The new forces in car manufacturing are experiencing a famine. Since the beginning of the year, except for WM Motor's Series C financing of 3 billion yuan, the entire new car making force has not received any investment. Recently, will the accelerated landing of China's "NASDAQ" science and technology innovation board be the golden key for new car making forces to open the door to capital?

Various signs indicate that the Science and Technology Innovation Board may help a group of new car making forces stand out in the future. Because it mainly serves technology innovation enterprises that conform to national strategies, break through key core technologies, and have high market recognition, with a focus on supporting high-tech industries such as new generation information technology, high-end equipment, new materials, new energy, and strategic emerging industries. The new force in car manufacturing clearly fits this positioning.

But at present, the uncertainty it emits is more in line with the characteristics of technology innovation enterprises in our eyes: from the beginning of a hundred boats competing to the end of a single man holding the key, it is not only the charm of such enterprises, but also the abyss of mutual gaze.

For example, how to balance the contradiction between risk and return in market value oriented design, regulatory authorities are still exploring the boundaries of rights and responsibilities, and so on.

Nevertheless, its original intention of leading the emergence of technology unicorns in China has deeply attracted multiple new car making forces to rush forward.

Rushing towards the Science and Technology Innovation Board

For example, Great Wall Huaguan, which listed on the New Third Board in 2015 and raised a total of 2.12 billion yuan through five rounds of fundraising, issued a notice of delisting on February 22.

The rapid promotion of the Science and Technology Innovation Board and the decisive decision of Great Wall Huaguan to delist are actually preparing for the board, "an insider from Great Wall Huaguan revealed on March 5th.

During a media interview, Lu Qun, Chairman of Great Wall Huaguan, also stated that "we are looking for new financing platforms, and the future listing entity has not been determined whether it is Great Wall Huaguan or Future Automotive." Regarding whether to plan to list on the newly launched Science and Technology Innovation Board, Lu Qun said he does not rule out this possibility.

In fact, in the three years since its listing on the New Third Board, Great Wall Huaguan's business focus has shifted from automotive design and development to new energy vehicle manufacturing, and its wholly-owned subsidiary, Future Motors, has become the largest business sector of Great Wall Huaguan. As a hot topic in the capital market, the new energy vehicle industry requires large investment, has a long investment return period, and is difficult to make profits in a short period of time.

To sustain profitability in car manufacturing, a large amount of capital needs to be invested in the early stages. Unlike other new car making forces that rely on multiple financing channels, Future Motors has a relatively single financing method, mainly relying on equity and debt financing from Great Wall Huaguan Automobile. The recent large-scale fundraising by Great Wall Huaguan has been used for the future automotive and new energy related industry chains.

Enterprises need to connect with different platforms at different stages. The demand for funds in automobile manufacturing is very large, and current financing channels are no longer sufficient. Based on the stage of enterprise development, we should seek to match the capital market platform, "said Lu Qun.

At present, the only model on sale for Future Motors is the K50, which was launched in August last year. This high-end electric sports car model, with a subsidized price of up to 680000 yuan, was previously rumored to have sold only 59 units in 2018. Lu Qun publicly stated that this data does not match the actual situation, and also pointed out that the future did not expect to rely on this car for sales.

In this situation, if Future Motors wants to continue its car making story, it obviously still needs a large amount of capital financing. Industry insiders suggest that after Great Wall Huaguan bids farewell to the New Third Board, it would be a good choice to switch to the Science and Technology Innovation Board in the context of cooling financing.

In addition to Great Wall Huaguan, Yundu New Energy has also publicly stated that it is actively promoting its listing on the Science and Technology Innovation Board.

Yundu New Energy was established on December 4, 2015, jointly funded by Fujian Automobile Industry Group Co., Ltd., Putian State owned Assets Investment Co., Ltd., Liu Xinwen, and Haiyuan Composite Materials (with a shareholding ratio of 11%), with a registered capital of 900 million yuan.

Yundu New Energy is one of the early car companies to obtain the "dual qualification" approval from the National Development and Reform Commission and the Ministry of Industry and Information Technology. Currently, there are three models on sale, namely π 1 Pro, π 3 Pro, and π 1 360.

