Uxin Revs Up Online Used Car Retailing Model, Buys Time with Financial Maneuvers

Company posted strong revenue and transaction growth in the three months through June for its retail business buying, reconditioning and selling used cars online directly to consumers

Key Takeaways:

• Uxin’s revenue more than doubled in the three months to June, though transactions under its new model as a direct online used car retailer are still relatively small
• The company said it has sufficient financial resources for at least the next year, following two recent debt-for-equity swaps and a new $100 million share sale to an existing investor

By Doug Young

After overhauling its business model starting two years ago, Uxin Ltd. (UXIN.US) thinks it has found a new formula for success. Now it needs to gain traction for that new model as a direct online used car buyer, reconditioner and retailer – and sooner rather than later. Consumer e-commerce is now driving the rapid growth of the company’s business.

Acceleration for the new business was on display in the company’s latest quarterly earnings report, which showed strong growth for its direct used car sales both on a year-on-year and quarter-on-quarter basis. Such growth was all the more impressive as the vast majority of other consumer-facing companies in China reported sharp slowdowns in the three months to June due to massive disruptions caused by the country’s strict Covid control measures.

But the reality remains that Uxin is losing money, which is putting pressure on its finances. To that end, the company announced a number of key debt-reduction and fundraising moves starting in June that have bought it some time to prove its new business model. Now, Uxin is racing to rev up that model as an online used car retailer, in addition to its wholesale business of selling customers’ cars to other used car traders.

The company was driving uphill in the second quarter as China’s car market slowed sharply due to widespread lockdowns and closures, including an unprecedented two-month lockdown in the country’s commercial capital of Shanghai. Those disruptions caused China’s overall vehicle sales to plummet by a whopping 48% year-on-year in April and another 13% in May, though the market began to rebound in June and July, with car sales rising about 30% in each of those months.

At the same time, the company has gotten some strong policy support that could help its bid to become China’s equivalent of U.S. giants CarMax (KMX.US) and Carvana (CVNA.US) over the longer term.

One of the strongest signals on the policy side came in July, when China’s Commerce Ministry and 16 other state agencies announced a broad series of steps to remove restrictions on cross-border trading between Chinese provinces to create a national market for used cars. And last week, Beijing announced a one-year extension of tax exemptions for new energy vehicle (NEV) purchases, providing another boost to an emerging sector that Uxin is targeting ahead of an expected steady flow of NEVs into the used car market in the years ahead.

“We believe that Uxin will benefit greatly from these policies. Combined with our strong growth momentum, we are well positioned to sustain our high-quality growth on the back of the industry tailwind in fiscal year 2023,” Uxin founder and Chairman Dai Kun said in a statement accompanying the results.

Uxin conducts its used car refurbishment out of two large facilities, one opened last year in the interior city of Xi’an and the other a more recently launched mega-facility in Hefei, capital of eastern China’s Anhui province. Uxin says the Hefei facility is also the largest self-owned used car superstore in China.

As those two facilities ramp up, Uxin sold 5,475 cars in the three months to June, a relatively modest sum but still up 29% from the previous quarter and nearly double the number of cars sold a year earlier. Nearly half of sales were to retail buyers, a figure the company wants to keep high as a percentage of overall sales since such transactions typically carry higher margins than the remainder that go to other car dealers. On that basis, the company sold 2,407 cars to retail buyers during the latest quarter, nearly quadruple the amount a year earlier, which could reflect early success for its online-offline integrated business model.

Improving margins

The strong transaction volume translated to rapid growth on Uxin’s top line, with revenue up 125% year-on-year to 626 million yuan ($87 million) for the three months to June, slightly beating the company’s previous guidance. Revenue was also up 24% from the previous quarter despite all the Covid disruptions during the period.

The solid growth helped Uxin improve its gross margin to 1.1% in the latest quarter from 0.2% for the quarter through March, though the figure was down from 4.0% a year earlier. On the bottom line, Uxin’s non-GAAP adjusted loss from operations, which excludes items like employee stock incentives, totaled 84.9 million yuan, an improvement from the 96.1 million yuan loss the previous quarter but wider than the 44.6 million yuan loss a year earlier.

Uxin forecast the growth would continue into the current quarter, predicting the company would post revenue of 590 million yuan to 610 million yuan for the three months through September, up from 345.9 million yuan a year earlier. It added it expects its transaction volume for the three months to September to reach 5,800 units, with about 3,000 of that coming from retail transactions.

Uxin shares fell slightly in the two trading days after the announcement, after rallying more than 8% the day before putting out the results. Despite the shares’ losing about two-thirds of their value this year, the analyst community is still surprisingly upbeat on the company, possibly reflecting its position as a potential future leader in China’s vast used car market. The company is generally valued at similar levels or even higher than its peers.

Uxin’s biggest short-term issue is its finances, as the company’s cash is running relatively low, standing at 88.2 million yuan at the end of June. At the same time, the company also previously owed relatively large sums to some of its backers. That situation improved markedly over the summer, as it did debt-for-equity swaps with two major creditors in July and August that lightened its debt load by about $75 million.

The company also announced at the end of June it would raise $100 million through the sale of senior convertible preferred stock to its largest shareholder, Nio Capital, a unit of Chinese NEV startup Nio Inc. (NIO.US; 9866.HK). Nio and another shareholder, Joy Capital, could also provide Uxin with another $165 million in cash as part of a separate $315 million financing deal announced in June last year.

All that financial reshuffling appeared to buy Uxin some more time to prove its new business model.

“The company believes that its current cash and cash equivalents, and cash proceeds received (or to be received) from the recent financing transactions will be sufficient to meet its anticipated working capital requirements and maturing debt obligations within the next 12 months of operations,” it said in its latest earnings report. Now it just needs to start cranking things up to show its new business can be a long-term profit engine feeding off the world’s largest car market.

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