2020?is the last year left for Azera.
At 7:30 p.m. on March?18?2020?2020, Azalea released its?2019?Q4 earnings report.
While?2019Q4?deliveries were up sharply, a whopping?11,295.7?million full-year loss and sharply downgraded?2020Q1?estimates sent Azera stock plummeting by more than?16?points, and that's the kind of attitude capital gives.
Live?
Living continues to be a major topic that always surrounds Azera.
As of?December?31?2019, Azalea's remaining cash and cash equivalents, restricted monetary funds and short-term investments*** totaled?1,056.3?million yuan, while Azalea's quarterly losses were as high as?2,500-2,800?million yuan.
At?2019?Q1, Q2, and Q3?financial reports Azure's remaining cash and cash equivalents were?7,536.5?million, 3,455.6?million, and 1,960.7?million, respectively.
This means that Azalea has entered its poorest day ever, and is already struggling to survive past the first quarter of ?2020? with money in its pocket.
In the balance sheet section of the earnings report, Azalea also made it clear that "the Company's cash as of?December?31?2019?was insufficient to support its working capital and liquidity requirements for its ongoing operations for the next?12?months. The Company's continuing operations are dependent on the Company's ability to obtain sufficient external equity or debt financing." ?
Since?May?2019, the industry has been abuzz with reports of financing projects for Azera, starting with a?10?billion investment framework agreement with Beijing Yizhuang State Investment, followed by talks with the Huzhou government for?5?billion yuan in financing, then Guangzhou Automobile's plan to take a?1?billion dollar stake in Azera, and finally Geely's plan for?300?million dollars to acquire a?10 percent?stake in Azera. stake.
But unfortunately none of these rounds of investment came to fruition, and Azalea has reached its breaking point.
Now Azera is like a player in a game of chicken who is running from poison. Before, it didn't need to take medicine because it still had half a tube of blood left, but now it has lost all of its blood to a single cell after staying outside the safe zone.
For Azera, financing is imminent.
At the beginning of 2020, Azalea issued?3?convertible bonds totaling?435?million U.S. dollars (about?3?billion yuan) one after another.
Li Bin mentioned on the conference call that the ?435?million in convertible bonds have all been completed, and with the remaining ?1?billion, Azalea now has ?4?billion on hand.
So the question is how long can the ?4?billion last?
According to the ?2019Q4 ?2,864.6? million net loss, it could barely make it to the second quarter.
In the earnings meeting Li Bin revealed that Q4?net loss compared to?Q3?has some improvement, because?Q4?there is a "one-time generation of adjustments to the cost and so on reasons" (in layman's terms that?Q4?quarter Azalea in layoffs and so on?400?million yuan in one-time expenditures, leading to an increase in the net loss), and these adjustments have been completed will not incur expenses, coupled with the gross profit margin of the improvement, Azera's?2020Q1?loss is expected to fall?35%.
This means that losses for?2020Q1? are expected to be around?1.86 billion, and if?Q2? can continue to improve, the 4.0 billion will at least support Azalea until the end of?2020Q2.
But Azalea is still a long way from the safe zone of achieving profitability, and these three convertible bonds are like?3?bandages that can help Azalea hold on for a while longer, and at least one more medical kit if it wants to run into the safe zone against the poison.
Yeah, that's the Hefei government's ?10?billion.
This year?February?25?, the Hefei Municipal People's Government issued an official announcement that it had signed a framework agreement with Azure for?10?billion in financing, and Li Bin mentioned in a conference call that the signing of the final agreement document was expected to take place before the end of?April.
Before this ?10?billion is in place, Azalea's sick notice still hasn't been lifted.
Boosting gross margins
After financing has satisfied Azera's need to 'stay alive' for the last two quarters, let's look at the second most important topic - gross margins.
We'll have to work hard in the coming days to push ourselves to a state of 'self-sufficiency' - after all, it's unrealistic to expect to be able to count on financing in ?2021, which is why I wrote at the beginning of this article that '2020 is the last year left for Azera'.
Li Bin said during the conference call that improving gross margin is one of Azalea's core goals for 2020, and that Azalea is confident it will turn gross margin positive in the second quarter and reach its goal of a?2?digit gross margin by the end of the year.
The earnings report shows that 2019Q4?Azalea's vehicle gross margin was minus?6 percent, compared with minus?6.8 percent in the previous quarter? a small improvement; 2019Q4?total gross margin was negative?8.9 percent, compared with negative?12.1 percent last quarter.
Introducing another statistic here, 2019Q4?Azera's total deliveries of?8224?vehicles, including?6,824?ES6s and 1,400?ES8s, were up a whopping?72% compared to?2019Q3?s deliveries of?4,779?vehicles.
But while deliveries improved dramatically, gross margins on vehicles didn't get much better, remaining negative?6%.
The vice president of finance at Azalea said in a post-earnings conference call that "fourth-quarter sales came mainly from the baseline ?ES6, which sells at a lower price point than the ?ES8 ?resulting in a limited increase in gross margins," so it's critical to reduce the cost of materials and the cost of goods sold for vehicles if you want to improve gross margins.
