Selling one car at a loss, can Afari rely on AI to turn the tide?

The automotive manufacturer Qianli Technology has applied for a listing in Hong Kong, and its new leader reportedly has over ten years of experience in artificial intelligence, but specific details are lacking.

Key Points:

• With the growth in sales of new energy vehicles, revenue increased by 40% in the first half of this year, but the gross profit margin turned negative.
• Geely is its main partner and recently signed an agreement with Mercedes-Benz to sell 3% of its shares listed in Shanghai at a 25% discount.

Yang Ge

The automotive and motorcycle manufacturer Chongqing Qianli Technology Co., Ltd. (601777.SH), which has just submitted its Hong Kong listing application, is quite mysterious, with the entire application document almost entirely based on a vision—namely, to one day become a giant in artificial intelligence technology. However, this vision has a fundamental problem: the company has yet to generate any revenue from what it claims to be its most promising artificial intelligence business.

This listing application document, first disclosed by the Hong Kong Stock Exchange on October 16 and updated last Friday, is filled with narratives about "artificial intelligence (AI)." Indeed, almost all listed companies in recent years like to include this buzzword in their documents, but Qianli Technology's enthusiasm for the "AI narrative" is even more pronounced—"AI" is mentioned nearly 200 times throughout the document, with 49 occurrences in the section discussing its "AI + Mobility" business alone.

Currently, the company's main revenue still comes from the sales of automobiles and motorcycles, including both traditional fuel vehicles and new energy vehicles, with brands covering "Rui Blue Automobile" and "Maple Leaf Automobile." However, these business scales remain limited, indicating that Qianli Technology still struggles to make a mark in the fiercely competitive Chinese automotive market.

According to the latest data from the China Association of Automobile Manufacturers, Rui Blue Automobile ranked 29th in sales among Chinese new energy vehicle brands in September. Currently, new energy vehicles account for about half of the overall passenger car market in China, and approximately half of Qianli Technology's own vehicle sales are also new energy vehicles.

This ranking places the company slightly above foreign brands like BMW and Honda in terms of sales of new energy vehicles in China, but still far behind major new energy vehicle brands, even lagging behind some smaller new brands, such as the 19th-ranked ZEEKR and the 26th-ranked Lightyear.

Nevertheless, Qianli Technology has several favorable factors. One is its deep partnership with Geely Holding (0175.HK). Geely owns international brands including Volvo, Lotus, and Polestar, as well as its own new energy brand ZEEKR. Another positive is the recent collaboration with Mercedes-Benz, which will acquire 3% of Qianli Technology's shares listed in Shanghai (A shares) at a discount of about 25%, seen as a vote of confidence in the company's prospects.

However, Qianli Technology hopes investors will believe that its most core asset and the "secret weapon" behind its artificial intelligence transformation is a rather mysterious figure—Yin Qi, who is 37 years old. He joined the company last year and became chairman in November. Unlike other executives in the company who have detailed resumes in the application document, Yin Qi's introduction is very brief, stating only that he "has over ten years of deep experience in the field of artificial intelligence vision and has a record of multiple successful startups." This may also explain why, despite the extensive discussion of artificial intelligence concepts in the listing documents, the company currently has no AI-related products available for sale. The application document states: "We have launched technological solutions, mainly including intelligent driving, smart cockpit, and autonomous taxi solutions." However, the document also adds that as of June this year, "we have not generated any revenue from these technological solutions."

Money-Losing Business

The company must quickly start generating revenue from its new AI business, as its traditional automotive and motorcycle businesses are developing slowly. More concerning is that the current production cost of the cars exceeds their selling price, meaning that the company is losing money on every car sold. This reflects the oversupply in the Chinese automotive market, leading to the negative impacts of fierce price wars over the past two years.

According to the application document, the company's revenue is expected to decline by about 20% in 2023, stabilizing only in 2024. In the first half of this year, revenue rebounded strongly with significant growth in the new energy vehicle business, but the original base was relatively small. In the first half of this year, the company recorded revenue of 4.15 billion yuan (approximately 583 million USD), a year-on-year increase of about 40%, compared to 2.95 billion yuan in the same period last year. The growth was mainly due to the more than doubling of new energy vehicle sales year-on-year; however, the company sold only 19,364 vehicles in the past six months, indicating limited scale.

In the first half of this year, about 63% of the company's revenue came from vehicle sales, with the remainder primarily from motorcycle sales. However, this did not improve the company's profitability— the gross margin for the automotive business was negative 0.9%, while the gross margin for the motorcycle business was positive 11.7%.

Overall, the company's gross margin for the first half of this year was only 5.5%, far below the 15.8% level of Geely Auto and leading Chinese electric motorcycle company Niu Technologies.

The thin gross margin is ultimately reflected in Qianli Technology's net profit, with the company losing 116 million yuan in the first half of this year, slightly widening from a loss of 108 million yuan in the same period last year. Since 2023, the company has been in a state of loss, but its financial situation remains relatively ample, with approximately 1.9 billion yuan in cash as of the end of June.

Qianli Technology was established in 1997, entered the automotive manufacturing industry six years later, and was listed on the Shanghai Stock Exchange in 2010. This listing in Hong Kong will make it one of the latest companies to go public on the international capital stage after being listed in Shanghai and Shenzhen. The company's significant transformation began with its collaboration with Geely Holding and the joint launch of the Ruiblu brand in 2022. Currently, Geely and its founder Li Shufu collectively hold about 30% of Qianli Technology's shares listed in Shanghai, and Geely is also listed as one of the potential buyers of the company's future AI products.

Currently, Geely Group accounts for about 30% of Qianli Technology's total procurement, including complete vehicle kits and automotive parts. At the same time, Geely is also Qianli Technology's largest single customer, contributing between 30% and 40% of the company's revenue over the past three years As for Mercedes-Benz, it is the latest partner, having reached an agreement in September this year, where Mercedes-Benz will acquire 3% of Qianli Technology's shares listed in Shanghai for 1.34 billion yuan. This transaction superficially demonstrates confidence in the company, but it should be noted that the deal was completed at a discount of about 25%. In addition, Geely itself is also an important partner of Mercedes-Benz, and this relationship may be a key factor in facilitating this collaboration