Sales of GAC Aion in October Exceeds 30,000 Units and Completes the Annual Target Ahead of Schedule
On November 3, GAC Aion officially launched its new generation of high-end pure electric exclusive platform, AEP 3.0, which is said to have surpassed Tesla in terms of platform technology.
In the evening of October 20, GAC Group announced that its subsidiary, GAC Aion, has completed the A-round financing, with a total financing amount of up to 18.294 billion yuan. After this round of financing, the shareholding ratio of GAC Group directly and indirectly will change from 93.45% to 76.89%, and its valuation will exceed 100 billion yuan, making it the highest valued pre-IPO new energy vehicle company in China.
This year, especially in the second half of the year, GAC Aion seems to be advancing with its pure electric hypercar that travels 0 to 100 km/h in just 1.9 seconds. From Li, a partner in a venture capital firm, he likes to describe GAC Aion as “strategically following BYD and CATL.” From the perspective of valuation, can GAC Aion catch up with BYD and CATL?
After the A-round financing of GAC Aion, Li went to Guangzhou for several researches. Today, he will share with us why GAC Aion has created the most dazzling A-round financing for state-owned new energy vehicle companies from the perspectives of capital and industry. How did GAC Aion move from “becoming stronger” to “becoming larger”? Is GAC Aion overvalued or undervalued?
Meanwhile, GAC Aion’s sales of more than 30,000 units in October have once again demonstrated their dominance in the new energy automobile sector. The cumulative delivery of Aion has reached 212,384 units in the first 10 months, completing the annual sales target of 200,000 units two months ahead of schedule.
## Dazzling Series A Financing
After GAC Aion kicked off its financing war, the capital market was polarized: High-quality industry funds and financial funds invested relatively easily, while small funds used all their techniques but still couldn’t get in. This reflects the fact that GAC Aion is a high-quality asset in the eyes of the capital market.
On August 26th this year, GAC Aion announced its A round of financing. On October 20th, GAC Group officially announced that GAC Aion completed its A round of financing with a total financing amount of 18.294 billion yuan, releasing 17.72% of its shares, and a post-investment valuation of 103.239 billion yuan, in less than two months.
Many friends may wonder why GAC Aion’s financing was so fast. In fact, GAC Aion had been preparing for its Series A financing since the first half of this year, and the financing amount and post-investment valuation are also within the expectations of the capital market. Leaving aside the issue of valuation, let’s just talk about the financing process: Aion has indeed achieved the best result of the new energy vehicle industry’s financing in the past three years.
First, it has the fastest speed of financing amounting more than 10 billion. Generally speaking, it often takes over a year or even longer to negotiate financing of more than 10 billion in the primary market. GAC Aion took only two months from announcement to completion. Even if we count from March, it took only a little over half a year. In fact, Aion completed various tasks such as asset and personnel restructuring, mixed-ownership reform, stock-trading, and Series A financing in just over a year, which can compete with private enterprises in terms of efficiency.
Second, it has created a single financing amount of 18.294 billion yuan, which is the largest financing in the automotive industry of whole vehicle field in 2022. It’s also the largest single private financing among domestic new energy vehicle manufacturers in recent years. The number of investors in this round of financing, which was 53, is also the largest among new energy vehicle companies. Many second-tier car-making start-ups do not have a total financing amount of over ten billion before their listing.The third achievement is the creation of the highest post-investment valuation of 103.239 billion yuan for a domestic new energy vehicle company not yet on the market. It is worth noting that the market value of GAC Group is only slightly over 100 billion yuan. Many friends have said that the IPO valuation of GAC Aion has the potential to double, which is equivalent to creating two more GAC Groups – this is the power of market value.
As early as 2021, GAC Group determined that GAC Aion would follow the path of financing and listing for development. GAC Group divided GAC Aion’s mixed ownership reform into three stages:
The first stage is asset restructuring. All of GAC Group’s internal assets and personnel were transferred to GAC Aion, so many industry friends faced job changes. From the start of the mixed ownership reform in August to the announcement in November, it only took 3 months.