There are?3?ways for Azera to turn around its gross profit in terms of cost control:
First a?10 percent reduction in material costs except for battery packs.
Secondly as production volume increases, production make-up losses will be gradually reduced, so manufacturing costs can be reduced by?30% by?2020.
Third?Q4?battery cost per?Wh?is reduced by?20%.
It can be seen that as production volume rises, Azalea's voice in the supply chain is beginning to carry some weight, and cost reductions are visible, most notably here in battery costs.
With the increase in production volume, Azalea's voice in the supply chain is beginning to carry some weight, and cost reductions are visible, most notably here in battery costs.
With the increasing production capacity of mainstream battery factories such as Ningde Times, the scaling effect has gradually come to the fore, and the decline in battery costs is an inevitable trend.
On the other hand, Azalea's annual sales have exceeded ?20?000 units, leading many new car-making forces/traditional car companies in terms of sales of pure electric models, and Azalea's battery capacity for each car is at least ?70?kWh, and this year ?Q4 ?will also deliver ?100?kWh ?of batteries in the increased demand for batteries, but also so that Azalea can talk about better terms with Ningde Times.
In addition to savings in material costs, there are also savings in operating costs, with less than ?7,000?people remaining at Azalea, which had a total headcount of close to ?10,000?at the start of 2019?year.
Obviously as sales increase, Azera will gradually enter a virtuous cycle of cost control, and with gradually lower operating costs, we'll see what happens to Azera's gross margins next.
Selling cars
The company didn't give a clear sales target for 2020 in its earnings report or conference call, saying only that it has a clear internal target and is confident of achieving it.
In 2020Q1?Azalea is aiming to deliver?3,400-3,600?vehicles, a sharp drop of?56.2%-57.6% compared to?2019Q4.
The reason for the sharp drop is not exactly a drop in demand; the Chinese New Year holiday? +? The untimely resumption of supply chain production due to the epidemic also led to capacity constraints at the Azalea plant.
Li Bin revealed on the conference call that there are still orders for more than ?5,000 units waiting to be delivered, with more than ?2,100 units added over the past ?30? days, approaching ?2,200? units. Average daily orders are more than ?70?units, roughly back to levels around ?7?percent in ?December?2019.
In the current economic environment, it is not easy for Azalea to still be able to get this amount of orders, on the one hand, it can be seen that consumers are becoming more and more recognized, on the other hand, in the can't go out of the epidemic environment, Azalea's direct system of flexible and versatile sales methods also effectively promote the conversion rate of orders.
Here's a statistic, the recent proportion of old users recommending the purchase of a car reached ?69%, higher than the ?45% in ?2019? s full-year level. Clearly repeat user referrals are an important part of boosting overall sales.
In addition to this, Azalea aims to achieve a scale of ?200?NIO?Spaces?by the end of ?2020?and in addition to Azalea's own money to lay out, Azalea will also use partners to expand.
According to?42?Garage, the NIO?Space?partnership is for the partner to provide the site and decoration, Azalea to provide staffing and training, and for every car sold, the partner can get?10?000 commission.
For Azalea, the NIO Space channel is not only cheaper, but also reaches consumers in tier-2 and even tier-3 cities, which is a significant boost to sales.
This is also an important foundation for Azalea's sales increase in?2020.
Lastly, let's talk about the challenge of selling cars in Azalea?2020?
Looking at the announced sales so far, although the domestic standard-range upgraded version of the ?Model?3? hit the ?300?000 yuan range in price, the impact on Azalea has been very limited, with deliveries of the ?Model?3? approaching ?4,000 in February, and Azalea's order book at a decent level.
The next domestic long-range Model?3? to hit the market will also have some impact on Azalea's sales, but because the two cars are positioned completely differently, the impact will also be very limited.
The biggest challenge for Azalea will come from the domestic Model?Y, which will be launched in?2021. When the two cars' positioning completely overlap, consumer choice will depend on the differentiation and price of the two.
The ES6/EC6 and Model Y are differentiated, but price is also an important factor affecting consumer decision-making, and we estimate that the long range version of the Model Y is expected to be priced at less than $400,000 after its domestic launch, while the ES6 will not have any price advantage after the optional 100kWh battery and NIO Pilot. any advantage.
So in 2020, Azalea will have to work hard to sell cars, increase sales, reduce costs, improve gross margins, and buy itself some room for price cuts, so that it can have some advantage in head-to-head competition with the Model Y in 2021, and a price war is inevitable.
That's why I think 2020 is the last year for Azera.
Writing in conclusion:
2019?year of Azera was capped off with ?NIO?Day? and the black swan of the 2020?year epidemic gave Azera another blow.
This earnings report and conference call, in all aspects of financing, operations, and sales brought more grim signals, for Weilai?2020?how critical need not be repeated, 2020?year will also be the new energy automobile industry collectively facing the brutal elimination game.
For companies struggling to get to shore, every year may be the last, and every year should be treated as the last.
This article comes from the authors of Auto Home Car, and does not represent the viewpoint position of Auto Home.