Vision Fund and Sequoia Inject USD 1.7 Billion into Car Trader Chehaoduo 

Healthcare, Financials, Automotive Author: Linyan Feng May 06, 2020 02:48 PM (GMT+8)

The deal has been postponed – but it was closed successfully. 

Image Credit: Chehaoduo

►The company raised an accumulated USD 3.3 billion before this round, and is valued at USD 9 billion.

►The founder has stated that its operation team, big data and brand are the business moats.

►While Chehaoduo has captured 6% of share in the market, it remains nearly impossible for it to go public this year.

Chinese car company Chehaoduo has closed a USD 1.7 billion Series D round of funding led by Vision Fund and Sequoia China, with the post-money valuation unchanged compared to last round. 

Chehaoduo was valued at USD 9 billion last February, while its competitor Uxin's (UXIN:NASDAQ) market cap had dropped to USD 416 million as of May 6.

According to Chinese tech media LatePost (in Chinese), Chehaoduo started raising for this round in the fourth quarter of 2019. The tech-focused Vision Fund – as well as Chehaoduo's existing investor – showed an interest. It has been battling with its enormous losses since the failed WeWork IPO, so the fund postponed the deal with the car trading firm during the negotiation time. 

In 2019, the second-hand passenger car sales in China plummeted by 13% to 12.96 million units from one year ago. During the pandemic, China's auto market has been impacted further, as well as such intermediaries as Chehaoduo and Uxin. To get through the crisis, Uxin sold its to-business (toB) car auction site, Uxin Pai, to (WUBA:NYSE) in March. 

At the end of 2019, Chehaoduo encountered a similar financial problem and made three strategic moves. First, cutting off its car-leasing business (Guazi Zuche). It will continue supporting second-hand car selling and new car businesses (Guazi and Maodou, respectively). Meanwhile, it decided to pivot to deploying a franchise operating model for aftermarket division. 

Chehaoduo has changed its strategic direction several times. For instance, it had claimed not to want to roll out offline before – but changed that in early 2019, saying 'we will open brick-and-mortar stores.' It had insisted on expanding along the whole auto selling industry chain but abandoned the car leasing business at the end of 2019. 

A shareholder of Chehaoduo, according to LatePost, said that car financing under Maodou is the only business that earns profits. The investor is also worried about Chehaoduo's valuation – that it is lacking in ample room due to its current operating status. Its bottom line relies on financing, not car transactions. 

Chenhaoduo founder Yang Haoyong claimed the company has three types of moat, including offline operation teams, big data and the brand.

The brand could be considered as business defensibility, but we doubt whether Chehaoduo has it – have the continuous and significant inputs into marketing and ads everywhere built mindshare among customers successfully?

As for the first two, these – which fall out of the concept of the moat – remain debatable. A simple glimpse into the firm's employee structure and we know why – only 6.7%, or 2,000 out of 30,000 people in the firm work in the R&D department (it has laid off more than 10,000 since the end of 2019).  

While Chehaoduo has captured 6% of the market, it remains nearly impossible for it to go public this year, as it planned some time ago, investors in the industry said. It has to stay private longer and find a path to profitability.