Original link: https://www.latepost.com/news/dj_detail?id=1210
NIO, a new car-making force, was sniped by a short-selling report.
Grizzly Research, a short-selling agency, claimed that Weilai had inflated its revenue and net profit margin through accounting methods, and regarded Weilai’s unconsolidated battery asset management company “Wuhan Weineng” as a tool for its “inflated income”.
Grizzly also said that in the bond prospectus issued in April this year, Weineng disclosed that it had 19,000 lease contracts, but managed 40,000 batteries, 1 lease contract corresponds to 1 battery, and the remaining 21,000 batteries It was purchased by Wei Neng in order to assist Wei Lai to inflate its income.
But this claim seems untenable. Weineng actually screened 19,000 lease contracts (corresponding to 19,000 batteries leased) from more than 40,000 batteries to issue bonds as collateral. Investment banks such as JPMorgan Chase, Morgan Stanley, and Daiwa Capital continued to maintain NIO’s buy rating in their research reports. “We believe that NIO’s actual number of users may be different from the 19,000 assumed in the short-selling report, and this discrepancy may be justified — we await further clarification from NIO,” Citi said in the report.
Although the grizzly bear did not cause Weilai’s stock price to plummet, it brought the asset management company behind Weilai’s power exchange business to the surface. How does Weilai’s power exchange business work? Why does Grizzly think that Weilai has “inflated revenue” through off-balance sheet companies? What are the real risks of this model? “Late Auto” tries to answer:
Turning batteries into financial products
In the early days of Weilai’s implementation of the battery swap model, the market once scorned this model. Operating battery leasing means that Weilai has to bear high battery costs and depreciation expenses, which is a hot potato.
“Weilai realized that battery cost was a problem in the early days of the idea of battery swap business. At first, Weilai planned to find financial institutions to cooperate, but after realizing the particularity of lithium battery assets, Weilai chose to set up an asset management company to do business. ,” said Lu Ronghua, general manager of Wuhan Weineng, in an interview with the media last November.
Battery leasing lowers the threshold for purchase, but the cost of batteries can take years to recover, putting a lot of pressure on corporate cash flow. A car takes 70,000 yuan, and 100,000 cars is 7 billion yuan. The way NIO solves this problem is to set up a company that specializes in managing battery assets and strip the asset burden of battery leasing off-balance sheet.
In August 2020, NIO joined Ningde Times, Hubei Venture Capital, and Guotai Junan to establish a battery asset management company “Wuhan Weineng”. Each of the four companies invested 200 million yuan. Since its establishment, Wei Neng has raised a total of 5 times and nearly 2 billion yuan, and Wei Lai currently holds 19.8% of the shares.
At the same time, NIO announced the launch of the BaaS vehicle-electric separation service, which will separate the ownership and use rights of the vehicle and the battery. Users can choose the battery rental service when purchasing a NIO car, deduct 70,000 yuan (standard battery life version of 75kWh battery) or 128,000 yuan (long battery life version of 100kWh battery) at one time, and then pay the battery lease monthly fee.
When users purchase NIO and choose BaaS services, there are three contracts. One is a car purchase contract signed with NIO, the other is a battery rental contract signed with NIO, and the other is a contract for NIO to purchase batteries from NIO.
Under this model, Wei Neng needs sufficient cash flow to cover the cost of buying batteries. On April 18, 2022, Weineng’s first battery asset ABN was issued on the Shanghai Stock Exchange.
Weineng screened out 19,000 lease contracts (corresponding to 19,000 leased batteries) from a total of 40,035 batteries to issue bonds as collateral, with a total issue size of 400 million yuan and a redemption time of 2 years. Then on May 31, Weineng issued another ABS with a total scale of 635 million yuan.
This model is similar to the way Alipay’s Huabei and Zhubei rely on ABS to obtain funds for lending.
