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As 2023 approaches, the subsidy for the purchase of new energy vehicles expires, and most new energy vehicle companies are facing a big profit test. At this time, a good news came out ahead of schedule.

On December 29, 2022, the measures for the Administration of Auto financing companies (draft for soliciting opinions) (hereinafter referred to as the draft for soliciting opinions) was released, which is a major adjustment to the measures for the Administration of Auto financing companies after 14 years.

According to the explanation of the relevant responsible person, the draft broadens the business scope of auto financing companies, expands the service target, and enriches the variety of financial products. For example, allow auto financing companies to carry out after-sale and leaseback financing leasing business, include auto accessories financing in the scope of business, and allow auto financing companies to set up overseas subsidiaries to provide financial services needed for the development of national brand cars in overseas markets.

These measures will undoubtedly increase the revenue of auto financing companies. Almost all of the 25 auto financing companies in China are set up by automobile groups. At present, the profit contribution of auto finance is after passenger cars and commercial vehicles, and it is the third largest source of profits of the major automobile groups, and some enterprises are even closer to the front. Therefore, this measure will eventually benefit the majority of car companies.

However, if you narrow your perspective to the new energy car companies that are facing a big profit test, you will find that about 1/3 of the top 16 new energy vehicle sales in 2022 do not have their own auto financing company. they may not enjoy the direct dividend from the draft. However, the draft can still indirectly boost the sales of these new energy car companies.

Among the top 16 sales in 2022, only SAIC GM Wuling, BYD, Geely, Great Wall and other auto financing companies have their own auto financing companies. This paper focuses on auto financing companies and auto financing business, trying to answer four questions:

1. What is the past life of an auto financing company like?

2. What are the characteristics of new energy automobile consumption finance?

3. What are the benefits of the draft to the New Energy Auto Finance Company?

4. Why didn't the new power auto companies set up their own auto financing companies?

1. The Origin of Auto Finance in 1956, the Ford Motor Company of the United States launched a new car, named Model five or six. The new car, regardless of style and function, is very good, but sales have been unable to go up, which worries the salespeople.

Iacocca, then Ford's sales manager, was even more worried because he had the worst sales in his region. In order not to be at the bottom, Koka came up with a new way to sell cars: buy a model 5 or 6, pay 20% in advance, and pay $56 a month for three years. In this way, the average consumer can afford it.

Iacocca successively served as president of Ford and Chrysler, Tu Yuan: Beiqing.com, this "56 buy five or six" method, caused sales to rise in a straight line. In just three months, Iacocca's performance ranked first in the company. Ford promoted this sales model throughout the United States, and its annual sales soared by 75000 vehicles, and other automakers learned from it one after another, thus establishing the auto finance model of "installment payment" for automobile terminal sales.

Today, American auto finance has become an independent and mature financial sector. And because the auto finance business is closely related to the auto business, compared with banks and other financial institutions, the auto financing companies under the American Automobile Group account for the largest proportion in the auto finance business. Ford Motor Credit Co., Ltd., Volkswagen Financial Services Co., Ltd., and General Automobile Finance Company of the United States are all world-famous auto financial services companies relying on automobile groups.

China's auto finance business started and auto financing companies were set up relatively late. The formal implementation of the "measures for the Management of Auto financing companies" on August 18, 2004 is an important inflection point. At that time, Volkswagen, GM and other auto giants brought the long-running auto finance business in Europe and the United States to China.

Compared with B-end auto finance business, such as dealers, etc., auto finance business for consumers, such as car consumer credit, car financial leasing and so on, is generally called auto consumer finance, which accounts for the highest proportion of auto finance business. The main business of auto financing companies is auto consumer credit, which is common for consumers to buy cars by installments. Another "zero yuan down payment" model belongs to financial leasing, which previously belonged to financial leasing companies, and auto financing companies have been allowed to carry out this business in soliciting opinions.

At present, there are 25 licensed auto financing companies in China, almost all of which are set up by automobile companies.

Establishment time and ownership structure of 25 auto financing companies according to Roland Berger data, in the auto finance market, auto financing companies account for 41%, financial leasing companies account for 17%, and non-automobile commercial banks account for 42%. At the end of 2021, the assets of 25 auto financing companies across the country exceeded trillion yuan for the first time, an increase of 3.01% over the same period last year.