The second stage is employee shareholding and introduction of strategic investors. In the first quarter of this year, GAC Aion completed the employee shareholding and introduced three strategic investment institutions. This A-round financing is the second stage of its overall plan, which will continue until the IPO of GAC Aion. Like other companies, GAC Aion faces pricing issues.
The third stage is the IPO stage. It will be listed on the Science and Technology Innovation Board or the Hong Kong Stock Exchange. Although the IPO timetable has been released on the market, Mr. Li believes that the confidence level is not high because the IPO of all companies is determined by shareholder interests and market conditions. As most of GAC Aion’s investors are strategic investors, they have enough patience to wait for the best market conditions.
We must look at GAC Aion’s A-round financing from a long-term perspective. Although the A-round financing is dazzling, it is only one aspect of the process from asset restructuring to IPO.
From “Bigger” to “Stronger”
In this era, state-owned enterprises often have a larger vision due to their strong assets, and GAC Aion is no exception.Generally speaking, institutional fundraising in the market can be divided into four categories: The first category is well-known financial investment institutions, such as Sequoia Capital, Hillhouse Capital, and IDG Capital, which are all famous financial funds familiar to everyone. With the endorsement of these funds, they can basically obtain good follow-up financing; the second category is powerful industrial investment institutions, such as Tencent and Xiaomi in the Internet field. In addition to the above two types of institutions, there are also government funds and small financial investment funds at the central and local levels.
In the process of fundraising and development, the strategies of startup companies and state-owned enterprises have obvious differences. In the early stage of its development, WM Motor has always taken the introduction of financial and Internet investments as its main direction, while GAC Aion has taken the ecological approach, introducing more flexible subjects-including industrial investment institutions, financial investment institutions, and government funds. This set of fundraising strategies is tailor-made for state-owned enterprises.
As we all know, the reason why GAC Aion has developed rapidly is due to the existing R&D, manufacturing, and channel base of GAC Group. It has inherited GAC R&D Institute’s core technology resources, and GAC R&D Institute, as well as other sections of GAC Group, has provided a large amount of manpower support to GAC Aion.
Asset restructuring can make GAC Aion “bigger”, but not “stronger”, for three reasons: First, the original organizational structure and incentive mechanism are not perfect; second, GAC Group does not have high-quality industrial and capital resources in the new field of the Fourth Industrial Revolution; and third, under the premise of the first and second reasons, the company cannot take the path of independent IPO financing.
The implementation of employee shareholding by GAC Aion in March actually solved the first problem. GAC Aion adopted the method of non-public agreement capital increase to implement employee stock incentive and GAC R&D Institute’s scientific and technological personnel to hold GAC Aion’s equity in a “top-holding-bottom” manner.
The current round of financing actually solves problem two. In the previous round of financing, GAC Aion introduced a large number of strategic support and industry synergy investors, including NARI Group for energy ecology of charging and swapping, State Grid Yingda Industry Fund; Ganfeng Lithium, Hanrui Cobalt, Hanhua Capital, and Koda Manufacturing for power batteries; SMIC Poly JCET, and G-ONE for chip design and manufacturing; CCCC Capital for intelligent driving and vehicle-road coordination. Even in media and business collaborations, GAC Aion has introduced CCTV Media Fund, Guangdong Holdings, and Lingnan Group.
Another important reason is that whether it is on the STAR Market or the Hong Kong Stock Exchange, new requirements have been raised for the research and development capabilities of new energy vehicle companies. Since 2020, many vehicle and internet companies have suspended their IPOs due to “insufficient R&D capabilities.” GAC Aion holds a good hand and does not want to repeat the same mistakes.
In addition to introducing industrial institutional investments through financing, GAC Aion also invests in R&D companies and builds its own R&D chain. After establishing Guangzhou Gigamega and Yuanpai Battery Technology, GAC Aion continues to conduct independent R&D and industrialization around the IDU electric drive system, and also engages in the production and research of battery materials for new energy vehicle power batteries.