The process of personal use of Huabei to generate debt and interest is analogous to the process of NIO car owners renting batteries to Wei Neng to generate rent. Alipay packages the debts of a certain number of users into ABS (asset-backed securities) and sells them to investors, who receive regular interest income, similar to wealth management products. After selling the ABS, Alipay can immediately recover the loan principal and continue to lend to more people.
Wei Neng replaces Ant’s creditor’s rights with the rights to collect rent from car owners, sells the rental rights to investors, recovers the battery cost at one time, and then buys more batteries from Wei Lai to expand the asset scale and continue the game.
Batteries in swap stations do not generate rental income
Weineng has been a profitable company since its first day, Lu Ronghua once told the media.
Under the BaaS model, NIO’s financial model is: in the future, the service fee for battery swapping will be charged, covering the depreciation, site rent and operating expenses of the swapping station. Weineng’s financial model is to cover battery depreciation and capital costs with BaaS rent.
According to Weineng ABN’s prospectus data, from January to September 2021, Weineng will spend a total of 2.78 billion yuan to purchase batteries from NIO. During this period, Weineng purchased about 36,000 batteries, with an average cost of about 77,000 yuan per battery.
The monthly rental fee for Weilai’s 75-degree battery is 980 yuan, and the annual rent is 11,760 yuan, which is equivalent to recovering the cost in 6-7 years. Every rent thereafter is additional income. And that’s not even counting the value that battery recycling might generate. Ernst & Young Huaming’s asset evaluation report on Weineng shows that Weineng’s battery has a service life of 8 years and an estimated residual value rate of 5%.
According to the model of Weilai and Wei Neng, each lease contract corresponds to a leased battery, but this is not all battery assets generated by the battery replacement mode. A person close to Weilai told “Latency Auto” that operating a power exchange station requires 15%-20% of backup batteries to be reserved for scheduling. These batteries are stored in the swap station and cannot generate rental income.
But Weilai’s response denied this statement: the batteries in the swap station were purchased and held by Weilai.
This question has an impact on the relationship between NIO and NIO and the operation of the model – 15%-20% of the batteries in the entire system cannot generate revenue. Who will bear this cost?
If it is borne by Weilai, the cost of battery replacement will become battery depreciation, site rent, operating expenses, and depreciation of the replacement station.
If the backup battery in the swap station is borne by Weineng, Weineng’s profit model requires that the rental income of 1 battery is greater than the purchase cost of 1.2 batteries to be established.
Li Bin said battery asset management is the largest business in the electric vehicle industry
When the BaaS business was released on August 20, 2020, Li Bin, chairman of Weilai, said that battery asset management is the largest business in the electric vehicle industry. If there are 200 million electric vehicles in China, the battery leasing business will have a market space of 2 trillion yuan.
Lu Ronghua previously revealed in an interview with the media that as of May 2022, the scale of battery assets managed by Weineng exceeds 6GWh. Weineng’s goal is to manage 100GWh of assets in 2025.
This goal requires hundreds of billions of funds. According to the market price of 1,000 yuan per kilowatt-hour of electricity, 100GWh is equivalent to 100 billion yuan. This money can buy 1.3 Guoxuan Hi-Tech, which ranks fourth in China in terms of installed capacity of power batteries.
Not only Weineng is doing battery asset management business in China, but also power battery giant CATL and Aodong, the leader in operating vehicle battery replacement.
Compared with the Ningde era, the development of Wei Neng is greatly restricted by the development of Weilai Automobile. CATL provides batteries to dozens of car companies and builds its own power exchange system; NIO can only rely on the power exchange system established by NIO to provide leasing services, and the growth rate of users depends on the speed at which NIO sells cars.
In addition, the risk of the battery asset management model itself is the biggest risk of Wei Neng. Whether NIO can continue to issue bonds to buy more batteries, changes in financial regulatory policies, whether investors recognize the business of battery asset management, and whether NIO’s bad debt rate is controllable remains unknown.
But for companies operating electricity swaps, asset securitization is an inescapable point. Expanding the scale of battery assets under management requires capital, and the most efficient way is to package the debt and sell it back to cash.
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