Short hit pollutes China's second-hand car lot
By Alec Macfarlane
(The author is a Reuters Breakingviews columnist.)
HONG KONG, April 17 (Reuters Breakingviews) - A short hit is polluting China's used-car lot. Uxin's U.S. stock lost more than a third of its value on Tuesday after a research firm accused the newly listed online auto marketplace of fudging its numbers. Whether the analysis is flawed or not, fumes around the industry backed by Tencent and big buyout names are becoming noxious.
It's a blow for a booming sector. A car-buying binge in China has created a glut of older models that are now being snapped up by thrifty buyers. Consultancy Bain & Co expects 28 million used cars to be sold in 2025, up from 15 million in 2017. As a result, investors have piled into apps linking buyers and sellers. Uxin's troubles are an embarrassment for its investors, which included KKR and Warburg Pincus at the end of December.
The dirty emissions are wafting over competitors, too. In January, Uxin itself accused rival Chehaoduo of fraud, which the company denied. The following month, SoftBank's Vision Fund invested $1.5 billion in Chehaoduo. This was despite objections from partners within the Japanese company, according to The Wall Street Journal.
There are at least nine used-auto sales and financing competitiors to Uxin in China, J Capital reckons. They include Renrenche, Chezhibao and Tiantian Paiche, which have yet to go public. With all the rumblings, investors now have multiple reasons to steer away from the entire lot.
- Shares in Uxin closed more than a third lower on April 16 after China-focused research firm J Capital accused the Beijing-based online used-car marketplace of overstating transactions and not reporting all of its debt.
- The U.S.-listed company exaggerates the volume of vehicle sales it processes by as much as 40 percent, J Capital said in a report released on the same day. It added that financial statements for Uxin's operating companies in China show a "staggering" level of undisclosed debt that puts it at risk of collapse. The research outfit also accused Uxin founder Dai Kun of siphoning roughly $280 million from the company.
- "Uxin believes that the allegations in the report are completely without merit, and strongly condemns the publishing of false and misleading information," Uxin said in a statement.
- Uxin shares closed at $1.95 each on April 16. The company's shares are trading 78 percent below their June 2018 initial public offering price of $9 a share.
J Capital Research: Uxin short report