With Tencent and JD as major shareholders, the B2B platform for used cars, Auto Street, is making its way to the Hong Kong Stock Exchange.

On February 6th, Auto Street Development Co., Ltd. (referred to as "Auto Street") submitted its application to the Hong Kong Stock Exchange, marking its second attempt to go public on the Hong Kong Stock Exchange since June 2023. The joint sponsors are CITIC Securities and Haitong International.

Auto Street boasts a stellar lineup of shareholders.

The second-largest shareholder, the U.S. COX Group, holds 11.01% through Manheim Investments, which owns the world's largest second-hand car auction company, Manheim Auctions, the O2O platform Autotrader, and the vehicle valuation and research company Kelley Blue Book.

In its prospectus, Auto Street regards the COX Group as a benchmark for learning.

Auto dealer and major customer of Auto Street, Guanghui Auto (600297.SH), indirectly holds 5.08% through its wholly-owned subsidiary Baoxin Auto Finance I, and 2.57% through its controlling stake in Guanghui Baoxin (01293.HK).

Tencent (00700.HK) holds 3.11% through Image Frame Investment (HK); Huaxing Capital (01911.HK) indirectly holds 2.14% through CR Matrix. JD Group (09618.HK) holds 3.11% and 1.56% indirectly through Dazzling Calcite.

According to Zhaoshi Consulting, based on the 2022 transaction volume, Auto Street's platform traded approximately 160,000 used cars, with a market share of 12.6%, making it the largest provider of used car trading services nationwide.

However, Auto Street's performance has declined significantly in recent years.

From 2021 to 2023, Auto Street achieved revenues of 678 million yuan, 468 million yuan, and 492 million yuan respectively, with a revenue decrease of approximately 27% in 2023 compared to 2021.

Auto Street attributed the revenue decline in 2022 to the reduced willingness of consumers to buy used cars due to the impact of the epidemic, with transaction volume dropping from about 261,000 vehicles in 2021 to approximately 160,000 vehicles in 2022.

Unlike Uxin and other used car trading platforms, Auto Street operates on a B2B model. As an intermediary platform connecting upstream 4S stores, OEMs, and downstream car dealers, it charges commissions and service fees by providing services such as used car auctions, exhibitions, and vehicle inspections.

Specifically, Auto Street accepts seller consumers with a demand to replace their new cars through 4S stores. With strategic cooperation agreements with all of China's top ten automotive dealer groups and 69 of the top 100 dealer groups, Auto Street's major shareholder Guanghui Auto has designated it as the preferred auction channel.

In addition, 23 traditional OEMs and new energy vehicle manufacturers, including SAIC Group and FAW Group, have designated Auto Street as the preferred used car auction channel for their 4S stores. The buyers on Car Street are mainly professional buyers, namely car dealers. Car Street defines users who purchase 3 or more used cars on its platform in a year as professional buyers. These users have continuous and high-frequency trading needs through Car Street.

The second-hand car auction business is the core business of Car Street, with the revenue from commissions and service fees generated by auctions in 2023 accounting for 58.4%, an increase of 9 percentage points compared to 2021.

Car Street attributes the increase in commissions and service fees to February 2023 when it raised the commission fee rate for second-hand car auctions. The average revenue per car from auction business increased from 1280 yuan in 2021 to 1636 yuan in 2023.

In addition, in 2023, the revenue from value-added services for second-hand cars accounted for 15% of Car Street's total revenue; revenue from the arrangement of buying and selling second-hand cars (selling failed auctioned cars directly to professional customers) accounted for 12.9%; and revenue from exhibition business accounted for approximately 11.1%.

Regarding the impact of the increasing penetration rate of new energy vehicles on the second-hand car trading market, Car Street stated that the short-term impact of the increase in the stock of new energy vehicles on the second-hand car market is limited.

Data shows that currently, new energy vehicles account for only 4.6% of the stock of passenger cars, and the trading volume of second-hand new energy vehicles is less than 3% of the second-hand car trading market. It is expected to remain below 10% by 2027.

Furthermore, Car Street mentioned that due to the significantly lower average price of second-hand new energy vehicles compared to new cars, which are 66,000 yuan and 218,000 yuan respectively, they do not directly compete. Even if new energy new cars engage in price wars, it is not expected to have a negative impact on the demand for second-hand new energy vehicles.

In this Hong Kong stock market impact, Car Street plans to raise funds to open 194 new auction venues and renovate 79 existing ones within five years; strengthen connections with upstream and downstream buyers and sellers through marketing activities, customized services, etc.; expand service scope; enhance research and development capabilities; establish strategic partnerships for investment and acquisition; and supplement working capital.