Uxin announces game-changing national network

23 Jul 2017

Uxin, one of China’s leading b-to-b and b-to-c used-auto transaction platforms, announced an auxiliary round of funding of either 420 million RMB ($62 million U.S.) or $420 million U.S. (China’s news media can’t seem to agree on the one or the other; Sina.com has it as $420 million U.S., while AutoChina.com.cn has it as 420 million RMB). Uxin hasn’t cleared the uncertainty up, neither have the participants in the round been announced.

Beijing-based Uxin (优信二手车, otherwise known as Youxin and Xin.com) secured a promising investment of $500 million U.S. in January, led by TPG and Jeneration Capital (时代资本). The latest round might have brought Uxin’s total funding to date to just short of $1 billion U.S., if one accepts the $420 million U.S. as correct. 

The announcement came close on the heels of a recent $400-million U.S. funding round by rival and 58.com-offshoot Guazi ershouche (瓜子二手车), led by Sequoia Capital China (红杉中国), which we reported here.

Both companies are pushing hard for funding to back an ongoing advertising blitz on the Chinese market that shows little sign of ending, and which has rapidly eroded profit margins across the vertical.

The founding team behind Uxin has been precipitously depleting its own position in pursuit of the funding for this ad war, and even prior to this latest round, the team held only 17 percent equity in the company, according to a report in The Beijing News (新京报).   

According to an unnamed company source cited in the same report, the auxiliary funding round was necessitated by a cash crunch incurred in this ongoing ad battle, in the development of Autobole.com (好车伯乐) and in the expansion of the company’s distribution network (see below). The same insider stated the company is nevertheless still laying the groundwork for an IPO.

In December, UXIN publicly announced it had pushed 200 million RMB into “developing the Autobole.com ecosystem”. Autobole.com (otherwise known as CarPro) is an automotive information and social networking platform that initially went online in 2015.

It is understood that this latest investment came with a clause stating that if Uxin has not listed within five years, Uxin will be able to buy back the preferred stock acquired in the round at ten percent compound interest. What’s more, the preferred stock sold in the round has preferential rights in case of liquidation, indicative perhaps of some growing concerns about the long-term possibilities for the company. 

At the time of January’s funding round, Uxin senior management indicated that approximately $300 million U.S. would be directed toward the expanded advertising presence needed to go head-to-head with Guazi and Tencent-backed RenRenChe (人人车). 

Although inconclusive, the ad battle between Guazi and Uxin has certainly done little to improve traffic for Uxin. According to third-party analysis platforms IResearch.com.cn and Analysys.cn, Xin.com has seen desktop users fall by over 23 percent since the start of the year, and its share of mobile users fell from 31 percent to 20 percent year-over-year (we reported similar figures here in May).  

Tencent (腾讯) – a giant in Chinese tech, and increasingly in e-commerce, where it is building a portfolio fit to start worrying behemoth Alibaba (NYSE: BABA) – has invested heavily in used autos in the past year, either with direct investments or through its 23-percent stake in classifieds giant 58.com (NYSE: WUBA). Tencent was an early backer of Uxin, during a 2013 funding round, but since then it has apparently lost interest in investing more.  

Online used-auto sales in China remain dominated by the 58.com-Ganji family of horizontals. Last year money started pouring into several verticals targeting used autos, including Che168.com, operated by Autohome (NYSE: ATHM), along with Guazi and Uxin. After more than twelve months of intensive battling, including the exchanging of unfair competition lawsuits, little headway has been made by any one vertical.

The travails of Guazi, Uxin and RenRenChe (人人车) reveal the comparatively strong position of financing-led outfits, such as Autohome’s majority-owned Yixin Group (易鑫集团), which is also backed by Tencent, along with Baidu and JD.com. Yixin Group has been raising massive funding without selling off preferred stock, entirely by repackaging consumer debt obligations as asset-backed securities (ABS), which we have reported on here. (Earlier this month Guazi announced its first ABS issuance, in collaboration with Baidu Finance, which we reported here).

At the recent 2017 CUCA (short for China Used Auto Conference, or in Mandarin, 2017 CUCA中国二手车大会, which we reported on here), Yixin Group led a discussion on the future of financing in the Chinese used-auto market, in which it indicated that it would be making a strong push into used autos in the near future, something which should give cash-strapped Guazi and Xin.com pause for thought. 

 Xin.com launches “nationwide direct purchase” system

Soon after the announcement of its auxiliary funding round, Uxin also announced that it will be rolling out a new intelligent distribution system that will facilitate the nationwide circulation of used cars on its platform.

The system’s “intelligence” is, however, secondary to its purported circumvention of regulatory restrictions. At present, the fees incurred in acquiring vehicles from other provinces in China can reach up to 50 percent of the sticker price, thanks to having to pass through the hands of several dealerships. If Uxin’s nationwide distribution system truly bypasses this, as it claims to, then it should be a game-changer.

With the aforementioned advertising blitzes having done little to separate one leader from the pack, Uxin is betting that offering residents of cities such as Beijing and Shanghai convenient access to cheaper cars from far-flung regions will be a true difference-maker.

None of Uxin’s major competitors in the vertical have made any steps toward installing a similar system.

Uxin’s system doesn’t come entirely out of the blue, however. It is capitalizing on a regulatory sea-change that is currently taking place in used autos in China. Provincial governments, at the behest of a new guidance from the State Council which took effect on 31 May last year, have been quietly rolling back long-standing restrictions on the trade of used vehicles between provinces, particularly for older and less economical models.

At present, 60 percent of Chinese cities are no-longer under restrictions. In June, Shandong and Henan – two of the three largest Chinese provinces – announced their intention to scrap restrictions on the movement of used autos into and out of their administrative areas (which we reported here). The provinces of Xinjiang, Jiangxi and Hainan have made the same move in recent months.

Used autos prices, however, remain widely distributed thanks to these restrictions. Residents of first and second-tier cities, the largest in China, frequently pay up to ten times more than residents of a third or fourth-tier city for an equivalent model, according to Chris Dai Kun (戴琨), chairman and CEO of Xin.com.

At this point Uxin has only indicated that the service will be available with a ten percent down payment and a “minor” service fee.

Uxin also announced plans to establish an offline network of more than 200 brick-and-mortar outlets around China by 2020. Via this expanding network of offline sites, which will seemingly also act as nodes on this nationwide distribution network, it plans to reduce the average wait for delivery on inter-provincial purchases from eight to nine days to around five.

The restriction on the movement of used autos between provinces is one of the only dampening factors left in China’s red-hot used-auto sector. The China Automobile Deals Association estimates that by 2020, the number of used cars traded will equal that of new cars at 29.2 million.  

If other platforms, like Guazi and Yixin, manage to follow suit with nationwide distribution systems of their own, even that figure may begin to look conservative.

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Tom Marling

Tom is a PhD candidate in Chinese History at Hong Kong Baptist University, and former PR consultant in Mainland China. He joined the AIM Group in 2016 as a writer/analyst.