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Chezhibao raises RMB800 M Series D Round

Gobi Partners among backers of Nanjing-based used car auction platform

By Wang Hailu, 36kr

Used car auction platform Chezhibao has announced the closing of a RMB800 M Series D round today. Leading the round was Green Harbor Investment, who invested RMB600 M, while alternative investment firm PAG, Addor Capital, and Gobi Partners also participated in the round, with CEC Capital acting as financial consultant.

Founded in 2010, Chezhibao is an online C2B secondhand car trading website, which uses an auction system to sell cars. Before this Series D round, Chezhibao had already raised more than RMB2.2 M:

  • In July 2014, Chezhibao raised tens of millions of US dollars in venture funding from Gobi Partners. A year later, it received RMB 300 M for its Series B round, which was backed by JD Capital, Addor Capital, and Gobi Partners.
  • In 2017, the company raised a $100 M Series C round from PAG and a RMB500 M Series C+ round, which was led by Youjin Capital and Jiangsu One Belt One Road Investment Fund.

Huang Le, Founder and CEO of Chezhibao, stated that the company has now achieved breakeven status. The company is targeting a 400% growth in GMV and revenue by the end of the year and expects car sales per annum to reach 1 million within 2 years.

There are a few business models in the secondhand car industry in China: B2C (Uxin Group), B2B between car dealers, C2C (Guazi, Renrenche), and C2B (Chesupai, ttpai.cn, and Chezhibao).

In terms of the C2B market, Huang believes that the number of intercity transactions on the Chezhibao platform is the company’s competitive advantage. These transactions make up about 60% of all of their business and the company is already profiting from it.

Chezhibao is also financially healthier than its competitors that are relatively well-known and well-funded (like Uxin and Guazi), thanks to its business model. “We are different from them [the competitors], we are always profitable, and we never burn cash,” says Huang.

According to a former executive at a top secondhand car company, a better business model would be to have a C2C platform like Guazi or Renrenche sell a part of their inventory to businesses (ie. C2B), which does not require any extra cost. However, only time will tell whether focusing on the C2B vertical can form a complete and closed-loop business model in the long run. “C2B is an economic moat, so it makes sense to expand it to [a C2B model],” said the former executive, who refused to be named.

Huang said that the recent funds raised by Chezhibao will be used to:

  1. Improve offline store infrastructure, with a target to reach 250 cities nationwide by mid-June;
  2. Establish partnerships with various financial institutions, offering bank credits of RMB10 M for supply-chain financing;
  3. Set up a logistics system in cities where all limits on cross-region flow of used cars are scrapped, to increase the cross-region movement of such vehicles.

Last year, the likes of Guazi, Uxin, and Renrenche spent a total of RMB2.5 B on advertising; Huang stated that Chezhibao also plans to spend hundreds of millions of RMB on advertising in order to achieve its 400% growth target for this year.

Furthermore, Huang believes that there’s still a long way to go for the used car vertical. There are market leaders in the sub-sectors, but they are not profitable.

“To survive, a company must be self-sustaining, or have a lot of room to grow. We do trading to make money, not to cover our losses. Some [companies] can’t even cover their losses, which is worse,” says Huang.

36kr caught up with Huang to find out more about the secondhand car market.

A long way to go for the used car vertical

36kr: How are you planning to use the funds?

Huang: To improve our infrastructure – our financing and logistics – to serve cross region car dealers. We are aiming for a 400% growth rate this year, and to reach 1 million car sales per annum within two years.

36kr: What is the growth rate for Chezhibao so far this year?

Huang: I can’t disclose that, but we’re definitely number one in the market. We are always profitable, unlike the others [the competitors]. We never burn money.

36kr: How do you acquire your customers?

Huang: In many ways. Customers are everywhere; we have business development partnerships with hundreds of firms, including Alibaba, Autohome, and 58che, just to name a few. We also have partners for our company’s after sales services.

36kr: Uxin and Guazi spent $1 B on advertising the last year alone, so what about Chezhibao?

Huang: We are far behind that figure, but in order to achieve our 400% growth target, we need to invest hundreds of millions of dollars at least.

36kr: What is the strategy of companies that are burning through their money?

Huang: To outlive their competitors. It’s been 3 years, but all of us are still growing.

36kr: Uxin is going public soon.

Huang: We sincerely congratulate them. It’s great for the industry, although they will be facing a lot of challenges.

36kr: What kind of challenges?

Huang: Their growth is almost at its peak, I feel that [I can see] the ceiling. There will also be the struggle of turning a profit.

36kr: What about C2C used car platforms like Guazi or Renrenche?

Huang: I don’t think C2C works in this industry, because the cost of customer acquisition is just too high on both ends. Customers in China don’t like making their decisions online, they prefer seeing the car offline. So it’s very inefficient; not only is it one-to-one, but the deal would also most likely happen within the same city, because customers will need to visit and test drive the car. These companies have tried keeping inventory, but they can’t store too much data. Furthermore, if new tariffs are imposed on the cars, they will have no choice but to sell at a loss.

36kr: How will this development affect the industry?

Huang: The industry is very volatile. Any changes in policymaking or an OEM’s capacity may cause car prices to drop. Therefore, the retail business model in this industry is fragmented, and this in a way has allowed scalpers to take a slice of the cake. Although this would lead to some distributors losing out and eventually failing, it wouldn’t affect the market too much. However, it’s very risky if you’re keeping inventory.