In addition, by the end of 2021, the balance of car financial leasing belonging to financial leasing companies was 4.751 billion yuan, a decrease of 3.463 billion yuan or 42.16% compared with the end of last year.

China's auto finance industry shows that the growth rate of auto finance companies is slowing down, but the auto finance market is growing rapidly.

At present, the number of 25 auto financing companies has not changed in the past seven years. Moreover, the growth rate of the total assets of these auto financing companies continues to decline, from 37% in 2016 to 3% in 2021.

Asset scale and growth rate of 25 auto financing companies sources: China Banking Association, Bingjian Science and Technology Research Institute, however, with the strong participation of banks and other financial institutions, China's auto finance market has developed rapidly, with a compound growth rate of 25.8% in the past 10 years. Moreover, consumers' acceptance of automobile consumer finance is getting higher and higher. In 2022, 61.2% of consumers chose auto consumer finance products, compared with 58% in 2021. Moreover, more than 70% of consumers who have repurchase plans in the future will accept auto consumer financial products.

The future market of auto finance is very large. In 2021, the financial penetration rate of China's new car market is 62%. As a comparison, the financial penetration rate of new car finance in the United States is about 85%, and that of other developed countries is generally over 70%, so there is still a lot of room for development. Moreover, the auto finance business is also facing an important trend from the fuel vehicle market to the new energy vehicle market.

2. Compared with fuel vehicles, the sales growth rate of new energy vehicles in China is obvious. According to the China Automobile Association, in 2022, the production and sales of new energy vehicles reached 705.8 million and 6.887 million respectively, an increase of 96.9% and 93.4% over the same period last year, with a market share of 25.6%. According to the Federation of passengers, sales of new energy vehicles account for 31.4% of all passenger car sales, that is, one out of every three passenger cars sold is new energy vehicles.

Auto finance, so quickly enter the era of new energy vehicles.

Compared with fuel vehicles, the demand of new energy vehicle consumers for automobile consumer financial services is more exuberant. The credit rate of existing users of new energy vehicle consumer finance is 61.2%, while the credit willingness rate of repurchase users is 71.2%. Moreover, compared with fuel vehicles, new energy vehicle consumption finance has its own different characteristics.

First, online. The scene of automobile consumer finance of fuel cars is mostly offline. For example, consumers learn about financial products in 4S stores and apply for loans to buy cars offline. But the financial services for the consumption of new energy vehicles are more online, because new energy car companies advocate the direct selling model and no longer rely on 4S stores for sales. New energy vehicles' online car viewing, customers' online applications for financial installments, large payments and direct loans can be handled on the App of car companies, and consumers are also happy to obtain financial services online.

Second, the down payment is low. Compared with fuel vehicles, consumers of new energy vehicles have a lower threshold for first-time expenditure when they buy automobile consumer financial products.

First, because the previous new energy vehicles are tax-free, and second, because the down payment proportion of new energy vehicles is relatively low, generally 15%, while the down payment proportion of fuel vehicles is 20%. Even, Tesla, Weilai's financial leasing model has achieved zero down payment. In terms of interest, the discount of new energy car companies is relatively high, almost zero interest.

Third, there are many products. Compared with the automobile consumption finance of fuel vehicles, the scope of new energy vehicle consumption finance is wider. The reason is that the consumption scene of new energy vehicles has changed, such as OTA upgrades of new energy vehicles, consumers need to recharge electricity frequently, and so on, which provides a broader space and opportunities for automobile consumption financial innovation.

In order to reduce the threshold of buying new energy vehicles, products such as separation of car and electricity are also introduced in automobile consumer financial services, which convert batteries into rental products; in the post-market of new energy vehicles, used car consumer finance is also developing rapidly. Some industry insiders even said that with the increasing intelligence of new energy vehicles in the future, software systems will be considered as financial targets.

At present, the consumption finance of new energy vehicles in China is developing rapidly, and the penetration rate of new vehicles has increased steadily, from 30% in 2015 to nearly 45% in 2021, and is expected to reach 48% in 2022, and is expected to rise steadily to 58% in 2025.