Yundu New Energy has strong initial financial strength, with over 2 billion yuan of funding supporting the construction of factories, application for qualifications, and production of products. In 2017, Yundu New Energy raised 681 million yuan from banks with the guarantee of Haiyuan Machinery, but banks have always been fond of the rich. Since the first half of last year, Yundu New Energy has officially opened a financing channel. But so far, there has been no news of Yundu New Energy financing.

Yundu New Energy actively promotes its listing on the Science and Technology Innovation Board, undoubtedly to provide blood supply for the development of enterprises through this approach.

"The Science and Technology Innovation Board actually needs to solve two problems. One is what kind of enterprises should be listed, and the other is whether the enterprises have investment value, which should be determined by the market and investors." Wu Xiaoqiu, vice president of Renmin University of China, said at the recent Boao Forum for Asia 2019 annual meeting.

Against the backdrop of a cooling financing trend, the launch of the Science and Technology Innovation Board has clearly provided new opportunities for new forces in the automotive industry that continue to require significant capital investment. The new forces in car manufacturing are all playing capital games. Next, they should all head towards the Science and Technology Innovation Board, "predicted Cao He, a senior securities analyst in the automotive industry.

According to the listing recommendation guidelines of the Science and Technology Innovation Board, new energy vehicle vehicles, key components of new energy vehicles, power batteries, and related technology service enterprises are among the key recommended areas of technological innovation. At present, the new car making forces in such enterprises have indeed maintained close attention to the Science and Technology Innovation Board.

Crossing the threshold of the Science and Technology Innovation Board

We think the Science and Technology Innovation Board is very good. It is definitely a big advantage for some early-stage start-up enterprises, especially those with high technological content and large R&D costs. We also support the country's strategic direction, but we are still observing, "said Shen Hui, Chairman of WM Motor.

Xiaopeng Motors Chairman He Xiaopeng said, "Xiaopeng Motors has a relatively large scale and is currently being cautious. We are still in the process of understanding policies, and we cannot rule out the possibility of listing on the Science and Technology Innovation Board in the future, but we should not rush to the first batch." Zhang Yong, President of Hezhong New Energy, said that the Science and Technology Innovation Board is a good opportunity, and Hezhong is also studying the timing to enter.

As is well known, the automotive industry itself is a highly invested industry. Although new energy vehicles no longer have engines and complex transmission systems, electronic control systems and vehicle intelligence also require significant investment, and the investment return cycle is very long. For new car manufacturers who find it difficult to make profits in the short term, choosing the Science and Technology Innovation Board seems to be a good choice for financing.

The Science and Technology Innovation Board, established in November 2018, is a newly established sector independent of the existing main board market, and is undergoing a registration based pilot program within this sector. Unlike the Shanghai and Shenzhen stock markets, the Science and Technology Innovation Board is more inclusive of companies that are admitted, and only needs to meet one of the following five conditions:

1. The expected market value is not less than RMB 1 billion, with a net profit of positive and cumulative net profit of not less than RMB 50 million in the past two years, or a net profit of positive and operating income of not less than RMB 100 million in the past year.

2. The expected market value is not less than RMB 1.5 billion, the operating income in the past year is not less than RMB 200 million, and the total R&D investment in the past three years accounts for no less than 15% of the operating income in the past three years.

3. The expected market value is not less than RMB 2 billion, the operating income in the most recent year is not less than RMB 300 million, and the cumulative net cash flow generated from operating activities in the most recent three years is not less than RMB 100 million.

4. The expected market value is not less than RMB 3 billion, and the operating income in the most recent year is not less than RMB 300 million.

5. The expected market value is not less than RMB 4 billion, and the main business or products need to be approved by relevant national departments. The market space is large, and phased results have been achieved, and a certain amount of investment has been obtained from well-known investment institutions.

In addition to more inclusive admission, another breakthrough point of the Science and Technology Innovation Board is the pilot registration system. Unlike the existing approval system, the registration system refers to the issuer submitting and applying for registration of various publicly available information to the securities regulatory authority in accordance with the law. The nature of the issuer's business and development prospects are not considered as requirements for issuance review. In other words, the registration system reduces the power of the China Securities Regulatory Commission to issue approvals and delegates the power of choice and judgment to the market.

It is worth noting that the Science and Technology Innovation Board also has requirements for participants: 1. For 20 consecutive trading days, the daily average assets of the stock account should not be less than 500000 yuan; 2. Open an account for at least 2 years. That is to say, those who participate in the investment of the Science and Technology Innovation Board are often "old investors". The term 'old' here does not refer to elderly people who buy hundreds of shares for fun, but rather to relatively more experienced stock investors.

