Text | Liu Yiming Wei Lai is experiencing the worst quarter since listing.On the eve of the closing of the time window for the “new forces”, Weilai did not hand over a surprising answer, which is the core reason for investors’ panic selling.Today, Weilai’s market capitalization is only $1.8 billion, which is 72% lower than the IPO price and 85% lower than the highest point.In the second quarter of 2019, Weilai recalled a quarter of the ES8 cars due to auto-ignition, and then withdrew losses (283 million yuan) in the quarter, resulting in a loss of 83% in the quarter, gross margin,Indicators such as net interest rates fell across the board.Coupled with the co-founder’s departure, the company’s layoffs, new energy subsidies, and so on, these negative factors have made the situation worse.After the Q2 financial report was released on September 24, Weilai management even canceled the analyst conference call, which is rare in the Chinese stock market.Once, Tesla founder Musk’s violent response at the telephone call slammed the stock price down by 5%. The bleak quarterly report and cancellation of the call would cause Weilai’s share price to fall by more than 20%.One day later, in order to restore investor confidence and maintain a conference call, CFO Xie Dongying explained that the call was cancelled because of the sensitivity of the NIO China Fund.Then the question is coming: How much can Wei Lai actually value?Is Weilai’s advantage at the beginning of the IPO still available?Will Wei Lai’s disadvantage be magnified in the next year?Let’s take a step-by-step analysis.Wei Lai walked in the “Ghost Gate” this year. Q2 Wei came to the “Ghost Gate” and was able to get out of danger. Seeing whether Li Bin could bring in new financing.According to Weilai Q2’s financial report, Weilai’s net assets (total assets – total liabilities) are only 456 million yuan. If the next quarter is again large losses and no new financing comes in, it will lead to negative net assets, that is, “capitalNot indebted.”Will Wei Lai close down?It seems that it is not yet. According to JPMorgan Chase’s prediction, Weilai will have a negative net asset in 2019-2021, which is under the assumption that there is no new financing.Despite this, Weilai’s operating cash flow plus cash on hand is sufficient to cover short-term debt in the next few years, so that the capital chain will not break.In the past 100 years, there have been almost no startups in the global automotive industry. Until Tesla, which was established in 2003, broke the deadlock. In the past 20 years, China has had few major breakthroughs in new car companies.It can be seen that the automobile is a very mature industry. In the technical level of the internal combustion engine and transmission of the traditional automobile enterprise, the new company has no chance, and the new opportunity comes from the motorization of the automobile to lower the entry threshold.According to the analysis of Ping An Securities, after the car was electrified, the mechanical transmission parts were greatly reduced and replaced with weak-type components, and the core technologies of the weak-electric parts were similar.Therefore, in the era of electrification, the versatility of components has been greatly enhanced, which has reduced the difficulty of supply chain management.Therefore, Weilai was able to produce a car through a foundry such as Jianghuai Automobile, and stood on the same starting line as the traditional car company.If Tesla was in the development of the automobile industry for hundreds of years, and seized the gap of electrification in 2003, and survived by the strategy of holding high and high, then Weilai mimicked the Tesla strategy in 2014.In fact, it is too late.Like Tesla, Wei Lai launched products from top to bottom, first pushing high-end models, and then gradually down to the low-end market. The advantage of this style of play is that it can enjoy the first-mover advantage and accumulate brand premium.But the downside is also obvious. The early high-end market was relatively small, the sales volume was difficult to break, and the cost was high (the market cost once exceeded the luxury car brand Ferrari), but the low-end models that were able to take off later began to faceThe fierce confrontation of traditional car companies.Don’t forget, Tesla was established very early (2003), and the first production car was released in 2008.If the traditional car companies intensively sell new energy vehicles in 2020, the time window is closed, then Tesla’s growth period is 12 years, Tesla’s capacity climbing period from 2015 to 2018,It has been more than four years, and it has enough strength to face the counterattack of traditional car companies in 2020.Tesla P/S valuation and capacity relationship.Image source: Everbright Securities, but the young Weilai was established in 2014. The first production car ES8 was released in December 2017. It has only been in the growth period for only 2 years. It is still in the product launching period and has not yet reached the capacity climbing stage.The wings are still far from full.Wei Lai was born too late, and will be confronted with the new energy wave brought by Tesla. Traditional car companies generally adopt a progressive