Cango launches car export platform

The car-trading company’s revenue plunged in the first quarter as it put the brakes on its self-operated business and launched a new cross-border platform

Key Takeaways:

  • Cango’s revenue has fallen sharply in recent quarters, including an 88% drop in the first quarter, as it downplays its self-operated car-trading service to reduce inventory risk
  • The company launched its Autocango cross-border car trading platform in March, aiming to tap foreign demand for used Chinese cars


By Doug Young

As China’s auto market slows after years of breakneck growth, car trader Cango Inc. (CANG.US) is following many of its peers by looking outward for new opportunities. But such a dramatic shift for the domestically focused company will take time – a reality that’s reflected in its latest quarterly report that shows plunging revenue but steady profits as Cango becomes more cautious at home while starting to build a new cross-border car trading platform.

In looking abroad, Cango is following a recent trend that saw China nearly catch or even overtake Japan to become the world’s biggest auto exporter last year, depending on which statistics you look at. That surge has been driven in part by China’s huge production capacity for new energy vehicles (NEVs), as Beijing prioritizes development of that sector.

China’s car exports rose 63.7% last year to 4.1 million vehicles, while domestic sales rose by a much slower 4.1%. China’s domestic auto market has been steadily slowing since peaking at 24 million annual vehicle sales in 2017. Domestic sales last year totaled 21.9 million vehicles, down 9% from the peak, as consumers grow increasingly cautious on big-ticket purchases in a slowing national economy.

“In the first quarter of 2024, the Chinese automotive industry continued to encounter significant challenges,” said Cango CEO Lin Jiayuan. “Traditional automakers are under pressure to transform and adapt to the new energy era and emerging new energy vehicle manufacturers are facing intense market competition and severe profitability struggles.”

Cango started out as an auto financier but has nearly wound down that business and began shifting to car-trading services more than two years ago. It initially obtained a big part of its car-trading revenue by directly buying and selling cars. But lately it has withdrawn from that business over concerns about falling prices and getting stuck with unsold inventory.

As a result of that shift, the company’s revenue plunged 88% in the first quarter to 64.4 million yuan ($8.9 million) from 542.6 million yuan a year earlier. Of the latest total revenue, only 3.4 million yuan came from car-trading services, down from 430 million yuan a year earlier.

“We strategically adapted to a changing market by streamlining our self-operated new car business,” said Lin. “While this segment previously generated significant revenue, it offered lower profit margins. And this proactive shift has led to a decrease in total revenue but our core business has transitioned to facilitation services with much higher gross profit margins due to a leaner cost structure.”

In fact, most of the company’s revenue in the first quarter came from its non-car-trading businesses, including gains related to its older financing business, as well as from interest income and gains related to the sale of some of its investments.

The bottom line was that Cango earned a net profit of 90 million yuan in the first quarter, in a rare instance of a company reporting a higher profit than its revenue. As it reined in its spending and became more conservative, its cash and short-term investments more than doubled to 3.5 billion yuan at the end of March from 1.6 billion yuan three months earlier.

Eye on exports

Cango is hardly abandoning its domestic car-trading business, which it has been fine tuning over the last year, including the merging of two previous platforms into Cango U-Car, a single platform for both used and new car trading. That platform had 8,459 registered dealers in 251 cities by the end of March, and facilitated 124 used car auctions, including 42 hosted on its own platform.

But for now, at least, the company is shifting its sights to the global used car market, hoping to tap demand from foreigners, most likely in developing nations, for a wide array of used Chinese cars. It passed an important milestone in March with its launch of Autocango, an information platform for such cross-border trading. It followed earlier this month with Autocango 2.0, and the site now features more than 75,000 items and 60,000 car models.

Cango hasn’t commented on how it plans to earn money from the new service. Most likely it would collect transaction-related fees in the many steps of the relatively complex process of buying and paying for a used car from China and shipping it to its final destination.

Cango executives said their first goal is to build up traffic on the site and add select supporting services like car testing and delivery. The company is also exploring the potential for creating “risk reduction packages” that would boost buyer confidence by making sure the entire trading process is transparent and that all its various steps run smoothly.

“This platform fills the gap in cross-border used car information services, providing valuable insights to global users, and our goal is to become the go-to gateway for Chinese used cars entering the international market,” said Lin.

Investors seem to like Cango’s conservative approach in the current environment of economic uncertainty. The company’s stock is up around 80% since the start of the year. And while the shares fell 15.5% last week on the day after the latest earnings announcement, they regained most of that over the next three trading days.

The company’s rapidly shrinking revenue has actually helped to boost Cango’s price-to-sales (P/S) ratio, which passed above the important benchmark of 1 in the first quarter to its current reading of 1.11. That’s still behind leading Chinese car trader AutoHome’s (ATHM.US; 2518.HK) P/S of 3.27, and also trails U.S. used car giant Carvana’s (CVNA.US) 2.09. But it’s well ahead of the 0.05 for the more comparable Uxin (UXIN.US), which, unlike Cango, continues to use a self-operated car-trading business model.

At the end of the day, Cango has quite a lot of cash that it could use for a variety of purposes. Those could involve more shareholder-focused uses like paying dividends or buying back its shares, both of which the company has previously done. Or it could focus on more strategic uses like accelerating development of its domestic and international car-trading services. Now it just needs to decide which road it will travel.

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