Automobile's warehouses.

From 2021 to 2023, Hezhong Automobile's inventory balances were 739 million yuan, 2.8 billion yuan, 1.858 billion yuan, and 1.619 billion yuan, respectively, with finished goods accounting for 604 million yuan, 2.246 billion yuan, 1.078 billion yuan, and inventory turnover days of 24, 40, and 54, respectively.

Multiple rounds of financing leave only 400 million yuan in cash

Hezhong Automobile was also born with a golden key, carrying the reputation of "entrepreneurship by a Tsinghua team." Besides the founder team, its initial shareholders also included Yihua Tong (688339. SH) and Zhejiang Tsinghua Yangtze River Delta Research Institute (Yangtze River Delta Research Institute), with a registered capital of 1 billion yuan.

In October 2017, Lhasa Zhixing purchased 204 million yuan of new registered capital in Hezhong Automobile for 1.25 billion yuan and acquired 6 million yuan of registered capital from the original shareholder Jiangyin Xinchanghong for 33 million yuan. After the transaction, Lhasa Zhixing held a total of 54.31% of the shares.

The ultimate actual controller behind Lhasa Zhixing is Wang Wenxue, the chairman of China Fortune Land Development. After the acquisition, Wang Wenxue also became the chairman of Hezhong Automobile, six months earlier than Evergrande's entry into the automotive industry.

However, in November 2018, Lhasa Zhixing exited most of its investment, transferring 51.31% of Hezhong Automobile's shares to Yichun Jinhe, a subsidiary of the Yichun Economic and Technological Development Zone Management Committee, for 1.42 billion yuan. However, the investment agreement stipulated that the founder team's shareholding platform, Shanghai Zheao, must repurchase part of Yichun Jinhe's holdings within five years from the date of the acquisition.

Yichun City has also repeatedly "rescued" Hezhong Automobile. In April 2024, Yichun Jinhe, Tongxiang Municipal State-owned Capital Investment and Operation Co., Ltd., Nanning Minsheng New Energy Industry Investment Partnership (Limited Partnership), and other state-owned capital entities jointly signed the "Joint Agreement on High-quality Development of Hezhong Automobile," committing to providing a total investment of not less than 5 billion yuan and supporting its IPO as soon as possible.

In April and June 2024, 940 million yuan and 120 million yuan worth of convertible bonds issued by Tongxiang and Nanning local state-owned capital were fully subscribed.

Automaking is a capital-intensive industry, and both Li Xiang of Lixiang Auto and Li Bin of NIO have expressed that over 10 billion yuan is merely a threshold.

As of now, the prospectus shows that Hezhong Automobile has raised approximately 22.844 billion yuan in total financing, with an estimated value of approximately 45.8 billion yuan. Participating companies, in addition to the aforementioned institutions, also include the Sichuan State-owned Assets Supervision and Administration Commission, CATL, Hefei High-tech Zone, and 360 Security Technology Co., Ltd.

In September 2021, Nanning Fund signed a share transfer agreement with Chengdu Hongjing, a wholly-owned subsidiary of 360 Security Technology Co., Ltd. (601360. SH), transferring its 10.6944% unpaid equity stake in Hezhong Automobile to Chengdu Hongjing for zero consideration. Prior to this, Nanning Fund obtained the relevant equity stake at a cost of approximately 900 million yuan.

In December 2021, 360 Security Technology Co., Ltd. invested another 1 billion yuan through its subsidiaries, acquiring a 3.53% stake. However, this transaction did not wait for the actual payment of the investment funds. In June 2022, 360 transferred the relevant unpaid shares to other investors for zero consideration.

Perhaps regretting seeing the growth momentum of Nezha Automobile, in December 2022, 360 acquired a 3.3124% stake in Hezhong Automobile transferred by other shareholders through its subsidiaries, with a total consideration of 1 billion yuan.

In addition to repeated financial support for Hezhong Automobile, Zhou Hongyi has also made many efforts in other aspects.

In April 2024, Zhou Hongyi suddenly became active in the automotive industry. On April 18, he released videos on multiple social media platforms, stating that he had made a difficult decision to sell his nine-year-old Maybach 600, abandoning traditional luxury cars and switching to domestic new energy intelligent connected vehicles.

Subsequently, many automotive brands left messages in the comments section offering cars, and subsequent news about car sales frequently trended on social media, leading to an endless stream of质疑 Zhou Hongyi's hype. However, Zhou Hongyi also gained a significant number of followers in the process.

At the Nezha Automobile launch event, Zhou Hongyi stated that various competitors had sent cars, but Zhang Yong was too slow, so Nezha would not be the first choice. He also repeatedly suggested that Zhang Yong learn from Lei Jun.

On June 1, at the 2024 (Second) Future Automobile Pioneers Conference, Zhou Hongyi called on entrepreneurs to personally build their personal IP. Upon hearing this, Zhang Yong tweeted on June 3, "I heard a cold joke today, and I've also felt it deeply recently: No one is starting businesses anymore, everyone is going to be entrepreneurs with IP." The next day, he tweeted again to clarify, saying, "Don't further misinterpret my meaning!"

In the current era where even negative publicity can generate traffic, it's difficult to determine whether this was a genuine disagreement between the two sides or a joint hype.

However, the ultimate effect was that Nezha's sales were not stimulated. As for Zhou Hongyi's claim that Nezha doesn't know how to promote, it's quite possible.

According to the prospectus, from 2021 to 2023, Hezhong Automobile's sales and distribution expenses were 695 million yuan, 1.042 billion yuan, and 1.923 billion yuan, respectively, with sales and marketing expense ratios of 13.7%, 8.0%, and 14.2%, respectively. Among them, advertising and promotional expenses were 333 million yuan, 333 million yuan, and 917 million yuan, respectively. It can be seen that although sales expenses and advertising investment increased significantly in 2023, they did not bring about an increase in revenue.

At the same time, administrative expenses, research and development expenses, and financial costs are also eroding Hezhong Automobile's cash reserves.

During the reporting period, Hezhong Automobile's net cash flow from operating activities was -2.991 billion yuan, -5.408 billion yuan, and -4.354 billion yuan, respectively.

As of December 31, 2023, and April 30, 2024, Hezhong Automobile's cash and cash equivalents were 2.837 billion yuan and 403 million yuan, respectively.

At the end of each period from 2021 to 2023 and April 2024, Hezhong Automobile's net current assets were 792 million yuan, 404 million yuan, -1.991 billion yuan, and -1.795 billion yuan, respectively, indicating that current assets could no longer cover current liabilities.

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