The second-hand car company Uxin will usher a value reconstruction because of its business changes

At present, the competition of the second-hand car industry has shifted from an early capital-driven marketing war to a business and efficiency-driven moat war. In a large number of the used car e-commerce, Uxin not only has the efficiency optimization of the Internet, but also has the advantages of resources and infrastructure of traditional industries.

With the maturity of the national purchasing business model and the improvement of operational efficiency in China, Uxin will realize a value reconstruction brought by business changes.

The value of used car e-commerce is being re-evaluated. "Fortunately, it has not been biased by Internet thinking." Recently, when a second-hand car finance company under the heavy line was reported to the news of IPO in the United States, some people commented so.
 
From various companies fighting to the current three or two leading, from the original noisy marketing battle to the transformation and upgrading, the used car e-commerce industry was originally expected by the Internet and capital. Finally, it faces many problems that other Internet transformation industries do not have, such as heavy industrial chains, and trivial offline markets.
 
The whole industry seems to be hissing, and it has become one of the industries that have attracted outside attention in the cold winter of capital. Uxin, which has attracted much attention for a long time, is experiencing a round of re-examination from the capital market and investors. First, it was GIC, the C-round investor of Guazi that boosted its stake on Uxin, then it was the acquisition news denied by Uxin and 58.com. In this positive and negative relationship, does Uxin have any value? How much space is there for used car e-commerce?

1. Re-examining used car e-commerce
 
The recent used car market is a bit tough, especially at the capital market level.
 
In the early morning of October 26, Beijing time, GIC boosted its stake on Uxin. According to the announcement, GIC (Singapore government investment company) holds 42.0361 million shares of Uxin, accounting for 5.01% of Uxin’s total shares. Another important identity of GIC is the investor of Guazi.

Another link between Uxin and Guazi is 58.com. Previously, 58.com, as an investor of Guazi, announced a strategic cooperation with Uxin. After GIC entered Uxin, some media revealed that 58.com's acquisition of Uouxin was terminated. However, 58.com and Youxin successively refuted this rumor.
At the same time, the above-mentioned media also expressed the willingness of Guazi in a report. "The war on used cars is coming to an end, and I don't think anyone in this field has a chance - maybe a toss and turn." Yang Haoyong said in an interview with the media.
 
In the dispute between used car e-commerce and investors, the news that an offline used car financial company plans to go to the U.S. IPO came out. Online or offline, do they continue to bid? The capital market has begun to re-examine the used car market.

All discussions need to go back to the market itself.
 
According to the data of China Automobile Circulation Association, from January to September 2019, 10.5852 million used cars have been traded in China, an increase of 4.32% year on year. In contrast, according to the data of China Automobile Industry Association, the sales of new cars in China in the first three quarters reached 18.371 million, down 10.3% year on year, of which the sales of passenger cars were 15.249 million, down 11.7% year on year.
 
This means that although the sales growth rate of the used car market has declined, the used car is still one of the biggest highlights of the future car sales market when the overall car market is in the adjustment period. Moreover, with the increase and decrease in sales, used cars will play an increasingly important role in car sales.
 
Furthermore, e-commerce is playing an increasingly important role in the used car sales. Data shows that in 2018, the penetration rate of China's used car e-commerce is about 19%. In the next three years, the transaction volume of used car e-commerce will maintain a compound annual growth rate of about 25%, and the industry penetration rate will reach 21.6% in 2021.

But from the performance of the capital market, it seems that the value of used car e-commerce has not been recognized by investors, and the listed company Uxin has not been popular in the secondary market.

What seems to be questioned is the marketing-oriented development route of the used car e-commerce. Starting from the marketing battle between elevators, used car e-commerce companies such as Guazi, Uxin, Renrenche, and Souche etc., all wanted to seize the psychological place on the user side by advertising with the help of capital.

Indisputably, during the capital entry and e-commerce war, the used car industry was ignited, and the user's awareness of used cars was reshaped. In a very short time, China has completed the cultivation of the used car market. At the same time, driven by the power of e-commerce, the industrial chain was reshaped, user transactions were transparent, and car dealers' transactions were simplified. These are the positive effects that the Internet has brought to the used car industry.

According to the McKinsey report, consumers who want to dispose of existing cars often rely more on online channels to query the residual value of second-hand cars, with an overall proportion of 57%; about 20% of consumers will consider second-hand cars when buying cars. 

However, there are many problems in the development of the industry, such as various lawsuits and complaints from users. "When there is no money, no advertising, no trust, what will remain?" Such questions have been raised.
 
Indeed, in the first-stage competition driven by the Internet and capital, the second-hand car market is engaged in a consumption war, which is more a competition of capital. However, products and services are not the focus.

In fact, the second-hand car market competition has entered the second stage. On the one hand, the attitude of capital is more prudent; on the other hand, second-hand car e-commerce are reorganizing their businesses. For example, emphasizing C2C's Guazi goes offline market with full internet background, and it entered the car dealers market nationwide in China. And Uxin, which pioneered the national purchase model, not only called out AIL IN, but also moved towards offline and the sinking markets...
 
Between more rational capital and a more rational market, the value judgment of the used car e-commerce or the used car market needs to be overturned. If the original perspective is more inclined to the Internet, then it needs to be judged from the perspective of second-hand car itself, namely, business maturity and operation efficiency. 

2. Re-examine Uxin

In the evaluation of second-hand car e-commerce in the capital market, Uxin is one of the cores that cannot be bypassed.

This year, it is a year of comprehensive adjustment of the automobile market, whether it is a new car or a used car. Similarly, Uxin is also making adjustments, such as abandoning new car business, divestment of loan assistance business, and All in nationwide purchase business in China. At the same time, its performance in the capital market also fluctuated significantly. For example, after the announcement of the divestiture of the loan assistance business, its share price rose sharply, while after the second quarter report, its share price fell.