approach to complete the electrification transformation, especially the head enterprises.Ping An Securities analyzed that because the sales and profits of traditional car companies still rely mainly on fuel vehicles, they have to continue to invest a lot of research and development resources to improve the efficiency of fuel vehicles to meet new emission regulations.Before 2020, most of the traditional car companies gradually introduced new energy versions such as plug-in and pure electricity on the basis of fuel vehicles.Ping An Securities believes that their cautiousness is mainly for two reasons. One is to maintain a smooth transition between existing sales and profits, and the other is that the new energy market is not yet mature. The current high economy is mainly due to policy support.The new energy market is recognized and the cost is drastically reduced, which is the best time for their full electrification.This moment will come in 2020.In September this year, Mercedes-Benz, BMW and Audi collectively unveiled the new pure electric car.On September 5th, Mercedes-Benz’s first pure electric vehicle EQC was launched in the world, and will be put into production in China at the end of 2019. Audi’s first pure electric vehicle e-tron also launched in September, and achieved domestic production in 2020.The BMW iX3 is also scheduled to be launched in 2020. After the new car is put into production, it will be produced by the Shenyang plant and become the sixth BMW model in China.“In 2020, the intensive release of traditional car companies in the production of vehicles, indicating that the time window is slowly closed, before this, is the gap between the new forces that have no fuel trucks,” said a car industry investor.”If the traditional car companies intensively start the car in the next few years, it is possible to re-route Tesla’s road. It is not a problem to make profits slowly. But now with the localization of Tesla, Weilai is being attacked before and after.”Since last year, he has given up on the car-making project.From 2016 to the first half of 2019, Weilai’s non-GAAP net loss totaled 22 billion yuan. In less than four years, Weilai burned Tesla for half of the accumulated money (40 billion).In order to be able to stand firm before the 2020 time window is closed.Although it has burned so much money, it is a pity that the production capacity of Weilai is far from the level of Tesla. In 2018, Tesla delivered 245,000 vehicles throughout the year, with three factories, and Weilai to 2019.In the month, only 20,000 vehicles have been delivered, and the foundries of JAC have been used to date.Because the automotive industry is huge and mature, it must be viewed in a longer period of time.Tesla stepped on the time and grew up from the gap in history; Wei Lai adopted a light asset model, hoping to focus on catching up with the last boat, but chasing very hard, CICC predicts that with traditional car companiesEntering this market, Weilai’s market share will gradually decline.Weilai car sales have no signs of high growth against Tesla, and Weilai is still in the early stage of the life cycle – the product launch period.At this stage, production and delivery are the focus of investors’ attention.CICC has done a study on the valuation of “new forces in making cars”. It is more important to distinguish which groups of indicators are the growth and growth rate, profit and growth rate, sales volume and growth rate.Since Weilai is still far from profit, the commonly used indicators such as P/E have failed. In addition to DCF (discounted cash flow), what other indicators need to be focused?Through the change in the market value of Tesla, CICC compared the relationship between Tesla’s market value and operating cash flow, free cash flow, net profit of returning home and their respective growth rates. Tesla’s share price was operated in 2013.When the cash flow and free cash flow improved significantly, there was a good performance, but the correlation time was not obvious.The correlation between the market value of Tesla and the year-on-year growth in sales volume and sales volume is strong.In 2013, Tesla’s models exceeded 20,000 vehicles for the first time, an increase of 624% year-on-year; in 2017, due to the expectation of Model 3 volume, the stock price once again ushered in a sharp rise.Therefore, for the “new car power”, car sales are the most important factor affecting the market value.In essence, “Internet-making cars” is not equal to the Internet. Automobiles are typical heavy-asset industries. Many rules and valuation methods of the Internet are not applicable in the automotive industry.The capital and technology of the automobile industry are intensive, relying on the scale effect of large output and large output. This is inferior to the marginal cost of the Internet industry, and there is an essential difference through the unlimited expansion of the platform model.In the 2019 Q2, due to the recall of the car spontaneous combustion, the new delivery car fell and then resumed.However, according to JPMorgan Chase’s forecast, Weilai’s full-year order delivery may be less than expected in 2019. The shipments in 2019 have been lowered to 41,000 units. Weilai claims that it will deliver 