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Hozon eyes Hong Kong IPO for lifeline amid price war in China

Written by 36Kr English Published on   6 mins read

Hozon hopes the listing will provide the funds needed to stay competitive against rapidly evolving rivals such as Huawei, Nio, Xpeng, and Xiaomi.

Chinese electric vehicle maker Hozon New Energy Automobile is poised to enter the public market, having recently filed an IPO to list on the Hong Kong Stock Exchange (HKEX).

As one of China’s leading carmakers, Hozon launched its brand, Neta Auto, in 2018. According to its prospectus, Neta’s 2023 revenue was RMB 13.555 billion (USD 1.87 billion), with annual sales of 124,189 vehicles and an average product price of RMB 109,000 (USD 14,998).

Neta targets the new energy vehicle (NEV) market around RMB 100,000 (USD 13,760), focusing on vehicles powered by alternative energy sources, including electric vehicles. The company currently offers five mass-produced models, three of which start below RMB 130,000 (USD 17,888). This low-price strategy initially boosted sales, making Neta the top-selling new automaker in 2022 with over 150,000 units sold.

However, this strategy soon lost its edge. In 2023, a price war swept through the automotive industry, compelling companies to reduce prices to drive sales. Several new models launched with starting prices nearing RMB 200,000 (USD 27,520), directly challenging Neta’s models priced around RMB 180,000 (USD 24,768), such as the Neta GT and Neta S.

In 2023, Neta’s sales declined by about 16% year-on-year, with 105,300 units sold in China, capturing only 1.2% of the domestic NEV market. The prospectus indicates that Neta accumulated losses exceeding RMB 18.3 billion (USD 2.52 billion) from 2021–2023.

To sustain operations, Neta secured RMB 7 billion (USD 963 million) in a crossover financing round in 2023, while preparing for its IPO. By the end of that year, Neta had RMB 2.837 billion (USD 390 million) in cash, a year-on-year decrease of RMB 3.921 billion (USD 540 million), signaling a challenging financial outlook. Listing on the HKEX appears to be Neta’s best route to stability.

Neta launched its first model, the Neta N01, in November 2018, priced between RMB 59,800 (USD 8,228) and 69,800 (USD 9,604) after subsidies. It was well-received as a small SUV priced like a microcar. In 2019, its sales surpassed 10,000 units, ranking fourth among new automakers that year.

In 2020, Neta introduced the Neta V, priced from RMB 59,900 (USD 8,242) after subsidies, again breaking sales records. In 2021 and 2022, Neta V sales were 49,646 and 98,847 units, respectively, making up 77% and 65% of Neta’s annual sales.

In addition to models priced under RMB 100,000 (USD 13,760), Neta launched several models in the RMB 100,000–200,000 (USD 13,760–27,520) range. In 2022, the Neta U, starting at RMB 139,800 (USD 19,236), sold 51,021 units, accounting for about 36% of sales. Consequently, Neta’s average price has been rising. The prospectus shows that the average price of Neta’s vehicles increased from RMB 71,000 (USD 9,770) in 2021 to RMB 113,000 (USD 15,549) in the first four months of 2024. This increase somewhat boosted Neta’s revenue, growing by 156.54% in 2022 and 3.87% in 2023.

However, just as Neta began to see success in moving upmarket, a price reduction storm hit the industry. In early 2023, Tesla led the price cuts, followed by various companies compressing production costs to allow for price reductions. BYD, for instance, significantly reduced vehicle costs through self-developed parts and batteries, launching the “Glory Edition” of the Qin Plus with a starting price of RMB 79,800 (USD 10,980), attracting 23,590 orders within seven days.

Neta’s overall product cost remains high. The prospectus shows that, from 2021 to 2023, Neta’s procurement from its top five suppliers was RMB 2.797 billion (USD 385 million), RMB 6.233 billion (USD 858 million), and RMB 5.739 billion (USD 790 million), respectively, each year accounting for over 30% of total procurement. In 2023, battery-related procurement was RMB 5.285 billion (USD 727 million), about 39% of annual revenue.

High procurement costs have squeezed Neta’s profit margins. Although losses have narrowed over the past three years, the gross profit margin remains negative at -34.4%, -22.5%, and -14.9%.

As smart driving becomes a core selling point for NEVs, companies are fiercely competing in R&D. Huawei invests about RMB 8 billion (USD 1.10 billion) annually in smart driving R&D. Xpeng Motors’ smart driving data team exceeds 3,000 people, with an annual R&D investment of RMB 3.5 billion (USD 482 million).

