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Analysis EO
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Analysis EO
Feb 23, 2020 11:05 pm ·

During and after Coronavirus: China's VC, Supply Chains and Auto 

It's been nearly one month since the outbreak of the novel coronavirus in China, and the global economy is still shaking. While the plague may be slowing its pace, the negative resonance is still being felt by various industries. Analysts describe a gloomy outlook for the Chinese economy, downgrading the GDP growth forecast for 2020. Citigroup economists, for instance, expect 5.5%; Barclays has cut GDP growth forecast by 40bp to 5.4%.  From the production side, the manufacturing and services sector will drag on growth. A plethora of startups that are on the part of industry chains are taking a hit, for they rely on the upstream and downstream dynamics to adjust supplies; Internet enterprises that sell virtual products or services, however, are grabbing the one-time chance to scale. The big wait and see for us in the coming months will be whether further strife or a fast expansion comes for Chinese companies. Nimble investors will find out those who battened down the hatches and endured the thunderstorm, which in turn might generate fruitful returns.  Dim macroeconomics and the venture capital market The prospect of stagflation has baffled China for the past six months. The economy saw a 4.5% increase in the consumer price index (CPI) in November 2019, a near-eight-year high. Economists expect an acceleration in the first half of 2020 due to the depressed supply. The unemployment rate was nearing 4% as of the end of 2019.  On the other hand, venture capital funding plummeted by 60% in January from a year ago, halving the number of deals closed/announced. A slowdown investment pace in the first quarter, especially the days before or after the Spring Festival, is commonplace. This month, investors talked reported that their one of investment activities, due diligence, has indeed been impacted due to the epidemic’s rise in January. They are also helping with portfolio companies to review the cash flow model and downgrade expectations. At the same time, investors might adjust valuations decided before, or speed down term sheet and other negotiations.  In the wintertime of capital flow and the national economy, it's going to be a tremendous challenge for startups.  A fallout of the retail market in a crisis: building muscle in supplier networks  The logistics bottleneck has become one of the biggest challenges for retailers. As China's quarantine measures unwind, many warehouse and logistics practitioners are unable to go back to work. According to data collected by G7, one of the largest fleet-management firms in China, the crisis has highlighted a more severe hit taken by Less-than-Truckload (LTL) than Full-Truckload (FTL). The LTL market saw a wider gap between the recovery in 2019 and 2020 on February 20, compared with FTL. As consumer preferences become less dynamic and focus on daily necessities, LTL shipping is in less demand than before. Despite the short-term impact, we believe that LTL, a dynamic and agile way of shipment, will continue leading the way. Several days ago, Yimidida landed a near-CNY 1 billion (USD 140 million) Series D+.  On the other hand, consumer preferences changing under extreme circumstances is also an interesting phenomenon in China. In 2003, the SARS outbreak helped such online shopping sites as Taobao and JD.com penetrate the whole country. Likewise, the disruption caused by the COVID-19 may end up creating new winners and losers once again. The shift from online digital commerce to omnichannel retailing is set to accelerate.  In the retail industry, those who benefit from a short-term pickup in orders – such as online grocery firms, including Miss Fresh and Alibaba's Fresh Hippo, as well as established wholesales stores Sam's Club – are benefiting from a reliable supplier network. Besides, we can also see a clear path to leveraging business-to-business (B2B) marketplaces in this transformation. Although those marketplaces are facing challenges of imminent supply shortages, supply chain firms are expected to gain traction in the long-term. The lifting of confinement measures will likely trigger a pent-up consumer demand, which adds a higher requirement to the efficiency of supply chains; at that time, supply chain management (SCM) and B2B marketplaces will sit at the core position along the industry chain. We suggest startups and investors should focus on retention, growth & market share and UX in the long run. The shift from traditional stores to digital purchasing also asks for better user experience (UX), and thus, those upstream players maintaining its advantages on high operation efficiency, service levels and integrated procurement. Top players can consider M&As to expand and build stronger supply networks after the crisis, following the step of Sysco to be a billion-dollar company (Check out the story about its Chinese counterpart Meicai).  We tapped into an array of marketplaces in the report on China's Industry Internet (Check the report) Prepared OEMs, suffering middlemen, honing aftermarket players The harshness of the overall new car sales downturn in 2019 has been well expected by OEMs, as they already saw a 2.8% decrease one year ago.  The contracting electric vehicle market, however, was not expected by most market observers and industry analysts. At the end of 2018, energy vehicles (NEVs) recorded more than 1.3 million sales, and 2 million seemed reasonable in 2019. However, it reduced to 1.2 million, representing a 4% year-over-year decrease. The NEV market share had grown from 4.5% in 2018 to 4.7% in 2019. The goal of 5 million NEV sales in 2020 that China is heading towards still looks promising as more carmakers mushroom in the ‘Middle Kingdom’; it just needs more patience.  NIO, the so-called pioneer of the Chinese premium EV maker (NIO:NYSE), just raised USD 100 million through a convertible bond offering several days ago. The funding has saved the company sitting on USD 274.3 million cash as of September 2019 while losing USD 352.8 million in 2019 Q3. NIO maintains its highest awareness of Chinese EV brands among Chinese consumers; its sales in January reached 1,483 units, dwarfing Xpeng's 1,073 and WM Motors' 808. Another structural trend we see in the auto industry is that investors should pay attention to luxury car brands. Despite NEV sales' dive in 2019, China's luxury car market has taken off. For instance, car sales by German luxury carmakers in 2019 grew 4.1% from one year ago.  Similar to the retail industry, supply bottlenecks pose challenges to production capacity and supply chains. B2C car-selling platforms like Chehaoduo (the parent company of Guazi and Maodou) and Uxin are facing losses and uncertainties about when dealers will resume work, the upstream suppliers of their products.   While more consumers might consider car ownership due to the fragile public transportation systems seen in the crisis, the eventual demand increase remains uncertain. What remains as the long-term thesis is investing in aftermarkets (B2B auto parts marketplace), electrification (battery and charging station) and intelligence-related ventures (lidar, sensors, autonomous driving algorithms), as we described in the latest auto and mobility-themed article. The primary market has already reacted to these directions, as represented by fundraisings like autonomous driving company AutoX (Pre-Series B), Hesai (USD 173 Million Series C) and aftermarket player Casstime (USD 80 million), to name a few.  