4-5 thousand units in 2019.The production curve of a car is hard to rise exponentially like the Internet company GMV.Therefore, it takes time for Wei to climb the production capacity. This is why it is impossible to pay for it immediately.If Weilai is as heavy as the Tesla Model 3 in the second half of 2019, it will usher in a wave of gains, but there is no sign of any heavy volume.The ES6’s pre-sales at the beginning of this year were also lackluster. Compared with the ES8, it received 18,000 reservations shortly after the release. The ES6 only got 7300 reservations within 2 months after the release, although Weilai was in Shanghai afterwards.The auto show increased marketing efforts and test drive investment, but because the car spontaneous combustion recall incident has affected the production speed, ES6 sales have not yet reached the high expectations of investors.In addition, new energy subsidies are decreasing at a rate of 30% per year, and may disappear completely in 2021. Subsidies account for about 16% of the ES8 price. Losing subsidies will further weaken the competitiveness of Weilai and Tesla Model 3 domestic versions.It is also very important for Weilai to clear the accounts before 2020, instead of stopping the loss.According to estimates by CICC, the scale effect of the automobile manufacturing industry will quickly reduce the indirect costs and reduce the loss of the foundry. Therefore, simulations are carried out for different production scenarios: the results show that if the annual output of ES8 in 2019 is 22,000, the annual output of ES6 is 2.3.Ten thousand vehicles, the bicycle manufacturing cost is about 295,000 yuan, corresponding to a gross profit margin of about 13%; if the annual output is 100,000, the gross profit margin can exceed 20%.Jianghuai’s foundry fee is about 8,500 yuan. If the break-even point of the Jianghuai factory is calculated according to the convertible amount of 264 million yuan, it is necessary to build 31,035 vehicles for Weilai.Li Bin revealed at the Q2 earnings conference call that the gross profit margin of Weilai’s auto business could not be turned positive this year.Q2 car gross margin is -4%, because the second half is a very difficult time, so Q3 is expected to be -6%, Q4 is expected to further deteriorate between -6% to -10%.However, CFO Xie Dongying also stressed that there will be no more losses of 3.2 billion in the second half of this year, and Q3 and Q4 will vigorously cut costs.Weilai may not be able to meet the annual car sales target set at the beginning of the year.In the past eight months since 2019, Weilai has delivered 7,439 ES8s and 2,883 ES6s. Li Bin revealed at the Q2 earnings conference that 4200-4400 vehicles are expected to be delivered in the next quarter.Even with a maximum of 4,400 vehicles, only 19,000 vehicles were delivered in the first three quarters of 2019, half of the target of 40,000 to 50,000 vehicles set at the beginning of the year.Li Bin explained in the Q2 earnings conference that due to the continued weakness of the Chinese auto market, wholesale sales of passenger cars decreased by 14.3% compared with the same period of the previous year.In addition, fierce price wars have started between high-end car brands, and the average selling price has dropped by 20% to 25% compared with the highest level. However, Weilai did not cut prices in July and August, so the price of ES8 actually increased.10%, which also affects Weilai’s sales.Because Weilai’s car sales did not show signs of rapid growth, Tesla Model 3’s competition is imminent, and the market value lacks the momentum to sustain a rebound.How much is the value of Wei?So how do you value Weilai?On the positive side, China’s new energy vehicle market will grow at a compound annual growth rate of 50% by 2020 due to the rapid decline in battery prices (about 10-15% per year) and the introduction of government-led charging infrastructure.Weilai strategically aimed at the high-end electric vehicle market. Before 2020, this market segment lacked competing products.If Weilai can increase the delivery from more than 10,000 vehicles in 2018 to 100,000-110,000 vehicles in 2020, then this business model can continue.However, as mentioned in the first part of this article, the automobile industry’s major cycle has changed. Weilai, which was established in 2014, is not a Tesla established in 2003. In 2020, a huge number of traditional car companies officially launched mass production of new energy vehicles.In addition, the domestic production of Tesla Model 3 (price down), which is still in the product launch period has not yet reached the capacity of the climbing period, it will be a fatal impact.In the period of 2009-2018, Tesla passed a total of US$5.5 billion in equity financing, US$8.55 billion in debt financing, totaling US$14.35 billion, and accumulated R&D investment of US$5.67 billion.According to Huachuang Securities, Tesla was in its infancy before June 2012, and only sold a small amount of revenue from Roadstar and powertrain.After the listing in 2010, from June 2012 to December 2018, the high-speed development period, Model S, X, 3, Y have been listed, and achieved great success.Until December 2018, Tesla’s Model 3 production capacity climbed