Neta’s thin profit margins limit its R&D investment. The prospectus shows that, as of December 31, 2023, Neta had 2,132 R&D personnel in product management, engineering development, data, intelligent driving, cockpit, intelligent control, and verification departments. Over the past three years, R&D expenditure accounted for 10.6%, 6.9%, and 11.8% of total revenue, respectively. In comparison, Leapmotor maintained an R&D ratio of no less than 12% from 2019–2023, peaking at 30.64%.

Insufficient R&D investment has delayed Neta’s urban intelligent driving function development by about a year, with plans to deploy in 100 cities domestically by the end of this year. Currently, Huawei, Nio, Xpeng, and Li Auto have a significant advantage in smart driving, capturing substantial user mindshare. Neta’s late entry into the smart driving market will undoubtedly face challenges.

At the Neta X launch event in October 2023, Neta’s vice president Jiang Feng said that, by 2026, Neta aims to transform from an automobile manufacturer into a technology-focused company and achieve global sales of one million units. With less than three years for transformation, Neta has established four R&D centers in Shanghai, Jiaxing, Beijing, and Hong Kong, attracting local technical talent to accelerate goal achievement.

Amidst the wave of automotive price reductions, Neta urgently needs to enhance component reuse and reduce vehicle development costs. To this end, Neta has developed the Shanhai and Yunhe vehicle platforms. These platforms can accommodate various power forms, drive modes, models, and steering positions, with a component commonality rate of 80%, reducing new model development cycles to eight months.

In terms of intelligent technology, Neta is also making strides. Neta is developing an intelligent cockpit system, including an artificial intelligence large model to enhance in-car interactions, imaging technology, and system security. Simultaneously, Neta is developing the next-generation Neta intelligent driving system.

Despite enhancing its technological attributes, Neta still struggles to penetrate the RMB 200,000–300,000 (USD 27,520–41,280) NEV market. Popular models like the new Aito M7 and Xiaomi SU7 have redefined this market segment with record-breaking sales, offering unique technology, cost-effectiveness, and even brand appeal to attract consumers.

The prospectus indicates that, in the next two years, Neta plans to launch one new model based on the high-end Shanhai platform and two new models based on the affordable Yunhe platform. Adhering to the mass market means Neta will face fiercer competition. Nio founder and CEO William Li said that Nio aims to launch the first model of its third brand, codenamed Firefly, at a price point below RMB 200,000 (USD 27,520) by the first half of 2025. Xpeng plans to release the second model of its Mona series in 2025 and hopes to price it below RMB 150,000 (USD 20,640). These models will inherit their parent brands’ technological and channel advantages, challenging existing market players.

R&D requires significant funding, and Neta is expanding its domestic and international sales systems to increase revenue. According to the prospectus, by the end of last year, Neta had 539 domestic stores, contributing RMB 11.935 billion (USD 1.64 billion) in revenue for 2023.

In overseas markets, Neta’s revenue was RMB 240 million (USD 33 million) in 2022, reaching RMB 1.62 billion (USD 223 million) in the following year, a 573.2% year-on-year increase. In 2022-2023, Neta’s overseas revenue accounted for 1.8% and 12% of annual sales revenue, respectively.

Neta added in the prospectus that it will further invest in the Southeast Asian market and expand into Latin America, the Middle East, and Africa. Neta’s factories in Thailand and Indonesia began production in the first half of this year, with the Malaysian factory starting construction in January. In addition to factory construction, Neta is also expanding its overseas dealer network. As of December 31, 2023, Neta had established cooperation with about 100 dealers in 28 countries and regions overseas.

However, targeting both domestic and international markets concurrently may not be the best choice for Neta’s current situation. Neta’s data shows that, in the first five months of 2024, Neta exported 16,458 vehicles, ranking first in export volume among new car-makers. However, its sales in the first five months only accounted for 14.52% of its annual target, with export volume achieving 16.46% of its export target.

Currently, Neta holds only 1.2% of the domestic NEV market share. With limited time and funds, and the need for high-cost investments in both domestic and international markets, Neta faces significant challenges. To tell a more grandiose story, Neta must first increase sales and strengthen its cash flow. Only then will it have the opportunity to plan for the future.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Tian Zhe for 36Kr.


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