Sputtering WM Motor hopes for recharge from new U.S. listing with Kaixin – Part 2

The two troubled companies signed a tentative merger plan last week, even as China’s NEV sector undergoes a painful consolidation

Key Takeaways:

• Kaixin Auto aims to become a new energy vehicle maker with its acquisition of WM Motor and another NEV maker, even as the industry heads toward consolidation
• Kaixin’s shares are down 44% since announcement of the WM Motor acquisition, and continued to slide after a recent reverse share split to bring them back above the $1 mark

To read the first part of this two-part series, click here

By Edith Terry

Sputtering new energy vehicle (NEV) maker WM Motor Holdings Ltd. announcedit founda white knight in Kaixin Auto Holdings (KXIN.US) last week, just days after its plan to be acquired by Hong Kong-listed Apollo Future Mobility Group Ltd. (0860.HK) collapsed. But who exactly is Kaixin, whose own market value is a miniscule $57 million?

Frankly speaking, Kaixin hardly looks like the kind of savior that WM needs to rescue its fast-sinking ship, including operations that halted this year due to lack of cash. Kaixin has a history of opportunistic self-reinventions, including its latest dive into NEVs. The timing of this latest transformation hardly looks good either, as China’s overheated industry shows signs of consolidating after a boom from 2018 to 2020, when two-thirds of China’s NEVs were registered.

Those boom years are rapidly fading into the rear-view mirror, and WM Motor, which was backed by heavy hitters like Baidu and Tencent, is the first of a previous group of four “NEV Dragon” startups that is now struggling to survive.

Original savior Apollo Future Mobility didn’t have much to offer WM Motor in terms of revenues. But the company had powerful big-money backers, including Richard Li’s PCCW and Stanley Ho’s Shun Tak Holdings. By comparison, Kaixin has minimal cash flow to power its ambitions. It acquired its two NEV makers, Morning Star Auto and now WM Motor, both by issuing new shares, diluting its long-suffering existing shareholders.

Adding insult to injury, three days after announcing the non-binding agreement for WM Motor on Sept. 11, Kaixin announced a 15-for-1 reverse stock split to bring its shares into compliance with Nasdaq listing rules requiring them to trade above $1. Such reverse splits raise a company’s share price and can provide a psychological boost to investors, though they don’t change its market value.

But in this case the move didn’t bring any boost in positive sentiment, with the stock losing a third of its value in five trading days since the reverse-split took effect. Kaixin’s shares are now down 44% since the WM Motor merger announcement – hardly a sign of investor confidence.

Kaixin Chairman and CEO Lin Mingjun said WM Motor’s fashionable products and strong branding were a “good match” for Kaixin. “Through the intended acquisition, WM Motor will gain access to more capital support to enhance the development of its smart mobility business,” he said.

One of Kaixin’s first – and biggest – tasks will now be finding the capital required to jumpstart WM Motor’s operations that were halted this year. The company was one of China’s few NEV startups to build its own manufacturing facilities, a hugely expensive effort that looked impressive at the time but now looks like a sign of hubris. Most of China’s other NEV startups have relied on third-party manufacturers to make their vehicles.

Circuitous journey

Kaixin’s journey into the crowded NEV sector has been circuitous. As early as August 2020, it announced it would shutter its used-car dealership business and anticipated a temporary drop in revenue. At that time Kaixin merged with auto import e-commerce platform Haitaoche, bringing in Haitaoche founder Lin Mingjun as its new CEO. A year later, it announced a $500 million, five-year contract with to supply 10,000 NEV trucks to Beijing Bujia International Logistics.

Several months before that agreement, Kaixin, which had no previous NEV manufacturing experience, bought Yujie Times Automobile Co. in August 2021, and said it had established a new NEV headquarters in the East China city of Suzhou. Next it bought Yujie’s parent Morning Star Auto Inc. through another new share issue, in a deal that closed weeks before the WM Motor deal.

Morning Star produces Pocco brand miniature electric vehicles, which are popular in smaller Chinese cities with lower living standards, according to Kaixin. Earlier this year, it announced that it already had orders for 50,000 vehicles and was prepared to make NEVs its “top priority”.

From a broader perspective, WM Motor’s high-end NEVs would give Kaixin a wide range of products. Kaixin would also get WM Motors’ two manufacturing bases in the cities of Wenzhou and Huanggang, capable of making 250,000 vehicles per year, and its sales and service network of 621 physical stores.

So, now the question becomes whether Kaixin can really save WM Motor and its CEO Shen Hui, the former Geely executive lauded for engineering China’s biggest-ever foreign acquisition of Volvo in 2010.

Only time will tell, of course. But Kaixin’s financials don’t look too encouraging. At the end of 2022, it had cash and cash equivalents of just $7.1 million – a tiny fraction of what would be needed to restart operations at WM Motor, which was valued at $2 billion as recently as January this year.

Kaixin’s revenue in 2022 was also a miniscule $82.8 million, down 67% from 2021, with a net loss of $84.7 million. The company listed on the Nasdaq in 2017, but has not been profitable since 2019, with losses of $5.3 million in 2020 and $196 million in 2021. It still owes money to its former parent, Renren Inc., now renamed Moatable (MTBL.US).

Kaixin is hardly launching its accelerating NEV drive into a hospitable climate. The Chinese NEV industry is consolidating quickly, with companies slashing prices as the government cuts back on subsidies. Experts believe that just five to 10 players are likely to survive in the end – a tiny fraction of the estimated 300 in 2017. Of the many startups to emerge during that time, only a few like Nio (NIO.US; 9866.HK), Xpeng (XPEV.US; 9868.HK), Li Auto (LI.US; 2015.HK), Leapmotor (9863.HK) and Hozon have relatively stable sales. Far more common are stories of former highflyers like Niutron, which ceased operations in December, and Letin and Boyton, which filed for bankruptcy in May and July, respectively.

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