At present, its share price has risen 35% from the lowest point after the second quarter report. However, compared with 2018 and its own size, its share price is still at a low stage. At the close of November 7, Eastern time, its share price was 3.34 yuan / share, with a total market value of $980 million.

On the other hand, since this year, Uxin has obtained a $230 million financing led by 58.com, and GIC boosted its stake. Meanwhile, major shareholders such as Jeneration Capital, Redrock Holding Investments Limited, Baidu, and Tiger Global Management have not quit. It seems that the capital market still supports it.
 
So, what exactly leads to the different performance of Uxin in the capital market? How to view the value of Uxin under the new value judgment?

1) Business model

At present, the nationwide purchase business, which started two years ago, has become the main business of Uxin. Prior to that, Uxin had divested its loan assistance business, which was regarded as a cash cow and a profit point. One of the reasons is that it has put all its future into the national purchase business, and is confident that the latter can support Uxin in the future. "Nationwide purchase is the end of industry competition", Dai Kun, chairman and CEO of Uxin, once made such a judgment.
 
Where does his confidence come from?
 
One of the reasons that the used car market has been stunted for a long time is being restricted. Second-hand cars are essentially a business of matching information with demand. In a smaller market, the degree of matching between information and demand has declined, resulting in limited market vitality. For example, in cities such as Beijing, users may not be able to sell many used cars as they expect due to oversupply, while in places such as Guizhou, users may not be able to buy very desirable used cars due to insufficient supply.
 
With the release of the relocation policy, used cars can adjust the supply and demand ends in a larger market, and the matching between information and demand will be improved accordingly.

According to the data from China Automobile Circulation Association, from January to September this year, the total number of second-hand cars transferred was 3.0712 million, accounting for 29.01%, an increase of 3.57% compared with the same period last year. Among them, the proportion of private cars transferred exceeded 80%, that is to say, four of the five cars will be sold to other places, and nationwide purchase has become one of the largest growth points for second-hand cars.

Uxin's data also proves that there is a large space for nationwide purchase business. According to the consumption report, in the third quarter of 2019, 92% of the local car sources in Beijing were sold to other provinces through Uxin nationwide purchase, west to Xinjiang, Qinghai, south to Yunnan, Guangdong, Guangxi, and Hunan.  Among them, Shandong, Hebei, Guangdong, Sichuan and Henan were the top five provinces with the largest sales volume.
 
In addition, in October 2019, Guazi also announced the launch of the national purchase business, and even media reports that Guazi had mentioned in-house to fully replicate Uxin.
 
To sell a car to another places involves car source, transportation, warehousing, etc. For 2C companies with rich experience and partial Internet, this is an area they are not familiar with. In contrast, Uxin, which started with B2C, B2B, etc., has had advantages in car sources (used car dealers), warehousing and logistics since the beginning.

Moreover, after two-year exploration, Uxin's nationwide purchase business model has basically matured. According to data of Uxin, it currently covers more than 250 prefecture-level cities across the country, more than 1,300 service centers, more than 600 self-operated stores, and 9,259 logistics lines.

For Uxin, the existence of these infrastructures is exactly its moat. With the maturity of business models and the improvement of operational efficiency, nationwide purchase business is expected to become its profit support point while increasing its revenue scale.
 
2) Operational efficiency

Affected by the high-cost marketing and operation, used car e-commerce has long been a loss-making business, and Uxin is no exception. But as the business model matures and improves, its operational efficiency is improving.

The second quarter report shows that Uxin’s total revenue reached 439 million yuan in Q2 of 2019, a year-on-year increase of 58.3%. And its gross profit reached 234 million yuan, a year-on-year increase of 101.2%, and its gross profit rate was 5.33%. Among them, the revenue of nationwide purchase (2C) business was 322.5 million yuan, an increase of 11 times year on year. At the same time, the number of transaction volume reached 24,600, an increase of 5 times year on year, which has increased for six consecutive quarters.

The reason why the gross profit growth is higher than the revenue is the decrease of expenses. Data show that in the second quarter of this year, Uxin's sales expense was 347 million yuan, down 13.47% from 401 million yuan in the same period last year. At the same time, its sales expense rate dropped from 145% in the second quarter of last year to 79% this year. 

After focusing on the business from advertising, the internal business adjustment is continuing while reducing the marketing expenses. "In recent months, Uxin Group has carried out a series of upgrades around the core nationwide purchase business. Service efficiency and service capabilities have significantly improved. According to Q2 financial report, the transaction volume increased by 500.4% year on year." Uxin said in an interview. 

Although the business is still in the early stage of investment and the losses continue, as the business model matures and operational efficiency improves, its profitability will be opened.

Of course, it may take a while. From the Q2 financial report, as of June 30 of this year, Uxin's cash and cash equivalents were 783 million yuan, and there was still some room for waiting.
 
Someone said that at the final stage of competition, some were questioned, some went public... Second-hand cars, an industry that is accompanied by capital, are now undergoing a comprehensive inspection of capital.

It has been proved that, like other industries, the transformation of the Internet to this industry will eventually return to the industry itself and return to a more compatible model with the tradition. At present, the competition in this industry has changed from the marketing consumption war driven by early capital to the battle of moat driven by business and efficiency.
 
Among a large number of used car e-commerce companies, Uxin has exactly the attributes required for the current development of second-hand cars, the efficiency optimization of the Internet, and the resources and infrastructure advantages of traditional industries. With the maturity of the nationwide purchase business model and the improvement of operational efficiency, Uxin will realize a value reconstruction brought about by business changes.

This is an article from WeChat official accounts Yidiancaijing (ID: yidiancaijing), written by Qiu Yun, translated by Chris Yuan.