3. It is better to sell cars than to engage in auto finance. At present, the profit contribution of auto finance, mainly automobile consumer finance, lies behind passenger cars and commercial vehicles, which is the third largest profit source of major automobile groups, and some enterprises are even closer to the front. Some people in the industry have shouted the slogan "it is better to build cars than to engage in auto finance". This is more prominent in new energy car companies.

In the first three quarters of 2022, BYD Auto Finance has achieved operating income of 1.078 billion yuan and net profit of 336 million yuan, which is 171.22% and 253.79% of that of 2021, respectively, with an astonishing growth rate. As of November 2022, BYD auto finance loans exceeded 100 billion yuan, a record high, becoming another milestone in the company's business development.

Geely's Geely Financial also said that from 2018 to the end of October this year, the financial business of its pure electric models achieved a compound annual growth rate of 477%, while hybrid models grew by more than 70%.

In 2023, the state subsidy has gone downhill, and it is the right time to launch a draft for soliciting opinions. The content of the draft will bring more dividends to the auto financing companies under the new energy car companies.

First, it has expanded the business scope of the New Energy Auto Finance Company. The relevant responsible person explained that the draft broadens the business scope of auto financing companies, expands the service audience, and enriches the variety of financial products. For example, allow auto financing companies to carry out after-sale and leaseback financing leasing business, include auto accessories financing in the scope of business, and allow auto financing companies to set up overseas subsidiaries to provide financial services needed for the development of national brand cars in overseas markets.

Just "allowing auto financing companies to carry out after-sale and leaseback financing leasing business" brings dividends to auto financing companies under the jurisdiction of new energy vehicle companies, which enjoy subsidies from auto companies. with financial advantages, vehicle supply advantages, team professional advantages, it is possible to "snatch" the financial leasing business from the third-party financial leasing companies.

Second, it is beneficial for new energy car companies to "go out". At present, China's new energy vehicle companies are "going out". In the first 11 months of 2022, China's new energy vehicle exports doubled compared with the same period last year. In Europe, one out of every 10 new energy vehicles comes from China.

BYD, Aichi, Lecker, Xilai and other car companies have entered the European market, using a "CarLease" model similar to financial leasing. The content of "allowing auto financing companies to set up overseas subsidiaries to provide financial services needed for the development of national brand cars in overseas markets" in the draft for soliciting opinions may enable new energy car companies that "go out" to gain more benefits from financial services for automobile consumption.

Third, it is beneficial for new energy vehicle companies to give full play to their own advantages. Compared with fuel cars, it is more convenient for new energy car companies to carry out automobile consumer financial services.

The new energy vehicle has a high degree of intelligence and rapid iteration. New energy vehicle companies are more involved in production, sales, after-sale and other links, so they have more advantages than fuel vehicles in the data accumulation and product design of automobile finance. Moreover, through the vehicle network, new energy vehicle companies can have a more in-depth grasp of automobile hardware and software, vehicle road operation data, maintenance data and so on, and can launch more targeted auto financial products.

4. New Energy Automobile Finance Company although the New Energy Automobile Finance Company has a large dividend, most of the car companies that own auto financing companies are traditional car companies. Among the top 16 new energy vehicle sales in 2022, 1/3 of new energy vehicle companies do not have their own auto financing companies, including new power car companies such as Wei Xiaoli, Nezha, Zero run, Selis ask the World, and so on.

No new auto finance company has been set up since 2016. The reasons include the peak of sales in the overall auto industry, the impact of the epidemic in the past three years, and the increased competitiveness of banks and other financial institutions in the field of auto finance.

More importantly, auto financing companies are different from ordinary companies and need to be licensed and belong to a highly regulated industry. Getting a license from an auto financing company is not easy, time-consuming and expensive.

In an acquisition plan in 2019, an auto financing license held by Sany raised a high price of more than 1 billion yuan, according to Caijing. At that time, practitioners in the auto finance industry also said that another auto financing company was also preparing to sell, and the final transaction price was expected to be no more than 2 billion yuan.

At present, it is in the critical time of the profit test of the new power car companies. The subsidy for the purchase of new energy vehicles has expired, and most of the new power car companies are not profitable.

