On April 22, Uxin (Nasdaq: UXIN), China’s top used car e-commerce platform, published a response to an April 16 report from J Capital Research that caused the company’s stock to crash that day.
J Capital Research, a US-based financial research firm, accused Uxin of exaggerating its transaction volume and vehicle inventory, as well as counting circular transactions, among other charges of financial impropriety.
The company said in its response that the allegations in the report were unfounded, arguing that it contains major factual errors and misleading speculations. “[The report] reflects a general misunderstanding of Uxin’s business model and China’s used car industry,” the statement said. Uxin shared several key takeaways, listed below.
“Cross-regional transactions” are the key, and each vehicle is counted only once
In refuting the claim that the company overstated its transaction volume, Uxin said that the report lacked basic understanding of China’s administrative divisions and did not understand how Uxin operates. Uxin explained that its business operations are based on China’s different prefecture and county-level administrative divisions, which were underserved due to poor infrastructure and different regional policies. To be able to serve as many consumers as possible, the company now operates in 900 different cities and regions in China.
Uxin said the misunderstanding about its online listing numbers is due to not knowing how its key services, known as “cross-regional transactions,” work. On the company’s platform, a car will be displayed to the users in every city to which it can be transferred. Users in different cities will see different prices for the same car because the distance between the location of the used car and the location of the potential buyer varies. However, Uxin said that their platform assigns each used car a unique tracking number to make sure that every vehicle is only counted once.
Uxin’s cross-regional transactions have helped bring an influx of cars into China’s lower-tier cities, whose residents have traditionally lacked choices when buying used cars. Uxin tends to provide customers in lower-tier cities with a wider selection so that they can purchase their preferred car at a reasonable price. For example, if a customer in a small city such as Beihai in Guangxi Province searches for a used red Mercedes-Benz C-Class on Uxin’s platform, they may find hundreds of listings for this particular model spread across China. Currently, the company’s cross-regional transaction services assure customers that their used cars will be delivered within five days.
Uxin never paid dealers to buy fake transactions and is not a Craiglist-like platform
To push back on the accusation that Uxin engages in circular transactions, the company said that it only recognizes transaction facilitation service fees it receives as revenue in accordance with U.S. GAAP. GMV is not counted as revenue. Furthermore, Uxin explained that it is working with third-party payment companies that provide POS machines, which directly deposits payment to dealers. The company said that it has never paid dealers for fake transactions or allowed sales consultants to “brush” transaction volumes by purchasing invoices, receipts, or contracts.
On overstated inventory, Uxin said that it has never functioned as an online dealer by taking inventory. Uxin’s listings have never been exclusive, as it is not a Craiglist-like platform. Thus, Uxin-listed vehicles can often be found on other platforms. It operates as a transaction-hosting service by inspecting used cars listed on its platform, facilitating transactions, providing warranty programs, as well as offering a full suite of services including logistics, title transfers, and offline fulfillments.
In fact, on April 18, investment bank J.P. Morgan wrote in a report that it maintains an “overweight” rating for Uxin’s stock. In the report, J.P. Morgan refuted several J Capital Research claims against the Chinese used-car trading platform. It said there was no evidence that Uxin had grossly exaggerated its revenue, refuted the claim that Uxin inflated the number of vehicles for sale on its site, and backed Uxin’s claim that it counts each vehicle just once, not several times as J Capital Research accuses.
Uxin’s stock took off after the company issued statements denying the accusations from the J Capital Research report. By April 22, the stock had gone up 76% since the crash, closing at USD 3.43 per share.
Uxin is the largest used car e-commerce platform in China. Its 2018 Q4 report said that its total revenue of RMB1.1 B was primarily driven by the growth of its to-customer (2C) business, which increased by 118.3% YoY.
Regarding its fast 2C business growth, Uxin CFO Zhen Zeng said, “We will continue to focus on driving the growth of our 2C business while increasing operating efficiency to build a sustainable business and generate long-term value for our shareholders.”
(Top photo from Baidu images)