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Nov 22, 2019 03:13 pm · chinawuliu

Logistics data leader, Manbang and G7 who is the king of ETC

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Jul 18, 2019 05:30 pm · sina finance

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Analysis EO
Analysis · 2
Analysis EO
Dec 13, 2018 04:46 pm ·

Overlooking the fleet logistics industry in China: Meet Chinese IoT Company G7

In China, 130 million tons of cargo are transported every day, and 78% of cargo is carried by long-haul trucks. With five million heavy trucks and 14 million light and medium trucks, the total road freight market value is estimated to USD 728 billion (CNY 5 trillion), according to Bain. Technology is transforming China's inefficient road freight industry. Last year, the birth of Manbang heralded a revolution in hauling freight in China. Dec 10, with the core competitive edge on overlooking fleet logistics industry in China, G7 secured an astonishing funding of USD 320 million and has become one of the most valuable IoT companies in the world. Artificial Intelligence in IoT (AIoT) platform G7 introduced the proprietary Artificial Intelligence in IoT (AIoT) platform to tie with logistic enterprises and freight fleets, providing them integrated fleet management solutions and services, covering safety, assets, payments, financing. Based on the platform, G7 is able to overlook the whole fleet logistics industry and even explore Intelligent-equipment-as-service model. “The scale of our data and neutrality of our industry-wide platform are at the core of our competitive edge”, said MA Zheren(马喆人), a former Executive Vice President of Tencent and the chairman of G7 since he joined the team in Aug 2017. We will talk about assets in the second part and address the three things concerning freight fleets most: safety, payments and financing. For safety, G7 provides hardware, Software-as-a-Service (SaaS) and insurance products cooperated with insurance companies. According to a report co-published by Bain and G7, in the traditional management model, five managers from calling center usually are responsible for 10 vehicles while one manager is for 100 vehicles under the digitalized model. The number is ramping up to 400 in G7 platform now, according to ZHANG Jielong(张杰龙), G7's CFO, which keeps rising weekly. Every manager knows exactly the condition of cars and drivers and what happened on the highways before the phone calls. Efficient and effective safety fleet management leads to fewer loss settlements for insurance companies. Businesses that use G7 are opened to a world of opportunity beyond just track and trace. Services such as G7's ETC( Electronic Toll Collection ) allow vehicles to go cashless on expressways and reduce waiting times at toll stops by 80%. Comprehensive bidding platforms help private fleets connect directly with potential shippers within days. G7's fuel services take a headache out of monitoring fuel theft and managing fuel cards.  These are just a few of the cost-savings benefits of being part of the G7 Family. For Financing, G7 fills the gap between shipper long payment and instant capital demands on small or middle size fleets. In conclusion, G7 deals with all the stuff correlated with management, what their clients need to consider is only relationships with shippers. Seeing the future of sharing autonomous trucks in logistics business, G7 is engaged in lifting the pressure off drivers and advanced safety. Intelligent-Equipment-As-Service(IEAS) For the past half year, G7 has started to explore innovative models of IEAS urged by their 60,000 customers and over 800,000 commercial vehicles in China to provide intelligent trailers. Once the company called the strategy as Intelligent Asset. June, G7 debuted intelligent trailer to address thorny issues like loading, weighing, safety, docking monitoring, tire safety and parking blind. April, G7 announced a joint venture with Nio and GLP called Inceptio Technology(赢彻科技). Inceptio highlight efforts by G7  to stay relevant for a generation raised on ride-hailing and car-sharing and poised to embrace self-driving vehicles. Inceptio is committed to developing next-generation of heavy-duty truck by new energy technologies, autonomous driving and logistic big data. The truck fleets, accounting for a large part in the balance sheets of transportation companies, isn't as important to the future transportation companies as it was in the 1980s or 2000s. Subscribing to a fleet is a convenient way to have one without financial burden. However, it does not mean that these companies will rely on sharing-truck completely but stick with their own fleets to serve regular clients and provide dynamic clients with sharing-truck, Said MA. Built on G7's massive real-time data and fleet management capabilities, Inceptio hired 70 people to train their autonomous algorithms for smart truck and management systems. Inceptio aims to target Level 3 autonomous driving in three years using driving behaviors data, fuel consumption data of their customers, most of the existing angle customers are coming from G7, and transform into self-cycling data in five years. Nov, Inceptio has been issued the test permit for autonomous driving trucks on logistics highways in Baoding, Hubei Province. The company is catching up with incumbents in the autonomous driving industry in road testing, such as Tesla, Waymo, and Tusimple.