Specifically, Xiaopeng Motor posted a net loss of 2.38 billion yuan in the third quarter of 2022, an increase of 49 percent over the same period last year; Xilai Motor made a net loss of 4.1108 billion yuan in the third quarter, an increase of 392.1 percent over the same period last year; and ideal Motor posted a net loss of 1.646 billion yuan, an increase of 156.7 percent over the 641 million yuan loss in the second quarter. Nahu lost more than 4.2 billion yuan in 2020 and 2021.

In order to get involved in auto finance and increase profits, new power car companies, such as Wei Xiaoli and Nezha, have turned to apply for easier financial leasing licenses, and have set up financial leasing companies one after another. innovative car consumption financial services such as zero down payment and battery rental and sale have been launched.

In the future, with the major adjustment of the "measures for the Management of Auto financing companies" after 14 years, these new power auto companies may be interested in setting up auto financing companies. In the draft for soliciting opinions, some conditions have been relaxed for the establishment of an auto financing company, for example, as far as the investors of the auto financing company are concerned, the draft removes the asset size restriction that "the total assets in the last year are not less than 8 billion yuan or the equivalent freely convertible currency".

However, although these new power auto companies have not set up auto financing companies, they have adopted cooperation with other financial institutions or made use of their financial leasing companies to develop auto consumer finance, which will still promote them to increase sales and become profitable. it is mainly reflected in the following three aspects:

First, automobile consumer finance can lower the threshold of buying new energy vehicles. At present, the price of new energy vehicles is on the high side. In order to expand sales, most of the new energy vehicle companies hope to use auto finance to lower the purchase threshold. For example, in order to maintain the tone of the brand, car companies can give consumers more benefits and profits through discounted car consumer credit while insisting on not reducing prices.

Second, auto consumer finance can ease consumers' worries about buying cars. Compared with fuel vehicles, new energy vehicles still have some pain points, such as low value preservation rate and short battery life cycle. New energy vehicle enterprises and financial institutions have launched innovative auto financial products such as "salvage guaranteed financial products" and "car-electricity separation mode", which can allay consumer concerns and promote sales.

Third, automobile consumer finance can form a link between automobile enterprises and consumers. Car sales, in a sense, is an one-off business between car companies and consumers. However, auto consumer finance has a longer contact cycle with customers, which can help automobile companies to enhance customer stickiness and explore the possibility of consumer diversification. The paid subscription and software upgrade services of new energy vehicles can play the role of catalyst and adhesive through auto finance.

Finally, the car think tank believes that new energy vehicle companies, as well as its new energy automobile finance company and financial leasing company, need to do a good job in risk management, pay attention to residual value and strengthen credit risk prevention in the development of auto finance business. At present, the consumer finance of new energy vehicles is doing better, and the overdue rate and default rate of zero down payment customers are lower than the level of fuel vehicles. Secondly, new energy auto finance companies need to operate in compliance to avoid excessive financing and high loans, avoid vicious competition at excessive low prices, and avoid market chaos such as yin-yang contracts.

[full text reference]

[1] China Auto Finance Corporation Industry Development report 2021, Automobile Finance Special Committee of China Banking Association

[2] "Insight report on New Energy vehicle consumption in 2022", 21st Century New Automobile Research Institute, Automobile Consumer Finance Center of Ping an Bank

[3] Overview of China's Auto Finance Industry in 2022, head Leopard Research Institute

[4] "New energy automobile era: where are the challenges and opportunities of auto finance? 21st Century Economic report

[5] "the value of an auto financing license is more than $1 billion? Sany heavy Industry wants to take over the assets of its parent company at a high premium and is questioned by the Shanghai Stock Exchange.

[6] "subsidies for new energy vehicles are about to be abolished, and the promoting role of auto finance is gradually emerging."

[7] "Automotive Finance War escalates, New Energy becomes the main Battlefield", Banning Studio

[8] "

It will be a disaster for the financial leasing company of the mainframe factory, "said Lao Huang.

This article comes from the official account of Wechat: che Bai think Tank (ID:EV100_Plus). Author: Chen Zhongshan.

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