Nezha Auto on the Brink: Debt-to-Equity Swap Falls Short of Lifeline.

Produced by | New Product Strategy Finance | Author | Wu Wenwu

The world of new carmakers is a tumultuous landscape, and the stakes are rising.

On one hand, XPeng has rebounded from a low point to new heights over the past year, moving out of critical care and closer to success. Xiaomi Auto has launched the SU7 Ultra priced above 500,000 yuan, directly challenging luxury brands like BBA and Porsche.

On the other hand, NIO, despite its ongoing losses, has embarked on a wave of reforms, aiming to make every penny count. At least, NIO still retains a chance of turning things around.

In contrast, Nezha Auto has been conspicuously absent from the headlines for quite some time. Its last notable mention was during the Spring Festival due to the popularity of the movie "Nezha 2," which ironically pushed it onto the trending list.

However, according to recent media reports, Nezha Auto's situation does not seem to have improved, and it remains on the verge of collapse.

01 Nezha Auto Introduces Debt-to-Equity Swap Program

New Product Strategy Finance noticed that on March 19, 21st Century Business Herald reported that Nezha Auto had introduced a debt-to-equity swap program for suppliers, once again capturing market attention.

The report stated that Nezha Auto hopes to reduce its debt through a "debt-to-equity swap" to facilitate new financing.

Faced with Nezha Auto's debt-to-equity swap program, many suppliers have accepted it, viewing it as a last resort. Some suppliers noted that Nezha's fixed assets cannot repay the debt and that new financing is essential for revival.

Previously, media reports claimed that Nezha Auto planned to convert 70% of suppliers' claims into equity at the level of its parent company, Hozon Auto, with the remaining 30% left as interest-free debt to be repaid in installments.

The reason for presenting the debt-to-equity swap program to suppliers is that the total amount owed to suppliers currently accounts for two-thirds of Nezha Auto's total liabilities, nearing 10 billion yuan.

Before the Spring Festival, some media reported that Hozon New Energy, Nezha Auto's parent company, held a shareholder communication meeting to discuss the ongoing E-round financing plan. This round is expected to raise around 4 billion to 4.5 billion yuan, with the lead investor contributing about 3 billion yuan.

It is precisely because of Nezha's high debt that investors are hesitant, hoping that the company can reduce its debt before investing and transferring funds.

Now, Nezha Auto is pushing forward with the debt-to-equity swap program to reduce debt, making it possible to secure new rounds of financing.

Since Nezha Auto fell into crisis, suppliers have been the hardest hit, with many demanding repayment at Nezha Auto's Shanghai headquarters. Some have even set up makeshift beds there.

A Nezha Auto executive said that everyone should work together to overcome the difficult times and that it is not an adversarial relationship. If Nezha collapses, everyone will lose. We are all in the same boat; our salaries are also in arrears. We hope this enterprise can recover and move forward.

Recently, there have been rumors that Nezha Auto's R&D team has been disbanded, which were denied by Nezha Auto executives.

Currently, Nezha Auto is still burdened with debt and a shortage of capital. Its three major factories have stopped operating, personnel have been optimized, salaries have been reduced, and compensation for departing employees has not been paid. The situation remains critical.

02 The Ups and Downs of Nezha Auto

Nezha Auto, once a rising star alongside NIO, XPeng, and Li Auto, has fallen from grace. It has made both right and wrong decisions.

Unlike Li Auto, which positioned itself as a family SUV, and NIO, which focused on luxury brands, Nezha Auto took a youthful and mass-market approach from the outset.

In 2022, Nezha Auto relied on its two best-selling models, the 100,000-yuan Nezha U and the 150,000-yuan Nezha V, to achieve sales of 152,100 units, becoming the sales champion among new carmakers that year, surpassing NIO, XPeng, and Li Auto.

It can be said that in previous years, Nezha Auto seized the initiative in the new car market and enjoyed the early dividends of industry development, running ahead of the pack. Undoubtedly, Nezha Auto's early strategy was correct.

However, just in 2023, Nezha Auto experienced a major downturn with a sharp drop in sales, failure to launch new hit products, and capital chain issues. Even last year, when its investor Zhou Hongyi garnered significant attention as an internet celebrity, Nezha Auto failed to capitalize on the momentum.

As Nezha Auto gradually finds itself in a difficult situation, the outside world has begun to dissect how it came to this point. Data shows that from 2021 to 2023, Nezha Auto has accumulated losses of over 18 billion yuan. Even Zhang Yong, the former CEO of Nezha Auto, once revealed that the company's logo cost 500 million yuan, shocking the public.

