Latest Concerns On Softbank: Suspicious Valuation of CheHaoDuo 

Financials, Automotive, Healthcare Author: Linyan Feng Feb 20, 2019 08:46 PM (GMT+8)

Vision Fund is reported that it is preparing to invest up to USD 1.5 billion in CheHaoDuo, which will value the company at USD 8.5 billion.

A Guazi (CheHaoDuo) office. PHOTO: HUANG Yuanpu for EqualOcean

High valuations of Vision Fund investments—and the decision-making role of SoftBank chief Masayoshi Son—have led to concerns, reported by Wall Street Journal. Softbank managed the USD 100 billion Vision Fund, and investors have also complained about SoftBank’s strategy of investing in companies first, then transferring the stakes to the Vision Fund later. SoftBank and Vision Fund have often invested such startups as OYO Hotels, WeWork and DiDi Chuxing (滴滴出行) at high valuations, pushing up those companies valuations massively. SoftBank bought ride-hailing giants DiDi for USD 5.9 billion and has agreed to sell it to the Vision Fund for USD 6.8 billion.

To trace back to the original event, it is noticeable that Vision Fund is reported that it is preparing to invest up to USD 1.5 billion in CheHaoDuo (车好多), an online used car trading platform based in Beijing which allows customers to buy and sell used and new cars through its platforms Guazi and Maodo. Mr. Son overruled objections from partners towards the deal which will value the company at a staggering USD 8.5 billion, reported by Wall Street Journal. Nasdaq-listed Uxin Ltd.(优信) and Hong Kong-listed Yixin (易鑫) Group Ltd., two main competitors of CheHaoDuo, are valued at USD 1.18 billion and USD 1.75 billion, respectively. Yixin serves as a large online firm for trading new and second-hand cars.

China Used Vehicle Market

Data from China Automobile Dealers Association shows that the used-car market in China has grown since 2015. There were 12.4 million used-car sales in 2017, up from roughly 9.2 million in 2014. The number grew to 13.82 million in 2018, growing 11.46% over last year. 2018 total sales recorded at CNY 860.4 billion (USD 129.06 billion), rising 6.31% year-on-year.

The market is expected to reach around 34 million units sales in 2022, and a CAGR of 22.5% in revenues from 2017 to 2022, according to Ken Research.

Competitive Landscape of major players (CheHaoDuo, Uxin Group, RenRenChe)

There are various business models prevailing in China online used vehicle market including s C2C (Customer to customer), B2C (Business to Customer), C2B, B2B, and C2B2C. Renrenche and CheHaoDuo are both operating typically at a C2C model while Uxin Group at B2C model.

Guazi has comprised of the maximum share in the sale of used vehicle in China from online channels during 2017, followed by Uxin Group and RenRenChe, according to Ken Research. These three companies cover the majority of the total sales of used cars from online channels during 2017.

What RenRenChe and CheHaoDuo tout are that no intermediaries take customers’ benefits at their platforms. It is misleading advertising or even fraud because the commission fee is exactly how these two companies make money. The biggest paint point in the C2C used car trading is the high commission fee charged by intermediaries due to the information asymmetry between the owners and buyers. RenRenChe and CheHaoDuo were inevitably to charge fees to gain profit even they did solve part of the problem. RenRenChe has reported and sued CheHaoDuo three times from 2017 to 2018. The previous two suits towards CheHaoDuo are based on unfair competition for its false advertising, revealing the intensive competition in used car market. (see more in this article)

In the process of selling the car, both C2C and B2C companies provide inspection, consultancy services, financing and insurance of vehicles, door to door vehicle delivery services, transfer of vehicle registration and after sale services.

CheHaoDuo, formerly, started exploring new retail selling model, mainly providing guaranteed sales services. The service enables partnerships to pay a certain percentage of final price for owners before selling out, giving sellers a more accurate sales estimate for their vehicle and an indication of when it is likely to be sold. Both car owners and customers have a better experience in this process. The company has been opening offline stores gathering cars together in July 2017. It is also a service that DiDi-affiliated RenRenChe planned to invest more in 2019, according to RenRenChe CEO LI Jian(李健).

What supports the service is more than algorithms to calculate the equilibrium price, but the data from ten thousand amount of deals. CheHaoDuo has endured a tough time, partly due to the time machine learning taking when the company had inventories valued at CNY tens of millions and recorded a loss of more than CNY ten million to sell these cars. CheHaoDuo invested CNY 1 billion (USD 150 million) in the division, bought 1,0000 cars from owners and sold them at an average price form CNY 70,000 to CNY 80,000 (USD 10,500 to USD 12,000), according to CheHaoDuo founder and CEO YANG Yonghao (杨浩涌).

Relying on its car dealers resources, Uxin Group releases car information from them online and provides more value-added services than CheHaoDuo including supply chain management, car dealer information management, Uxin standard approval and smart pricing, according to a report published by Chanpin100. Uxin has built a used car ecosystem while CheHaoDuo provides less 2B products.