Introduction

The reshuffling among new carmakers shows no sign of slowing down.

Just a day before the Spring Equinox, a hint of winter chill lingered in the air of Shanghai. On Daduhe Road No. 452 in Putuo District, Changfeng International bustled on one side and stood deserted on the other.

This is the location of Netauto's Shanghai headquarters and also its global flagship experience center. The entire building is divided into four blocks, A, B, C, and D. Currently, only Block B sees a relatively high volume of personnel coming in and out, while the other blocks are mostly empty.

As an industry observer who has witnessed Netauto's ups and downs, I hoped to find signs that inspire confidence. After walking around the building, I entered through Block B and finally saw the normally operating reception desk and the visitor reception area, as well as preparations for the supplier conference scheduled for March 19.

In contrast to previous media reports of "suppliers sleeping on the floor to demand payment," Netauto gathered suppliers to hold the conference in an orderly manner without any worrisome conflict scenarios, providing some relief to observers.

After entering the supplier conference venue, listening to the "debt-for-equity" plan, and calculating the actual proportion of funds that suppliers can receive, coupled with some employees' dissatisfaction with salary cuts and arrears, I was relieved that Netauto had not completely lost its composure compared to the vigorous promotion of "progress in Series E funding." However, I was also concerned about how the subsequent dilemma of "being unable to make ends meet" would be resolved smoothly.

Spring brings new life to everything, but it is also chilly. The shift towards new energy vehicles in the Chinese automotive industry has presented the industry with a once-in-a-century opportunity, but it has also brought immense pressure to mid-tier players.

"Nezha can be reborn, can Netauto be reborn?"

In fact, it is no longer important. What matters is: in the industry's process of eliminating the weak and retaining the strong, whether Netauto and others can climb out of the abyss depends on whether they can become strong players.

01 Survive Together = You Become Shareholders

"Magical Nezha, the Nezha over there is sweeping the globe, while this Nezha is on its last legs; the Nezha over there has a global box office of 15 billion, while this Nezha's logo cost 500 million."

In the comment section of the picture news in the March 19 research bulletin of "Auto Community," a reader left such a message.

However, we do not intend to belittle or deliberately smear Netauto, after all, there are still friends and acquaintances among its former and current employees. After all, Netauto won the sales champion among new Chinese carmakers in the Thai market in the difficult year of 2024. We are just more concerned about whether reasonable solutions can be found for employee salaries and supplier payments.

"Dear supplier friends, good afternoon everyone." The conference host began, and loud applause erupted from the audience, including mine.

Unlike regular supplier conferences aimed at discussing development strategies, designated relationships, production scheduling, and model planning, this supplier conference of Hozon Auto, the parent company of Netauto, was held to address the issue of outstanding supplier payments.

According to the exclusive list of participants I obtained, there were 66 name tags, including 62 suppliers in addition to Hozon employees, among which were leading parts enterprises and even international giants. Looking around the venue, including seats without name tags, there were over a hundred seats. In other words, if there were no duplicate personnel from each company, there were over a hundred suppliers present.

"We indeed have a lot to communicate with our partners today... I am also a veteran of Hozon Auto..." The host said many "heartfelt words," but everyone was probably waiting for the core part.

According to Netauto's official statement, the first supplier conference was held at its Tongxiang headquarters last Friday, targeting suppliers with debts in the tens of millions. "This is the second conference for our suppliers. The first one was in Tongxiang and was also a relatively successful conference."

At this conference, many suppliers present had millions of yuan in outstanding payments. Just a few chassis component companies confirmed that they had reached the million-yuan level.

The host mentioned the progress of Series E funding. Originally, news of "the latest funding of 3 to 4 billion yuan" was positive for Netauto, but it has yet to materialize. After this conference and subsequent exchanges, it was learned that the Series E funding was originally scheduled to arrive in March 2025, but due to investors' perception of higher risks associated with Netauto, it was delayed to April with an amount of approximately 3 billion yuan, corresponding to half of the equity.

Here comes the climax – regarding the solution for supplier payments, Netauto stated that it plans to convert 70% of the debts into equity in the parent company Hozon Auto, while the remaining 30% will be repaid in cash, albeit in the form of interest-free installments.

Faced with this plan, Auto Community received roughly two types of feedback from suppliers.

One type placed hope in having a fallback plan, "We still hope to recover as much funds as possible." One supplier said, "Compared to the previous Zotye, Netauto is still better."

The other type still had complaints. Aunt Tang (pseudonym) from a certain parts company shook her head vigorously, "There's no way to recover that other 70% of the money. This is tying creditors to the same battle wagon." Aunt Tang's view is that Netauto's valuation has been severely undervalued, and it is uncertain when the equity can be exercised, with no guarantee of cash-in.

Based on the figures mentioned earlier, Netauto's current market valuation is approximately 6 billion yuan, less than a quarter of the 25 billion yuan during its Series D funding.