Analysis EO
Analysis · 2
Analysis EO
Dec 12, 2018 06:00 pm ·

Turning Partners into Investors: Meet Chinese IoT Company G7

Dec 10, G7 secured its latest funding of USD 320 Million led by Hopu Capital (厚朴资本)and became one of the most valuable IoT (Internet of Things) companies in the world. Most of its existing investors including CBC Capital(宽带资本), Total Energy Ventures, Bank of China Investment(中银投资), GLP and Tencent have a deep partnership with G7 previously before they poured money into the company. It was the best of times, it was the worst of times. Startups in China struggle to raise money in the financial winter while the company select its investors carefully and even rejected some, according to ZHANG Jielong(张杰龙), Chief Financial Officer of G7 in an interview with EqualOcean. TIAN Suning(田溯宁),former chief executive officer of China Netcom(中国网通) and Chairman & Executive Director at Asiainfo (亚信), founded CBC Capital in 2006. He claimed G7's IoT-powered fleet management could be the first scenario based on IoT technology. And it's time for 5G. Dec 6, The central government issued China Mobile, China Unicom and China Telecom with 5G spectrum licenses, enabling them to conduct final trials for the new mobile system before its wide commercial roll-out from 2020. Dec 8, G7 inked an agreement with China Mobile. The telecom carrier hoped to see the landing of 5G technology in the logistics industry, according to ZHANG. Total Energy Ventures debuted the first investment into G7 after their Asian team founded. G7 and Total, the parent company of Total Energy Ventures share the same important client, logistic fleet, leading to same needs from their clients. Providing refueling services for about 4 million trucks in Europe, from whom Total faces natural needs of management and payments. A loosening of regulations looming foreign companies endeavoring to do business in China’s petrol station industry, energy behemoths such as Shell and Total are committed to marching in the field now. Aug 22, Manbang Group(see this article), a truck-hailing juggernaut in China, appointed LI Bin(李斌) ,former president of Red Star Macalline Group(红星美凯龙)as the chairman of the Manbang's energy departments, reported by iyiou.com. Guess the two competitors are determined to dig into the energy business.  GLP, the leading provider of logistic facilities, named G7 as one of the most important logistic infrastructure platform companies according to its official WeChat account, which underscores the importance of G7’s industry-wide platform. GLP has kept on additional investment into G7 three times since Feb 2017. April, G7 formed a joint venture with NIO Capital and GLP to develop autonomous driving electric trucks. Bank of China invested twice. Small and medium fleets, G7's main clients, have less bargain power when negotiating with shippers, e-commerce giant JD.com(京东) and courier firms SF Express(顺丰速运), ZTO Express(中通快递), suppliers including China National Petroleum Corporation(中石油), Sinopec(中石化)and OEMs. The weakest part of the industry chain bears the largest amount of costs, sandwiched between its upstream and downstream. The fleets could not get the full payment until they finished the order, which often takes a very long time and exposes the fleets into financial risk. When it comes to insurance fees, costs and period settling, G7 could leverage its data in these procedures for the bank.   It took G7 four months to complete this round of funding. Pile of money is never a key to be G7's investors, G7 weighs resources and partnership in the logistics industry seriously instead. Heterogeneous shareholders scattered in the fleet logistics industry participated in the partnerships with G7, along with investments. G7 does establish an open ecosystem that connects vehicles with 5G and IoT technology, logistics infrastructure and financial institutions.