36kr: If you (Chezhibao) were to pivot, how would you do it?

Huang: We would focus on a specific niche. In this case, we must sell cars that have the lowest risk and the highest margins. I think we could make a strategic partnership [with Guazi]. Since they’re advertising a lot, why not advertise with us instead and collectively make profit? I think this idea would be good for their business.

36kr: Have you discussed this idea with (Guazi CEO) Yang Haoyang?

Huang: No, but I think this is inevitable. Who knows? In the end, all of the market’s C2B players may end up working together, and they (Guazi) may become the largest retailer in the country.

36kr: Would you allow Guazi to acquire Chezhibao?

Huang: I think that a strategic partnership [between both parties] is feasible, but acquisition, it may be too early to say. We don’t actually know who will acquire the other. The reason is simple: you can’t kill Chezhibao by burning money, plus, our GMV will probably exceed theirs by the end of the year! We think of this vertical as a marathon, not a 100-meter race (although their valuation is very high). Their valuation is like property prices, [with] sky-high inflation. Not everyone will dare to follow-on after this valuation.

36kr: What about Renrenche? They’re doing quite well, and they’re riding on a platform with a large userbase (referring to Didi, a strategic investor in Renrenche).

Huang: I think they’re active, but that doesn’t mean they’re doing well. To do well, a company needs to be self-sustaining, or have a lot of room to grow. Guazi’s and Uxin’s growth are both at their peak, therefore only Chezhibao can achieve three-digit growth for 2018.

36kr: How do you achieve a three-digit growth?

Huang: Total car sales, because we are very good at being self-sustainable.

36kr: Even used car platforms are into financing now. What does that market look like for you?

Huang: I foresee that more players will be expanding their offerings to include financing. It’s quite a big market, so the products offered will definitely be more diverse. It will be a flourishing market by then.

36kr: When you talk about supply-chain financing, does that mean you’re providing financing opportunities to car dealers?

Huang: It (supply-chain financing) is equivalent to issuing the car dealers a credit card. The more cars they buy from our platform, the better their credit rating will be, and we will increase their credit limit. Our interest rate is 18% annually, which is higher than the usual rate of 12 – 13%. There is no “wastage” in terms of bank credit, because borrowers have the flexibility to borrow and return at any time, and the credit card interest is only charged when the car has been delivered to the dealer.

36kr: In terms of risk management, which is easier to handle? Car dealers (businesses) or consumers?

Huang: Businesses, because they constantly churn out data; consumers only sell a car once every few years, so we have no choice but to get their data from other platforms like Alibaba or Tencent. The question is, how can you be absolutely sure of a consumer’s credit score in the future? By contrast, car dealers on our platform are generally very active, so we can rate their credit score easily, based on their bidding success rate and operability.

36kr: What are your ratios for default and non-performing loans (NPLs) at the moment?

Huang: Less than 0.1%. Our loans are on the banks’ balance sheets, so if our asset quality rating is low, the loans would not appear on their balance sheets, and the banks would arrange off-balance sheet refinancing for you – also known as “passageway business”. In other words, the banks acknowledge our asset quality, and this helps to reduce our financing costs as well.

36kr: How much is the financing business contributing to your overall revenue?

Huang: Not much, and I believe this will continue to be the case in the future. Our main revenue model is still car sales, although this [financing business] will improve our margins. I believe that the core business model of Chezhibao is an Internet-plus-used-car distribution service, and we intend to keep it that way.

36kr: What about everyone else? How are their financing businesses doing so far?

Huang: It’s currently in a stable state, but it’s not growing very fast in terms of volume.

36kr: What is the industry’s greatest challenge this year?

Huang: Capital and cost. The country’s main focus now is squeezing economic bubbles and deleveraging, so all the banks are selling assets. Funding is also tight in the market, and competition is intense, which results in narrower margins.

36kr: Are there any other challenges?

Huang: We need to scale, but it will take some time, because our risk management standards are not backed up by past data. There isn’t any, because the retail life cycle is three years. In other words, no one has completed the entire life cycle before. Currently, our NPL ratio is 0.1%, but I think that it will be higher towards the end [of the cycle].

36kr: Since last year, everyone is introducing new car financing on their platform. How do you view that market?

Huang: I don’t see the potential there. If your target is only 100 thousand [cars sold] per annum, I think it’s viable. But after that, it’s going to be tough in terms of the car model: the [car] model needs to be popular and sleekly designed. These car companies are also targeting third and fourth-tier cities, which I find weird because even 4S stores or car distributor groups aren’t set up there. If it’s so profitable, why isn’t China Grand Automotive doing it?

36kr: What if the source – the OEMs are transforming their businesses too?

Huang: I think the OEMs will follow the retail distributor groups. Once they manage to set up stores in third and four-tier cities, nobody will stand a chance against them. For now, they’re just observing the market’s progress; if it’s really profitable, they will follow.

36kr: Rumor has it that car distributors aren’t doing too well these past two years because they’ve set up too many distribution channels.

Huang: Car sales are definitely profitable; the ones that aren’t doing too well are the innovative used car companies. Even scalpers are making money in this industry; only e-commerce players [aren’t making money].