"Debt-for-equity" has become a common delaying tactic in the current situation. Netauto's use of the "debt-for-equity" approach to address debt pressure can be seen as a last resort. The 70-30 split between cash and debt-for-equity allows suppliers to neither completely tear up their relationship nor receive all payments.

After all, Netauto's own employees are also worried about money now.

02 "Cars are Really Not Selling"

After the supplier conference, I visited the adjacent flagship experience center. Originally located above the underground Changfeng International, adjacent to the Changfeng Park subway station, it was a popular gathering place, although it could not compare to the busiest downtown areas.

However, the large store was deserted. I bypassed the lifeless Hozon Design Center and the back door of the experience center, which was full of empty workstations, and only saw three employees at the reception desk. No other visitors entered in the span of ten minutes.

After chatting, one of the employees told me, "This is the largest store of Netauto globally." However, the sales figures were not so good, "Last year, we could sell hundreds of cars a month, but this year it's only a few dozen."

If he wasn't exaggerating, this store's sales would account for a significant portion of Netauto's national sales of 110 units in January and 377 units in February. Compared to thousands of units sold in the same period last year, Netauto's domestic retail sales plummeted by 98.5% and 91.4% in January and February, respectively.

Unlike employees of authorized dealers, the employees here are directly employed by Netauto and therefore more familiar with the company. Although they did not show much enthusiasm for me buying a car, they still spoke defensively when introducing Netauto, "Netauto is now mainly focusing on exports and selling less domestically."

But I couldn't tell him that Netauto's export volume was 364 units in both January and February of this year, with year-on-year declines of 87.1% and 78.5%, respectively.

Looking at Netauto's full-year performance in 2024, domestic sales were 64,500 units, a year-on-year decline of 49.4%, representing a halving from 127,500 units in 2023; while exports were a bright spot, increasing from 17,019 units in 2023 to nearly 30,000 units, a year-on-year increase of 76.3%. This was also the confidence of the previous employee who cited "exports" as a lifesaver.

Judging from the export sales in January and February of this year, if Netauto fails to resume normal production, even its proud export business will be unsustainable.

Netauto's employees cannot be said to be unworking, especially those in the export business. In June 2024, Auto Community visited Thailand to conduct field research on the local production of Chinese new energy vehicles. Netauto adopted a lightweight model, using a former BMW contract manufacturer, and was very active in store operations and marketing strategies.

Ultimately, branches extending overseas cannot grow into independent trees without the nourishment of domestic roots.

So what are Netauto's chronic problems?

"Zhang Yong missed strategic opportunities," commented Mr. He, who is familiar with the ins and outs of new forces.

On the one hand, since 2021, international giants such as Volkswagen have been looking for partners in China, and more than one company has approached Netauto. However, "Zhang Yong was arrogant at that time," and ultimately Volkswagen chose to jointly develop technology with XPeng, while Stellantis formed Zero Run International with Leapro, with both giants holding equity in the two new forces, providing funds.

On the other hand, Zhang Yong was accused of "having a sports car dream" and therefore insisted on prioritizing the development of the Neta GT, missing the market window for medium-sized SUVs. By the time the corresponding model was delayed and became the Neta L, competitors had already dominated the market.

According to Netauto's prospectus, from 2021 to 2023 (the reporting period), Netauto achieved revenues of 5.087 billion, 13.0496 billion, and 13.555 billion yuan, respectively; net losses were 4.84 billion, 6.666 billion, and 6.867 billion yuan, respectively, with a cumulative loss of 18.373 billion yuan over the three years; and gross profit margins were -34.4%, -22.5%, and -14.9%, respectively. Over the three years, the cumulative net loss was 18.373 billion yuan.

"Some trends, once missed, are gone forever," lamented commentators. "In the myth, Nezha's rebirth also depended on the right time and place, as well as Taiyi Immortal's choice of materials."

Obviously, Netauto's path has diverged from that of the mythical Nezha.

03 Epilogue

"We won't do things that lose money anymore," the Netauto spokesperson vowed at the supplier conference, announcing that Netauto would transform into a lightweight service provider.

Faced with scores of suppliers, Netauto not only turned these creditors into its shareholders but also announced that it would transform into a supplier itself. This "assimilation" is unclear whether it stems from empathy or the writing of a "fairy tale".

According to the host, at the supplier conference in Tongxiang, 65 suppliers collectively resolved debts totaling 1.5 billion yuan.

Indeed, the debts of some suppliers have been temporarily resolved, but the issue of unpaid wages for Netauto employees is gradually coming to the surface.

"Debts will eventually have to be repaid." After repaying suppliers, employees still need to be paid. Anyone in Netauto's current operator's position would inevitably be on pins and needles.

"Does Netauto still have hope?" Fewer and fewer people are asking this question, but some people are still holding on.

Will Netauto disappoint these persistent individuals?

Editor-in-Charge: Shi Jie, Editor: He Zengrong