This means that new car making forces with technology and prospects are more likely to obtain funding through the Science and Technology Innovation Board, thereby achieving better development. On the contrary, new car makers who only know how to draw PPTs, even if they land on the Science and Technology Innovation Board, will soon be eliminated by the market.

03

Who is more welcomed in the 'money bag'?

The Science and Technology Innovation Board is like a catalyst for the new energy market. If it performs well after going public, there is a possibility of becoming a unicorn. If it performs poorly, it will become a junk stock and be directly eliminated from the market. On the Science and Technology Innovation Board, shells have no value.

From this perspective, those who dare to advance to the Science and Technology Innovation Board are all "warriors". But being a 'warrior' is not that easy. Let's take a look at the first batch of acceptance lists that have a certain degree of "benchmark" value: Jingchen Semiconductor, Ruichuang Micro Nano, Tiantai Technology, Jiangsu Beiren, Liyuanheng, Ningbo Rongbai, Hejian Chip, Anhan Technology, and Wuhan Keqian Biotechnology.

Among the first batch of "reserve members" on the Science and Technology Innovation Board, emphasizing research and development is a prominent commonality. Among these 9 companies, except for 1 loss making company, the R&D revenue of the other 8 companies accounted for an average of 5-20% of their operating income in the most recent accounting year.

The Science and Technology Innovation Board (STAR Market) tends to favor hard tech companies, especially those with genuine technological barriers at the beginning. This is actually a consensus. In the short term, this is conducive to the smooth and orderly implementation of the Science and Technology Innovation Board. In the long run, this is also the mission of the Science and Technology Innovation Board.

The Shanghai Stock Exchange has recognized "the technological innovation capability of enterprises" as the core of enterprises listed on the Science and Technology Innovation Board. The specific judgment methods can be summarized as "six don'ts": whether there is independent intellectual property rights, whether there are good research and development achievements or patents, whether there is a research and development system, and the conditions for transforming research and development achievements.

Secondly, among hard tech companies, the Science and Technology Innovation Board (STAR Market) tends to favor "strong players". Not only has the business model been validated by the market, but it has even been able to make money. Although the Science and Technology Innovation Board includes unprofitable companies, 8 out of the first 9 accepted companies have already made profits, accounting for nearly 90% of the total. Among them, there are many players who meet the requirements for listing on the main board, and Jingchen Semiconductor in the starting lineup recently changed its listing board from the main board to the science and technology innovation board.

According to the disclosure of the Shanghai Stock Exchange, the average revenue of these 8 companies in the past fiscal year was 1.034 billion yuan, with an average net profit of approximately 164 million yuan per company. In the released financial data, the Shanghai Stock Exchange also emphasized that the average asset size of these 8 companies recently was 1.532 billion yuan. In addition to making money, the Science and Technology Innovation Board also seems to welcome down-to-earth enterprises.

Another confirmed market expectation is that the Science and Technology Innovation Board initially favors small and medium-sized companies.

According to statistics from the Shanghai Stock Exchange, the first batch of 9 companies accepted for the Science and Technology Innovation Board are expected to have an average market value of 7.276 billion yuan, with the largest one reaching 18 billion yuan. The estimated market value of the other 8 companies is an average of 5.935 billion yuan. This largely takes into account liquidity issues, which are important indicators for assessing the vitality of a market.

In addition to the three characteristics we summarized as "having technology, being able to make money, and high liquidity" mentioned above, it is worth considering that there are nearly a hundred new car making forces in China. Will the Science and Technology Innovation Board easily accept too many new car making companies to enter? I'm afraid the possibility of a few top companies is higher.

Recently, Zhang Wei, Chairman of Cornerstone Capital, criticized the "not worth investing in" new car making forces, and also mentioned that "although the Science and Technology Innovation Board can accept loss making companies, it does not mean that it needs to supply blood to a large number of" burning money "companies to survive, which is not in line with the original intention of the Science and Technology Innovation Board." Although this statement is extreme, it is reasonable to look at the current situation of new car making forces in China.

Not long ago, NIO released its 2018 annual report, and the huge losses made people face and think about a crucial question: whether there is a possibility for the new force of car manufacturing to survive and make profits after going public. Participants on the Science and Technology Innovation Board are likely to think about this issue as well.