The road to listing for automotive aftermarket enterprises is not smooth

In the fiercely competitive auto parts aftermarket, a Nasdaq listed company finally emerged. Recently, the digitalization cloud platform for the automotive industry supply chain, Zhongchi Chefu, was approved to go public in the United States. At a public offering price of $4 per share, a total of 2.5 million Class A common shares will be issued. After deducting underwriting discounts, commissions, and pre issuance expenses, the total fundraising amount is approximately $10 million.

 

However, since its listing on August 28th, the overall stock price of Zhongchi Chefu has shown a downward trend. From September 9th to 13th, the stock price hovered around $1.5. As of the press date, its total market value is $153 million.

 

The business model has undergone several adjustments

 

Public information shows that Zhongchi Chefu was established in 2010 and is one of the earliest digital service providers in China's automotive industry supply chain. Since its establishment, Zhongchi Chefu has been committed to building a leading digital cloud platform for the automotive industry supply chain, connecting and empowering industry supply chain entities through digital transactions, promoting the integration and digital upgrading of the automotive industry supply chain, with the aim of becoming a global leader in the digitalization of the automotive industry supply chain.

 

Zhongchi Chefu has made many attempts in its business model and has gone through multiple stages of development.

 

In the early stages of entrepreneurship, Zhongchi Chefu entered the industry through a B2B model, hoping to improve industry efficiency through "de intermediation" and eliminate intermediate links such as agents, wholesalers, and retailers in the automotive parts supply chain. In 2018, Zhongchi Chefu shifted from self operation to "integration+self operation", withdrew from the trading process, and no longer engaged in any parts buying or selling. Transforming into an open and collaborative platform, providing system services that link the upstream and downstream of the industrial chain.

 

According to Qichacha, in April 2022, Zhongchi Chefu underwent an important business adjustment. On the basis of technical services, computer system services, wholesale and retail of automotive parts, its business scope has added many businesses such as new car sales, new energy vehicle sales, artificial intelligence hardware sales, car towing, rescue, obstacle clearance services, small and micro bus rental and operation services, motor vehicle repair and maintenance, second-hand car distribution, and second-hand car brokerage.

 

According to the official website of Zhongchi Chefu, the company's main business is currently focused on three major supply chain platforms: automotive new retail, insurance services, and automotive parts. It hopes to build a public digital supply chain cloud platform for the automotive industry to achieve extensive "connection" and effective "empowerment". Based on transaction big data, excellent automotive service stores can be identified. Based on geographical distribution and unified brand identity, an effective nationwide automotive service network can be established. Through the car owner app, online "connection" between car owners and certified car service stores can be achieved, providing car owners with a "one-stop" convenient and reassuring car service from new car purchase, insurance issuance, appointment services, accident rescue, assistance in damage assessment, claims and maintenance, to second-hand car disposal.

 

Compared to its inception, the business composition of Zhongchi Chefu has undergone significant changes. As of March 31 this year, the revenue of Zhongchi Chefu's three segments was $24.445 million (50.75%) in new car sales, $23.348 million (48.5%) in parts and accessories sales and services, and $359000 (0.75%) in insurance related business for the first six months.

 

Similar beginnings, different endings

 

The road to the listing of Zhongchi Chefu can be summarized as "difficult". As early as 5 years ago, it initiated the process of going public in the United States, but was unsuccessful. In January 2023, it submitted another listing application to the US Securities and Exchange Commission, but still failed to go public.

 

At the beginning of 2024, the prospectus submitted by Zhongchi Chefu showed that from 2021 to 2023, Zhongchi Chefu achieved revenue of $67.223 million, $120 million, and $114 million respectively, with corresponding net profits of $-57.48 million, $-6.165 million, and $-10.549 million, respectively. It is not difficult to see that in the past three years, Zhongchi Chefu's losses have continued to expand.

 

In the fiscal year 2022-2023, the overall gross profit margins of Zhongchi Chefu were 0.6% and 0.4%, respectively. The company explained that the main reasons for the overall low gross profit margin include a significant decrease in the gross profit margin of car parts and tires, a slight decrease in the gross profit margin of car insurance, and rapid growth in new car sales. The company strategically set a relatively low gross profit margin to attract more customers and expand market share.

 

The low gross profit margin and overall poor profitability of enterprises have been troubling the automotive parts circulation industry. In the view of economist and new finance expert Yu Fenghui, the reason why the listing of Zhongchi Chefu is so difficult is due to the extremely fierce competition in the aftermarket of auto parts, with many companies competing for market share, resulting in a compression of profit margins.

 

Established in 2013, Taoqi Diankou initially positioned itself as a B2B automotive parts supply chain procurement platform, with a traceable financing amount of $120 million. It was once hailed as the most valuable enterprise in the automotive aftermarket, and its IPO is just around the corner. In February 2015, Taoqi Diankou launched a chain brand of Taoqi Cloud Repair, beginning the integration of repair and maintenance. The development of Taoqi Yunxiu adopted a franchise model, but the actual implementation effect was not good, and the profitability was still insufficient. In the end, it failed to overcome the capital winter and was acquired by JD.com in 2017.