to 6,000 vehicles per week, and cash flow turned positive and profitable.Some investment banks use DCF to value Tesla. The core of the automaker’s market capitalization drive is sales, and sales can bring in revenue and profits.Huachuang Securities analyzed that from the perspective of sales, Tesla’s market value increase is roughly divided into two stages: First, after the Model S went public, the market value rose from 3.5 billion US dollars to 30 billion US dollars.Market value growth is in line with sales growth, but the magnitude is significantly higher than sales growth.Tesla was the first company to produce pure electric vehicles only. After the successful launch of Model S, the market began to gradually establish expectations for the electric vehicle industry and the company’s future earnings.In this range, the company’s share price has risen sevenfold.Second, after the release of Model 3, the number of orders continued to exceed market expectations.The market value of Tesla has risen from $30 billion to $50 billion.The market value growth rate is lower than the sales growth.After 2018, after Tesla sales climbed steadily, the market began to switch to PE, EV/EBITDA valuation.Tesla’s market value growth and sales relationship.Image source: Huachuang Securities Huachuang Securities has made pessimistic/neutral/optimistic forecasts for Weilai’s sales and gross profit margin: that is, sales in 2026 reached 25/38/430,000 units; gross profit margin was 18%/20 respectively.%/21%, based on the calculation of the 7-year DCF model, the target price of Weilai is 2.95/6.41/9.72 USD/share.From the results, the current market value of Weilai is close to pessimistic forecasts.Under pessimistic expectations, ES6 sales were 3,000 vehicles/month, and cumulative sales in 2026 reached 250,000 vehicles, with a gross margin of 18% and a net profit of 3 billion yuan.In JPMorgan’s valuation, a comprehensive approach was adopted that combined the 2023 P/S (marketing ratio), P/E (price-to-earnings ratio) and EV/EBITDA (enterprise value multiple) forecasts, each giving one-third of the weight.The target price for 2023 is forecast to be $4.59.JPMorgan’s portfolio valuation for Weilai is in the P/S segment. JPMorgan uses 0.9x 2023 revenue. The income figures are calculated based on two factors: one is the predicted income of Tesla in 2021, and the other is 0.8 times in 2020.BYD’s forecasted revenue and a high discount rate of 20%, because Weilai has a large implementation risk.In the P/E section, JPMorgan used a target multiple of 11x P/E in 2023, based on a 14-fold predicted EPS of 2021 Tesla.JPMorgan predicts that Weilai will achieve breakeven in 2021 and achieve normalized profits in 2023.In the EV/EBITDA section, JPMorgan used a target multiple of 7.5 times the 2023 EBITDA, with Tesla’s average of 8.7 times in 2021 and the average of 9.5 times in 2020.In the latest research, JPMorgan reminded investors that Weilai’s deliveries were weak in the first half of 2019, and the shipment forecast for 2019 was lowered to 41,000, and the forecasted revenue for 2019 and 2020 was lowered by 10%.30%.For China’s vast new energy market, considering the risk-reward and year-to-date performance, JPMorgan’s top picks are BYD and Wuxi Lead.Investing in Weilai is a veritable “risk investment”, and a global asset management giant has suffered a big loss.Due to optimistic about the new energy track, Tesla’s largest external shareholder, Scottish asset management giant Baillie Gifford also bet on Weilai, because Tesla and Weilai are the only US stocks listed in the past 50 years.According to Bloomberg data, Baillie Gifford spent more than 100 million shares in Weilai from the end of 2018 to the beginning of 2019.According to SEC disclosures, Baillie Gifford still holds these shares at the end of June this year, which has caused more than $400 million in losses. If Baiillie Gifford holds positions, the loss will increase by 20%.But Baillie Gifford’s bet on Tesla was successful. In 2013, Tesla’s share price was only $36. Bailei Gifford began buying its shares, which has so far brought in a return of $624 million.The time window makes the investment in Tesla in 2013 very different from the investment in 2018.We have calculated the valuation target prices of several major brokers to Weilai, ranging from 3.6-6.4 US dollars. For example, CICC gives 3.6 US dollars, Deutsche Bank 6.3 US dollars, JPMorgan 4.6 US dollars, but most of them are lower than the IPO issue price.At present, Wei La has experienced a panic decline. Compared with Tesla, it is also in the product launch period. Weilai’s P/S valuation is 40% discount to Tesla at the time.Although the uncertainty at the operational level is very large, Weilai has not yet reached the point of collapse. If the new financing is implemented, it may boost the stock price in the short term.But long-term investors need to be cautious because the closure of the 2020 time window can have a fatal impact.————————————————if youIs a US stock Internet company investor, or interested in investing in Wei Lai, please add the author WeChat (18500194899), and note the company and position, welcome to exchange ~.
Wisdom analysis | Wei Lai stock price plunged 80%, is it time to go to the bottom?