Starting from next year, more and more self-developed or self-owned ecological chain products will be seen at GAC Aion, such as Super Charge Poles developed by Guangzhou Gigamega and more compatible with GAC Aion’s system. The power batteries developed by Guangzhou Gigamega will also be deployed in GAC Aion vehicle models. From financing to investment, and then to ecological chain building, GAC Aion is following the path of BYD and CATL.
Is GAC Aion “overvalued” or “undervalued”?Etain is undervalued or overvalued, the market will provide the answer. Based on the current situation of Series A financing, Li believes that Etain’s valuation is undervalued.
At the 2021 interim report communication meeting of GAC Group in the first half of the year, GAC Group Chairman Zeng Qinghong proposed to release about 30% of equity financing for CNY 50 billion. According to the released equity calculation, the valuation of GAC Etain after Series A financing is CNY 166 billion. Li mentioned in “Why can GAC Etain exceed expectations repeatedly” that some first-tier institutions gave a price-earnings ratio of 15-20 times, corresponding to a valuation of CNY 180-250 billion.
In this round of financing, investors subscribed for the newly registered capital of GAC Etain in currency at a price of CNY 13.23 per share. The total number of subscribed shares is 1.383 billion, corresponding to a released equity proportion of 17.72%, an increased capital amount of CNY 18.294 billion, and a post-investment valuation slightly over CNY 100 billion yuan. Therefore, the current valuation expectation of GAC Group’s top management and the capital market is far from reaching CNY 100 billion.
In addition to strategic support and industry synergistic investors, GAC Etain has also introduced professional investment institutions with market influence in areas such as market-oriented, financial and asset management, such as PICC Capital, Deep Venture, BOCCI Asset, and ICBC Investment, as well as large-scale policy-guided national and local investment institutions, such as China Structural Reform Fund and Guangzhou Development Group. Li believes that no matter how bad the future market is, the A-round shareholders of GAC Etain are most likely to be profitable.Many friends have said that GAC Aion is overvalued, citing several reasons: first, GAC Aion has not yet achieved overall profitability, with net losses of 620 million, 690 million, and 1.39 billion respectively from 2019 to 2021, and the average unit loss per car is 15,000, 12,000, and 12,000; second, in horizontal comparison, XPeng Motors, another economical brand, currently has a Hong Kong stock market value of less than 50 billion yuan, while Leapmotor is worth only over 20 billion yuan.
The capital market has also noticed these problems. From the perspective of losses, compared with new energy vehicle start-ups, GAC Aion’s losses are relatively small and narrowing. In the early stages of start-up, people are more “optimistic” about the issue of losses because its revenue is growing steadily. From 2019 to 2021, GAC Aion achieved revenues of 5.23 billion, 7.61 billion, and 17.27 billion yuan. After the completion and commissioning of the Second Intelligent Manufacturing Center, its annual production capacity will be increased to 400,000 to 600,000 vehicles, leaving the rest to the market.
In terms of horizontal comparison, in fact, the capital market expects to long “targets.” From the primary market perspective, NIO has already completed its mission and cannot become a shackle for subsequent target financing and development. What the capital market needs is more companies that can surpass “NIO” and more “new stories” of capital.
From the current trend of the capital market, regardless of CATL, BYD or NIO, they are all leading private enterprises developed within the system, and the industry urgently needs a leading state-owned vehicle enterprise in mixed ownership reform. If GAC Aion goes public in mixed ownership reform, it will bring a driving force to subsequent targets, and the value of capital will be continuously amplified. The new energy vehicle industry needs a state-owned vehicle enterprise like “Maotai” (Guizhou Maotai) in the beverage industry.The past three years have seen many investors profiting from NINGDE TIMES and BYD in the secondary market, which is also an area of great interest to individual investors. In the past two years, everyone has been looking for the next BYD or NINGDE TIMES. Although Guangzhou Automobile Group Electric Vehicle Co., Ltd (GAC Aion) may not reach the heights of BYD and NINGDE TIMES in the short term, it is expected to have a long period of growth after going public.
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.