This article is reproduced from the public account of autocarweekly
Written by Dù Dē Biāo
The reason why “The Ideal City” can make people follow is that it brings together a group of powerful supporting roles, such as Yu Hewei, Li Chuanying, Chen Minghao, Li Hongtao. Some of these people might not be household names, but their acting skills are guaranteed, and the result is that the audience is always immersed in the drama.
In addition to the quality itself, compared with other domestic dramas, the implication is that a drama is not fought by one person alone.
In the play, Sun Li plays Su Xiaoxiao, who proposed a full-staff stock ownership plan to enhance team cohesion and centripetal force when the company was brewing for listing. In fact, it is to ask the stockholders to bring out some resources or benefits to achieve common goals.
Even in the drama, it is somewhat idealized, hence the name “The Ideal City” is quite appropriate. But in terms of practical operation, state-owned enterprises have been following this path in the reform and IPO preparation, so the drama also has realistic significance, such as the equity mix-reform by China Unicom and Chery.
On August 30, Guangzhou Automobile Group announced that it would implement a mixed ownership reform of its subsidiary Guangzhou Auto Aijian and introduce strategic investors, and accordingly conduct asset restructuring and business integration of Guangzhou Auto Aijian.
There are some pre-preparation implications. One of the purposes of introducing capital is to look for money, but not just for the sake of money.
From the macro-environment, new forces have returned home one after another this year for secondary IPO in Hong Kong, but the stock market performance is unsatisfactory. On the one hand, the capital environment is different, and on the other hand, the capital side has begun to have aesthetic fatigue after the financing spree period after the IPO of new car-making companies, just like the consumer market, entering a waiting state with money in hand.
This indicates that the imagination space of the first round of new car-making companies has been consuming almost all of, and “replication” is not the key word that capital markets are interested in. Although the sales data indicates that new car-making companies have the ability to make money and the corporate situation is improving, research and development investment is still a bottomless pit, so deficits and losses are still difficult to balance in the short term.
So the core keyword is still finding ways to make money.
Relatively speaking, the funding pressure of new energy subsidiaries under state-owned enterprises is relatively small. One can be carried by the thigh of the dad all the time, but the plot of the rich second generation is too stereotypical and not inspiring enough. The mixed reform of Guangqi and Aijian still maintains a father-son relationship on the structural level, but it is also a form of “independence” in a certain sense.
But the key is the imagination space and the result.
Imagination space
The term mixed ownership reform is not new to us. In recent years, China Unicom and Chery have both used it.
Some state-owned enterprises introduce third-party strategic investors, taking into account the optimization of the system, which can activate internal competition within the enterprise. The second layer of implication is to make use of the resources of shareholders to grow together. For example, China Unicom has used Tencent’s resources to strengthen user stickiness.
However, from the perspective of previous cases, mixed ownership reform often has a fateful meaning and is done out of necessity.
In comparison, Guangqi’s mixed ownership reform of Aijian is an active move.The consideration of funding is definitely present for the development of autonomous driving. Firstly, there is no clear upper limit for R&D investment in this area, and even the concept of L4 level is likely to be a customized status. In this matter, all parties are in a protracted battle, therefore finding investment to reduce risk is a safe way to go.
Secondly, the future of software and AI-driven technology will extend to various fields, not just limited to the automotive industry. In the age of IoT, the boundaries between each other are becoming more blurred. In short, if the strength allows it, there should be no barriers between automotive companies and technology companies (which is another story). However, in terms of resources, an investment company with an Internet background can save a lot of trial-and-error period compared to a traditional automaker.
Thirdly, even in the automotive field, the development of automobiles is not limited to private cars. For example, it is imaginable to try out a public transportation facility that supports autonomous driving – at least the possibilities brought by “travel” cannot be refused.
Therefore, GAC takes an open-minded approach to focus on one thing.
It is said that what E-An is going to change is not the shareholding system but the concept. In the matter of industrial transformation and integration, fighting alone is too difficult. An existing example is the joint venture between automobile companies and Internet companies, which is not newsworthy anymore, as integration conforms to natural laws. This has changed the cooperation mode of OEM + suppliers in the past, because they all face the same unknown variables. From capital requirements to resource needs, building a strategic alliance is probably the incentive for GAC’s proactive mix reform.
It is said that superstructure decides economic basis. GAC E-An’s mixed ownership may also force the birth of certain technologies, even a quasi-tech company, not just a leading enterprise in the new energy market. This is the imagination space that E-An brings.