 

The cluster Chebao, established in 2013, is positioned as an Internet enabling platform for the automotive aftermarket industry. Through the S2B2C mode, it outputs standardization, digitalization, informatization and intelligence to help the transformation and upgrading of auto service stores, improving efficiency, reducing costs and improving user service experience in all links of the industrial chain upstream and downstream. From 2014 to 2023, Cluster Chebao received multiple rounds of financing, totaling 416 million yuan. But in early 2024, Cluster Chebao announced its bankruptcy application.

 

In 2016, CheTong Cloud was officially launched, positioned as a "SaaS insurance loss assessment and valuation system", connecting automotive parts suppliers, insurance companies, and 4S stores to provide parts and delivery services through order demand information. From 2014 to 2019, Chetongyun completed a total of 7 rounds of financing, with a total financing amount of 969 million yuan. However, in 2021, Chetongyun was exposed for "employee shutdowns, unpaid wages, and cash flow disruptions".

 

While some companies have failed, there are still many enterprises that are persevering and striving in the aftermarket of auto parts, eagerly awaiting the spring. For example, Kangzhong Auto Parts, established in 2013, later co founded New Kangzhong with Tmall Auto and Others in 2018; Kuaizhun Car Service, established in 2015, has over 2300 stores nationwide; Guangdong San Tou Liu Arm, also established in 2015, has set up 23 provincial-level companies.

 

Listing is not the only option for companies

 

Compared to 10 years ago, the significant changes in the pattern of China's automobile industry are few and far between globally. Many years ago, Zhang Houqi, founder and chairman of Zhongchi Chefu, keenly realized that changes in the new car market and technological advancements would have a series of impacts on the automotive aftermarket ecosystem.

 

In 2015, Zhang Houqi had a premonition that the number of 4S stores in China would gradually decrease. At that time, when car maintenance O2O was all the rage, Zhongchi Car Welfare used the relevant system developed three years in advance to quickly deploy, but after three months of operation, it found that the business model of car maintenance O2O could not last long, and the foam would eventually burst, so it resolutely stopped the project.

 

In addition, Zhongchi Chefu has long focused on the circulation of automotive parts. Zhang Houqi, who comes from the IT industry, believes that Auto Parts City will follow in the footsteps of digital product sales channel iteration. In the past, consumers in Beijing and surrounding areas would go to Zhongguancun to purchase digital products such as computers. At that time, Zhongguancun Computer City was more popular than any auto parts city. With the rise of home appliance giants such as Gome and Suning, it replaced the role of Computer City before. He predicted that in the future, thousands of auto parts cities across the country will gradually decline, and more than 300000 auto parts suppliers need to transform and adapt to industry development as soon as possible.

 

When it comes to the automotive maintenance industry, Zhang Houqi believes that developing chain operations requires new thinking and methods. The model of blindly expanding, listing everywhere, and only providing system support is not advisable. The underlying logic of supporting chain operations is to connect the supply of accessories, so if the accessory supply chain cannot be solved, the maintenance chain model will have no foundation. He admitted, "Engaging in the parts business is really difficult. Taking gasoline cars as an example, a car has over 10000 parts, with more than 3000 commonly used. There are tens of thousands of car models in the Chinese car market, with SKUs in the tens of millions. But it has been proven that without solving the supply chain of accessories, it is impossible to form a chain and there is no possibility for car owners to choose freely Obviously, Zhang Houqi has a full understanding of the difficulty of choosing the automotive parts circulation market and is mentally prepared to risk everything.

 

In the following 10 years, Zhang Houqi neither gave up the track of automobile parts circulation, nor adjusted his business strategy in a timely manner according to market changes and the actual situation of the enterprise. After multiple attempts at IPO, he finally succeeded.

 

Yu Fenghui stated that with the popularization of new energy vehicles and the application of vehicle networking technology, the demand for traditional components has decreased, while emerging fields have ushered in development opportunities. The changes in the market environment have prompted companies to constantly adjust their strategic direction. Some have successfully transformed into comprehensive service providers, while others have exited the historical stage due to their inability to keep up with the pace of the times.

 

Angel investor and senior artificial intelligence expert Guo Tao pointed out that compared with the United States, there is a certain gap in China's automotive aftermarket, with fewer listed companies and star enterprises. This reflects the relatively lagging development of China's aftermarket for auto parts, as well as issues such as small enterprise scale and limited innovation capabilities. Listing is a way for automotive aftermarket enterprises to grow and strengthen, but it is not the only option. Listing can enhance a company's visibility and financing capabilities, but it also faces higher regulatory requirements and market competition pressure. Therefore, companies need to comprehensively consider whether to choose to go public based on their own situation.