Author: Zhang Yi
In the wave of economic downturn, no industry has been spared. For many new forces in recent years, life is more “green”.
As of October 27th, XPeng has evaporated 89% relative to the peak stock price in the US stock market, NIO 83%, and Ideal 65%. On September 29th, Zero Run, which was listed on the Hong Kong stock market, was also very bleak. Zero Run’s market value has evaporated by 62% relative to the issuance.
However, when some people are frustrated, others are content. On October 20th, GAC Aian’s round A financing reached 18.294 billion yuan, setting the record for the largest single private placement in China’s new energy vehicle industry. Its valuation has reached as high as 103.239 billion yuan before its listing.
It is reported that GAC Aian was formerly known as GAC New Energy established in 2017, which is a sub-brand of GAC Trumpchi. In 2020, the brand became independent and renamed as GAC Aian New Energy Automobile Co., Ltd. On September 6th of this year, the company completed the transformation from state-owned enterprise to joint-stock enterprise and became an independent brand directly under GAC Group. It was renamed again as GAC Aian New Energy Automobile Co., Ltd.
The valuation of 103.239 billion yuan means that GAC Aian has not yet been listed but has already caught up with NIO at 132.38 billion yuan (according to US stock market data on October 27th) and Ideal at 122.713 billion yuan (according to US stock market data on October 27th). It is close to its parent company GAC Group at 128 billion yuan (according to the data of the Shanghai and Shenzhen markets on October 27th), roughly equivalent to two XPeng (51.08 billion yuan, according to US stock market data on October 27th), and five zero runs (19.8 billion yuan, according to Hong Kong stock market data on October 27th).
The valuation of 103.239 billion yuan has set a new record for unlisted new energy vehicle companies in China. After the round A financing, GAC Aian is gradually growing into a super unicorn in China’s new energy vehicle industry.However, some investors have raised objections to Aiways’ valuation of 100 billion yuan in an interview with “Electric Force,” suggesting that it may be more reasonable around 80 billion yuan.
So, is Aiways overvalued? Let’s analyze it.
Advantages
First, let’s take a look at Aiways’ main advantages.
(1) Sales Volume
As of now, Aiways has delivered the following models: AION S, AION LX, AION V, AION Y, and AION S Plus.
The first model, AION S, was launched in 2019 and achieved sales of 32,494 units that year, ranking 7th in the sales ranking and marking a great start for Aiways. With the continuous release of new models, Aiways’ sales volume has been steadily increasing.
In 2019, Aiways sold 42,000 units; in 2020, it sold 60,000 units; and in 2021, it sold 123,600 units, achieving a compound annual growth rate of 122%. In 2022, Aiways’ sales volume continued to set new records. In September, its sales volume exceeded 30,000 for the first time, reaching 30,016 units, with cumulative sales volume in the first three quarters reaching 182,300 units.
Sales can be said to be one of Aiways’ most important sources of confidence.
(2) SystemTo meet the basic requirements of IPO and inject vitality into the company’s market, in August 2021, GAC Aion officially launched the mixed ownership reform. The reform plan is divided into three steps: first, complete the asset restructuring; second, implement employee stock ownership and introduce strategic investors; third, list the company when the time is right.
In November 2021, GAC Aion completed the asset restructuring by integrating all the assets related to new energy vehicles under GAC Group into the GAC Aion system, achieving an integrated “R&D, production, and sales” model.
In March 2022, GAC Aion implemented the employee stock ownership plan for 679 key employees and 115 scientific and technological personnel from GAC Research Institute, and also introduced strategic investors such as Chengtong Group, NARI Group, and Guangzhou Production Investment AiAn.
Currently, GAC Aion’s strategic investors include upstream and downstream enterprises such as Ganfeng Lithium, Zhongxin Juyuan, and NARI Energy Creation, investment institutions such as Guangfa Bank and the “big four” state-owned banks, as well as strategic coordination directors including Li Keqiang, an academician of the Chinese Academy of Engineering and chief scientist of the National Intelligent Networked Automobile Innovation Center, and Hu Guorong, a professor at the School of Metallurgy and Environment of Central South University and an expert in lithium-ion battery cathode materials.
Regarding the strategic investor selection strategy, Gu Huinan, the general manager of GAC Aion, said that the company will prioritize selecting enterprises that are helpful to the company in the fields of power batteries, intelligent network connectivity, and autonomous driving. Indeed, GAC Aion has fully integrated the resources of the entire industrial chain, forming a dual-wheel drive model of “industry + capital,” further enhancing its overall competitiveness.
As Gu Huinan said, GAC Aion’s current institutional framework has three characteristics: the platform of a state-owned enterprise, the efficiency of a private enterprise, and the process of a joint venture. The potential for market-oriented management has been tapped, and the company’s innovation vitality has been stimulated, laying a solid foundation for the development of GAC Aion.
(3) Industrial Chain LayoutAt the World Power Battery Conference in July of this year, the Chairman of Guangzhou Automobile Group, Qinhong Zeng, said, “The cost of power batteries has accounted for 40%-60% of our car, and am I not working for CATL now?”
Guangzhou Aegean is upstream of battery companies such as CATL, and CATL is upstream of raw material companies such as Xiamen Tungsten. As raw material prices soar, downstream companies’ profit margins are constantly being consumed by upstream companies. In such a situation, Guangzhou Aegean is increasingly aware of the importance of controlling the entire industry chain.
