Luyuan, an established two-wheeled electric vehicle brand, has had many divergent roads in its journey to the market.
On June 7, the Beijing Market Supervision and Administration Bureau announced the results of the quality supervision and random inspection of electric bicycle products in Beijing. Two electric bicycles from Luyuan were named due to problems. The chargers and batteries, the quality of the vehicle, and the control system did not meet the standards.
Just over a week ago, Luyuan submitted its prospectus to the Hong Kong Stock Exchange for the second time. We learned that Luyuan’s second sprint to listing is only 6 days away from the expiration of the first listing application materials. This eagerness to go public obviously also reveals that Luyuan may be facing development difficulties.
The origin of a good dream is the easiest to wake up from. Where is Luyuan now?
As the best tool to solve the pain points of short-distance travel, electric bicycles once had a glorious period.
In 1995, Tsinghua University developed China's first electric bicycle equipped with hub motors. From then on, China's electric vehicle industry began to seize development opportunities one after another and grow rapidly. For example, in 2000, the ban on motorcycles was promulgated; in 2004, electric bicycles were officially defined as non-motorized vehicles.
It was in the 1990s that the founders of Luyuan, Ni Jie and Hu Jihong, both quit their jobs as university teachers and devoted themselves to entrepreneurship. Founded in Jinhua, Zhejiang Province in 1997, Luyuan Electric Vehicle is undoubtedly the first batch of companies in China to enter the two-wheeled electric vehicle industry.
Founder of Luyuan and the first Luyuan electric bicycle
However, being born early does not mean walking fast and well. Today, Yadea and Emma, which were established later than Luyuan, have successfully landed in the capital market, while Luyuan's first submission to the Hong Kong Stock Exchange in 2022 ended in failure.
What's more, this well-established company, which is celebrating its twenty-fifth birthday, is facing serious challenges.
First of all, the lax quality control has been questioned by consumers.
The biggest selling point of Luyuan is "Luyuan liquid-cooled electric vehicles, one car can be ridden for 10 years". However, this brand slogan is now being questioned by consumers.
On the black cat complaint platform, the product quality of Luyuan electric vehicles has been complained many times. The spot check results are consistent.
Source: Black Cat Complaint
It is worth mentioning that, according to Tianyancha information, Luyuan has also encountered multiple fire accident lawsuits. Among them, in the second instance of a fire accident that occurred in 2018 in May 2022, Lvyuan Group was ordered to pay the plaintiff 1.9 million yuan in compensation.
These complaints and lawsuits have all revealed possible defects in Luyuan's quality control.
Secondly, as an established company in the field of electric bicycles, Luyuan's market position is very embarrassing, especially lacking in the competitiveness of the high-priced market.
On the one hand, although Luyuan electric vehicles are among the top five in the industry, the gap with the top three in the industry has always been large.
Based on the revenue of two-wheeled electric vehicles, in 2022, Luyuan's electric vehicle revenue will be 4.78 billion, with a market share of about 4.2%, ranking fifth in the industry. In the same year, the revenues of Yadea, Emma, and Tailing were 31.1 billion, 20.8 billion, and 17 billion respectively, with market shares of 26.9%, 18.0%, and 14.7%, totaling 59.6%.
Remarks: The data adopts the data of 2021
On the other hand, when top brands are accelerating the deployment of high-end products, it is difficult for Luyuan to break out of the low-end market.
At present, traditional brands such as Yadea and Emma are developing high-end product lines one after another, and rising stars such as No. 9 and Mavericks focus on the high-priced market, while Luyuan’s income still mainly depends on the sales of low-end and mid-end products.
Source: iResearch
The high price band lacks market competitiveness and product layout, which also leads to the third problem of Luyuan: limited profit margin, and the gross profit margin is not as good as other top brands.
The Hong Kong Stock Research Institute compared the gross profit margin of Luyuan and Xinri, Yadea, Emma and other brands, and it can be clearly seen that the gross profit margin of Luyuan is lower than that of its peers.
At the same time, Luyuan's net profit is also quite meager. From 2020 to 2022, Luyuan's net profit will be 40 million yuan, 60 million yuan, and 120 million yuan respectively.
In this case, if Luyuan wants to expand and develop, it can only raise funds from outside. This also raised the issue of the company's high debt-to-asset ratio.
In 2021, in order to build a factory in Guangxi and expand a factory in Zhejiang, Luyuan will increase borrowings from banks and other institutions, resulting in an increase in the debt ratio from 68% to 79%, and this ratio will continue until 2022.
As Luyuan seeks to go public, it also needs to alleviate debt pressure and find new funds to maintain market competitiveness.
From this point of view, the listing of Luyuan is imminent. The question is, with the widening gap between market share and CR3, the bottom line in profitability and the rising debt ratio, can Luyuan still walk out of a new growth curve?
Draw the sword and look around at a loss, where is the green source?
There are fewer and fewer opportunities to belong to Luyuan.
Since the promulgation of the new national standard in 2019, the electric bicycle industry has ushered in a short second spring. From 2019 to 2020, short-term replacement demand will promote the explosion of the two-wheeled electric vehicle market, and Luyuan is also a beneficiary of this round of dividends.
