SoftBank's Vision Fund bets US$1.5 bln on China used-car startup

March 01, 2019 14:27
Second-hand cars are on display at a physical store of Guazi, an online trading marketplace for used cars under the Chehaoduo Group. Photo: Chehaoduo

Tencent-backed Chehaoduo Group, the parent company of second-hand vehicles trading platform, said it has agreed to a US$1.5 billion investment from SoftBank’s mega tech investment vehicle Vision Fund.

Chehaoduo, which is roughly translated as “lots of cars” in Mandarin, operates two main platforms: Guazi, a peer-to-peer online marketplace for used vehicles, and Maodou, which retails new sedans through direct sales and financial leasing.

The online car trading group offers an online trading platform for integrated retail services in the used-car sector – from sales and payments to after-market services. In connects individual car sellers and buyers without the need for middlemen.

As part of its efforts to restructure China's highly fragmented and unregulated used car market, Chehaoduo uses big data analytics and artificial intelligence to implement standardized evaluation and intelligent pricing mechanisms, the company said.

With an omnichannel strategy to differentiate it from its peers, such as Nasdaq-listed Uxin and Goldman Sachs-backed Renrenche, Chehaoduo now operates over 600 physical stores across the country, supporting new and used-car dealing along with after-sales service.

About 300 of the brick-and-mortar stores are under Maoduo, over half of which are located in third-tier cities.

The Beijing-headquartered startup has raised US$3.4 billion since its founding. A consortium led by China’s internet giant Tencent (00700.HK) participated in its mega funding round in March last year.

Alibaba founder Jack Ma’s Yunfeng Capital, Sequoia Capital, DST Global and Singapore’s sovereign wealth fund GIC are also among the startup’s investors.

The US$1.5 billion Series D funding round values Chehaoduo at over US$9 billion, a representative for the startup told Bloomberg. The company did not disclose its valuation in its official announcement on Thursday.

Chehaoduo said in a press statement that the fresh proceeds will support its investments in technology to drive innovation in the sector, and develop new products and services across a growing spectrum of customer needs.

The company also intends to expand its marketing capabilities and open offline stores for new business activities.

"China's used car market is growing rapidly but online penetration remains low and auto financing is underutilized compared to developed markets,” Eric Chen, partner for SoftBank Investment Advisers, said in the statement.

“In just three years, Chehaoduo Group, through the Guazi brand, has leveraged the latest innovations in data-driven technology to establish China's leading car trading platform.”

In an interview with Chinese tech media 36kr, a Chehaoduo representative said even with a huge pile of cash, “Chehaoduo will not acquire any company in the used car industry for the next three years”.

Sales of cheaper used cars remain strong despite the economic uncertainties in China.

In January, however, rival Uxin accused Chehaoduo of fraud involving transaction data, saying its Guazi platform has booked service fees, which are supposedly returned to the car buyers, as revenue in order to “deceive its investors”.

Softbank’s Vision Fund has owned a large portfolio of startups in China, including co-working space giant WeWork’s China unit, truck-hailing company Manbang, and online education startup Zuoyebang.

As part of its efforts to expand in China, the US$100 billion fund has reportedly hired an investment team to be based in the country. It plans to open its first China office in Shanghai this year, then in Beijing and Hong Kong.

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