The failure to subsequently launch outstanding products, the waste of money on brand marketing, the continuous decline in sales, the tight capital chain, and significant changes in internal management have made life increasingly difficult for Nezha Auto.

Now, it appears that Nezha Auto's management has severely misjudged the industry's development trend and failed to adjust its R&D, product, and marketing strategies in a timely manner based on rapid changes in the market.

For example, some Nezha Auto employees have stated that the company's predicament stems from strategic errors by management. Focusing on a sedan priced at over ten thousand yuan led to the loss of the home SUV market. If the money invested in the sedan project had been allocated to the Nezha L, perhaps Nezha would be thriving now. We used to have better sales than ZERO RUN, which is truly regrettable.

In fact, this employee is correct. For example, ZERO RUN has become one of the very few profitable new carmakers. The key to its success is copying Li Auto's strategy. In comparison, Nezha Auto's market response speed is too slow.

Moreover, Nezha Auto misjudged the capital market trend and missed the best time to go public. If it had gone public earlier and could continuously raise new funds, it would not have fallen into such a difficult situation now.

Once a frontrunner in the new car market, Nezha Auto has undergone a rapid reversal. As competition intensifies, Nezha Auto is performing averagely in all aspects among the remaining new carmakers.

After entering the second half of 2024, most news about Nezha Auto has been negative, with only a few positive announcements about new financing. Judging from the current progress, expectations are still much slower.

03 Debt-to-Equity Swap Fails to Stem Decline

According to the latest media reports, Nezha Auto has presented a debt-to-equity swap program to suppliers to secure new financing. Some suppliers have expressed acceptance, finally transmitting a positive signal.

However, in the view of New Product Strategy Finance, the debt-to-equity swap program is only a critical part of Nezha Auto's debt resolution and crisis management plan. The real crisis facing Nezha Auto may be difficult to overcome.

According to public information, Nezha Auto's total liabilities are close to 10 billion yuan, of which two-thirds are debts owed to suppliers. Although Nezha Auto has presented a debt-to-equity swap program, the key lies in how many suppliers accept it and whether it can be successfully implemented.

Even if the debt-to-equity swap program is approved, and even if a new round of financing of 4 billion to 4.5 billion yuan can be secured, it will not be a one-step solution. It can only support Nezha Auto in gradually restarting and resuming operations.

Considering the current difficulties faced by Nezha Auto in all aspects, new financing can only temporarily address urgent needs and can be considered timely rain.

Entering 2025, the new car market will continue to be fiercely competitive, and the overall industry landscape has already stabilized. There will not be major changes in the industry hierarchy, and the trend will only be that the strong will become stronger, and the weak will become weaker, ultimately leading to the elimination of the weak.

At different stages of development in the new car industry, each new carmaker faces different market environments, and it depends on their ability to respond quickly.

XPeng, which fell into a difficult situation a few years ago, invited Wang Fengying and relied on new products like the MONA M03 to increase sales, staging a major comeback.

Just when everyone thought the new car landscape was set, Xiaomi Auto emerged last year, relying on a hit product mindset and the Xiaomi SU7 model to rise strongly, once again demonstrating the importance of hit models.

Judging from the current new car environment and the latest changes in the entire new energy automobile industry, competition is even more intense. This year, major automakers are focusing on promoting intelligent driving, which is unfavorable to Nezha Auto in all aspects.

However, in the view of New Product Strategy Finance, the real crisis facing Nezha Auto lies in the severe damage to its corporate brand reputation after falling into crisis, the loss of brand credibility, and the loss of market trust, which is the biggest potential crisis for Nezha Auto.

Even if Nezha Auto secures new financing and gradually restarts its business, it will be an extremely difficult task for Nezha Auto to repair its brand image and rebuild brand trust in the future.

In December 2024, Zhang Yong, the former CEO of Nezha Auto, was "removed," and Fang Yunzhou, the founder and chairman of Nezha Auto, stepped forward, acknowledging the critical moment faced by Nezha Auto and proposing six reform measures. He aims to lead Nezha Auto in a second startup, vowing to go all in for an IPO, achieve positive gross margins in 2025, and overall profitability for the company in 2026.

Judging from Nezha Auto's current situation, what is most needed now is "lifesaving money." Survival is the only goal facing Nezha Auto.

Only time will tell whether Nezha Auto can be reborn in the future.