Today, the overall replacement level in the market is already high, and the sales of two-wheeled electric vehicles in China are showing an obvious downward trend. According to iResearch research, after the three-year transition from 2019 to 2021, consumers' awareness of the right of way has been improved, and the replacement demand in the next two years will hardly support the further growth of the industry.
The per capita ownership of local two-wheeled electric vehicles has reached 25%. Under the high industry penetration rate, the leading structure is stable, and the two-wheeled electric vehicle market has also entered the stage of stock competition. Intensified competition in the industry is an inevitable event.
In the long-term stock market game, Luyuan lacks sufficient market competitiveness.
As mentioned earlier, Luyuan's selling point is the long life of "liquid-cooled electric vehicles". Luyuan creatively applied the liquid cooling system to two-wheeled electric vehicles, effectively ensuring the long-term use of electric vehicles and extending the life of electric bicycles to 10 years. This dedication to technology is certainly worthy of recognition.
However, long life is not the core requirement of electric bicycle users. According to iResearch's "White Paper on China's Two-wheeled Electric Vehicle Industry in 2023", from a product perspective, battery life, safety, and comfort are the most important factors that consumers value.
Source: iResearch
In other words, under the condition of good quality control, the service life of most brands of products is sufficient to meet the needs of consumers. Luyuan's main "durability" is just a false demand, which does not meet the pain points of users. The Hong Kong Stock Research Institute believes that if Luyuan wants to solve the current embarrassing situation, it should look for more increments.
Seeking growth in stock is the main theme of future industry development. From the perspective of long-term trends, the main increase of two-wheeled electric vehicles comes from three aspects: one is the trend of intelligence, the other is the sharing of electric vehicle dividends, and the third is the increase brought by overseas markets.
First, intelligence is a common trend of all consumer products, including home appliances, automobiles, and consumer electronics. Naturally, this trend is also the anchor point for the upgrade and price increase of two-wheeler products.
At present, most two-wheeled electric vehicle brands have accelerated their deployment in this field, and most of the brand's high-end models already have functions such as vehicle-machine interconnection, voice navigation, and intelligent anti-theft.
Source: Pacific Securities
Of course, there is obviously a gap in the degree of intelligence between different brands. Although Luyuan electric vehicles already have most of the standard functions, there is no OTA involving electric vehicles. On the whole, there is still room for improvement in terms of intelligent upgrades.
This may also be related to Luyuan's low R&D investment. Data from the prospectus show that in 2022, Lvyuan Group’s research and development costs will be 151 million yuan, and employee welfare expenses will account for 39.22% of the research and development costs. Compared with the top two players, it highlights the lack of R&D investment. During the same period, the research and development expenses of Yadea and Emma were 1.106 billion yuan and 507 million yuan respectively.
In the wave of intelligence, Luyuan obviously needs to run a little faster.
Second, with the standardization of the shared electric vehicle industry, including the end of Internet giants such as Meituan, Didi, and Alipay, the shared track has also become a major increase in electric bicycles.
As a solution to the pain points of short-distance travel, electric bicycles are used more and more frequently in urban travel, especially the "last mile". The price is close to that of public transportation, and it can be used at any time without the trouble of traffic jams. Shared motorcycles are becoming a favorite travel tool for residents in sinking markets. Since the beginning of this year, some bus lines and even bus companies have even been out of service in many places across the country.
Luyuan is actually a two-wheeled electric vehicle brand that joined the track earlier. In 2020, Luyuan signed a supply agreement with Hello Bicycle and Qingju Bicycle. Of course, judging from the 77% year-on-year decline in the purchase volume of Luyuan’s corporate and institutional customers in 2022, corporate and institutional customers are not the “second growth curve” that Luyuan dreamed of. In other words, Luyuan needs to develop more B-end customers and get rid of large Customers depend on it.
Third, the potential overseas market is huge, which may be the most important opportunity for two-wheel electric vehicle brands. According to Frost & Sullivan estimates, the total global sales volume of electric two-wheelers is expected to reach 116.0 million units in 2026, with a compound annual growth rate of 11.9% from 2022 to 2026; 46.3 million vehicles, the year-on-year growth rate is about twice that of China.
This is also the most certain growth direction for Luyuan in the future. From 2020 to 2022, the income of Luyuan's overseas distributors will be 39.493 million yuan, 63.252 million yuan, and 78.264 million yuan respectively, achieving steady growth. At present, Luyuan has been actively exploring the markets of Thailand, Indonesia and the Philippines, and has launched some product models that cater to local needs.
To sum up, the three major directions contain "secondary growth" opportunities for two-wheeled electric vehicles, and to seize these opportunities, Luyuan must strengthen quality control, attach importance to brand value building, and be more effective in execution in the industry trend.
Will the old two-wheeled electric vehicle brand, which is about to celebrate its 26th birthday, continue to be a pioneer or gradually become a follower? let us wait and see.
Source: Hong Kong Stock Research Institute