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China's leading auto leasing firm publishes strong quarterly results

2019-05-20 09:24 Monday

Chinese car rental company CAR Inc. announced their first quarter net profits for 2019, showing a robust growth of 70% year-on-year to reach US$56.8 million, more than their entire net profit for all of 2018.

auto leasing

A company spokesperson said the organization, the largest of its kind in the country, "has entered 2019 with a solid financial performance and prosperous business growth."

The company allows individuals to rent cars via its dedicated app or in offline stores. It also acts a major player in the Chinese auto leasing and fleet management industry, since it rents vehicles to an affiliated ride-hailing platform, UCar.

Last year, CAR Inc. had posted net profits of US$41.9 million, which was actually a fall of 67% year-on-year amid fierce competition from ride-hailing and car-sharing companies, a situation from which it has made a strong recovery.

There many have been several reasons for the turnaround. Its revenue from auto leasing increased by just over 20% year-on-year to reach US$184 million, but its revenue from the UCar-related business decreased to US$27 million, down by 15% compared to 2018.

The company also announced a scheme approved by its stockholders to buy back up to a tenth of its shares. Meanwhile, CAR Inc. filed with the Stock Exchange of Hong Kong earlier this month and said that it will sell senior notes, or bonds, worth US$200 million.

The company's chairman Lu Zhengyao, also known as Charles Lu, has hit the headlines recently since he is the non-executive chairman and angel investor of the fast-paced, on-demand coffee delivery chain Luckin Coffee, which already has filed for its IPO in the United States, aiming to raise US$586.5 million.

The Chinese startup is seeking to overtake Starbucks in Lu's home country, opening more stores in two years than the industry giant has in two decades. At stake is a US$5.8 billion caffeinated drinks and lifestyle market where coffee consumption and related culture is only in its initial stage and has the potential to grow exponentially.

To achieve his goal, Lu Zhengyao and chief executive officer Qian Zhiya are employing a strategy they used with CAR Inc. more than a decade ago: spending money from investors quickly to snap up swathes of market share from rivals – a common tactic for a Chinese Internet-driven startup. He is hoping the business will follow suit from his tried-and-tested auto leasing model.

Lu originally co-founded CAR Inc. in 2007 and set on a decisive plan to purchase fleets of vehicles and expand its service-store network, with hefty spending on ads, fleet management and discounts such as a one free day service for new customers. By 2014, it had built up a rental network with more cars than the other nine top competitors in China combined.

A former executive in the telecom industry, Lu guided CAR Inc, which currently offers leasing services to customers in over 300 cities, to an IPO in 2014, raising over US$400 million on the Hong Kong Stock Exchange. Hot on the heels of that move, Car Inc. launched the ride-hailing startup UCar the following year.

UCar differentiated itself from its competitors by buying its own fleet rather than leveraging financial leasing opportunities or taking advantage of other financing channels, and offering high-quality, trained drivers for customers. Lu, who stepped down as CAR Inc's chief executive in 2016, now runs UCar as CEO and chairman, and has diversified the offering to include auto dealerships, consumer finance and equipment finance services.

By 2017, UCar had become a famous rival of the main player Didi in China. It had raised US$665 million in funds from four investors that included UnionPay, China's equivalent of Visa or Mastercard. The company had already raised investment from high-profile sources, including Jack Ma and Warburg Pincus.

The startup Ucar is now listed on China's over-the-counter stock exchange and has a valuation of over US$6.5 billion. Lu's stake in CAR Inc. is worth nearly US$500 million, making his total net worth an estimated US$1.3 billion.

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