Of course, the attributes and quality of future investors, whether they are purely for investment or hope to have a say, also determine E-An’s future valuation to a certain extent, but first of all, the gold content of E-An’s assets is what investors need to examine first.
Valuation premise: From the quality of assets to values
Sales volume is one-sided, but it still needs to be mentioned. Boasting also requires evidence.
In August, GAC E-An’s terminal sales reached over 11,000 units, an increase of 115% year-on-year, and orders reached 18,000 units, indicating that production capacity has reached saturation and is in a state of supply shortage. It is reported that E-An’s current capacity utilization rate has reached 140%, and GAC has already initiated a 200,000 annual production capacity expansion project.
Currently, GAC E-An’s cumulative sales volume is approaching 200,000 units.
Flexing muscles is to impress the capital. At the technical level, apart from magazine-type batteries (non-combustible ternary lithium battery packs), ultra-fast charging battery technology (shortened charging time), and sponge silicon negative electrode battery (extended range), the expected highlight is Edrive’s self-developed 5G V2X communication technology and mass-produced cars equipped with variable focus lidar and L4-level autonomous driving.
It is reported that in order to pave the way for mixed-ownership and listing, GAC will carry out a series of asset restructuring for Edrive, such as integrating all segments related to three-electric technologies, smart interconnection, and autonomous driving into Edrive within the group. In fact, this is to integrate high-quality resources and make Edrive a new energy and technology company integrating R&D, production and sales.
In terms of equity distribution, employee holding of stocks will be implemented. According to sources, it will be held by the core management team. Jokingly speaking, it’s still far from the full-employee holding shown in the drama “City of Dreams”, but Rome was not built in a day. The starting point of mixed-ownership is to seek common development and win-win results. Employee holding of stocks under the impact of mixed-ownership from wholly state-owned enterprises can be regarded as a type of additional value for internal incentives of the company.
Chery and China Unicom have adopted similar mechanisms. When reaching performance targets, employees can sell their own stocks, otherwise not. This belongs to the type of futures with no risks and expectations.
In addition to the introduction of strategic investors (independent financing) and future listing, the logic cycle of GAC Edrive’s mixed-ownership has basically formed: self-construction + equity distribution + strategic investment + listing, which is actually the valuation logic of Edrive.
The more exciting part is that from the group level, the plot of “Let the Father Stand in for the Son” can also be imagined: for example, in the half-year financial report released by GAC, the total revenue of the group’s summary caliber reached 204.282 billion, a year-on-year increase of 27.91%, and the net profit attributable to shareholders of the listed company was 4.337 billion. But the eye-catching performance did not reflect on the market value (as of the closing of the 30th of last month, GAC’s market value was about 190 billion, with a P/E ratio of less than 22 times, lower than a certain major domestic independent automaker), which looks like getting the power but losing the point.
Therefore, Edrive’s independent financing and listing, focusing on new energy and smart interconnection segments, actually reflects GAC’s efforts in this “high-tech zone”, and the recent news of Edrive’s upcoming mixed-ownership has driven the rapid increase in GAC’s market value, and will obtain a valuation and position in the industry that matches its performance (whether it is sales in traditional or new energy segments) in the future.Some organizations have made preliminary estimates on the valuation of Aiways after its IPO. It might be too early to tell, but it can be speculated that there will be room for appreciation. Under the mixed-ownership reform plan, Aiways will accelerate innovation and transformation in five dimensions: R&D, intelligent manufacturing, industry chain, marketing, and organizational culture. For example, the popular “flat management” and internal vitality under the incentive mechanism, including value proposition.
Value proposition is so important. When you are a car manufacturer, your positioning is to make good cars; when you are Musk, you want to subvert the traditional industry; when you are a technology worker, your ideas and achievements may change the world.
Cognitively, Aiways will probably not only be an NEV manufacturer, because the concept of “travel” is too broad and the elements of integration are too many. As a travel service provider, Aiways will make efforts in energy, smart travel and other areas. In fact, just these two subdivided fields can bring about many changes, such as the evolution of battery technology, autonomous driving technology, and the possible changes in the travel ecosystem (such as rental business, public transportation).
But if seen as a technology company, the imagination space is probably much larger that it can’t be easily summarized by a few words.
Finally, returning to the mixed-ownership reform itself, of course, it will bring certain unknown factors, such as the motives and attributes of the strategic investors, which is a game of digital distribution of equity. However, this is not a problem for the strategy and ideas of Aiways, because the latter is the most valuable thing that has brought about an imagination space that is still difficult to exhaust at this stage. Because the genes have changed and the focus is different.
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.