In February of this year, Guangzhou Aegean began the construction of its battery research and development pilot line; in July, it established Guangzhou Energy Technology Co., Ltd. to create a supplementary energy system; in August, it established Ruipai Power Technology Co., Ltd. to enter the stage of independent research and development of electric drive assets, and signed a strategic cooperation agreement with domestic lithium mining leader Ganfeng Lithium Industry in the same month, to further integrate upstream resources.
By connecting upstream and downstream, forming a closed loop of supply, production, and sales, Guangzhou Aegean has also taken control of the initiative.
In summary, Guangzhou Aegean’s advantages come from its control across the supply chain to end sales, which means that it has stronger operational stability in the face of uncertain factors. At the same time, Guangzhou Aegean can proactively make changes to adapt to market changes, continuously improving the company’s self-reliance, which undoubtedly can also bring more confidence to investors.
Disadvantages
After analyzing the advantages, let’s take a look at the main disadvantages.
(1) Weak brand powerEven though GAC Aion positioning itself as a high-end brand, it still heavily relies on the ride-hailing market and hasn’t been able to shake off its dependence on the B2B market in terms of sales. GAC Aion sold 123,600 cars last year, with about 43% going to the B2B market. The B2B proportion of the key model, AION S, reached 63%. However, the situation has changed this year. According to the latest research data from GAC Group, GAC Aion’s C2C sales have reached 88%, and the ride-hailing label is gradually disappearing. Nevertheless, most of GAC Aion’s sales are still provided by the 150,000-level AION S and AION Y. The AION LX priced at around 400,000 enjoys little popularity. Research data shows that from October 2021 to September this year, user intentions in the price range of RMB 120k-200k increased by 1%, while prices above RMB 200k increased by 11.2%, and RMB 300k-500k increased by 5.3%. This indicates that in the era of stock market and continuous consumer upgrades in the Chinese car market, if GAC Aion lacks sufficient brand power to support it, it is easy to face development bottlenecks without backup. Like most new brands, GAC Aion has yet to achieve profitability.According to statistics, from 2019 to 2021, GAC Aion suffered net losses of 621 million yuan, 688 million yuan, and 1.389 billion yuan respectively, with losses per vehicle of 14,800 yuan, 11,500 yuan, and 11,600 yuan over the years. In the first five months of this year, the loss per vehicle was 13,400 yuan. Despite the surge in sales, GAC Aion has not achieved the expected level of profitability, but the losses have continued to increase. At the end of May this year, GAC Aion’s liabilities have reached 9.85 billion yuan with the expansion of its industrial layout.
According to industry data, the annual sales volume in the range of 400,000 to 600,000 vehicles is usually the break-even point. Judging from the current sales data of GAC Aion, it will take some time to reach the break-even point.
(3) Weak Financing Structure
In fact, GAC Aion plans to raise 15 billion yuan in Series A financing, but eventually 53 investors, including state-owned enterprises and institutional investors such as State Grid Yingda Industry Fund, China Merchants Capital, and Shenzhen Capital Group, invested a total of 18.294 billion yuan, exceeding the original target fundraising size by 22%. Although the lineup is impressive, almost all of GAC Aion’s investors have state-owned background, unlike Li Auto and XPeng, which are backed by Sequoia China and Hillhouse Capital respectively.
Despite reaching a valuation of 100 billion yuan eventually, it seems to be mutual support among state-owned companies. In the real capital market, however, GAC Aion may not look as good as the above data suggests.
## The Voice of Electric Impetus
In conclusion, the disadvantage of GAC Aion mainly stems from the incomplete profit structure, which currently presents a feature of “face” being greater than “substance.” Moreover, as it only revolves around the circle of state-owned assets, it is difficult to tell a promising story of GAC Aion that is worth dreaming about for the capital market in the case of weak brand power.
After the analysis of strengths and weaknesses above, it can be found that although GAC Aion has been firmly ranked in the first tier of new energy brands with decent sales, and is committed to the reform of the system, as well as the rational deployment of the industry, it has been stagnant in terms of brand power and profit capabilities. In addition, the new energy vehicle industry is no longer as hot as that during the listing of NIO. Overall, venture capital institutions in the capital market still take a wait-and-see attitude towards GAC Aion.
Strictly speaking, whether the valuation of 103.239 billion can withstand the market test remains to be discussed. With regard to the subsequent IPO listing, Gu Huinan once said that capital markets have a great influence. When the stock rises, it will let hundreds of millions of people know about such a brand, which is difficult to achieve through publicity alone. Perhaps for GAC Aion, regardless of its value, the focus is on telling a story with a gorgeous and high-profile beginning for the capital market.
However, if the purpose of GAC Aion’s listing remains at the level of brand promotion, then even with the billions of dollars as a starting point, the final outcome won’t be hopeful. Like NIO and Leapmotor, whether rising or falling, they have played a positive role in brand promotion. With the meaning of advertising mixed in, it is even more difficult to convince people with the number of 103.239 billion.
The beginning of a story is always fascinating, and so are NIO and Leapmotor. When it ultimately comes to the secondary market and faces countless institutions and retail investors, GAC Aion’s story will also be torn apart, and its core may not be able to support the hundred-billion market value, leaving GAC Aion unsure about its future.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.