2003: Starting with Foreign Trade

Chapter 1014 Lifan's Business Adjustment and Suspension of Trading.

"Of course we won't sell to Flash Motors. The motorcycle industry in Chongqing is huge, and we don't have to worry about finding a buyer."

"Furthermore, dealing with Flash would be subject to strict investigation of related-party transactions, which would take a relatively long time."

As a leader in the two-wheeled electric vehicle industry, Flash Motors certainly has an electric motorcycle business, but it accounts for a small percentage and is a non-core business, mainly focusing on the high-end segment.

Tan Jincheng nodded: "Then you can choose one, or you can sell it to the Yin family, but they probably don't have the ability to do so."

From the perspective of supplementing the industrial chain, it is not impossible to complete the acquisition of the existing motorcycle business, but it is unnecessary. There is no need to make money from everything. It is more beneficial for Xinlifan to establish a foothold in Chongqing than for the motorcycle business to be based in Chongqing.

“We had contacted Longxing General before. They did have this idea, but they just didn’t have the money.”

As one of the industry leaders, Longxing's financial situation is quite good. In the first half of the year, their operating cash flow balance was 25.73 billion yuan, and the net inflow of operating cash flow reached 3.12 million yuan, indicating that the main business has a stable ability to generate cash.

Longxing has stable export channels in the Middle East and Latin America. Acquiring Lifan's business will enable it to rapidly expand its market share, especially in terms of export layout. In addition, both parties use Chongqing as their main production base. After the merger, costs can be reduced by closing redundant production capacity, such as the current Caijia factory.

Furthermore, from the government's perspective, the merger of the two major enterprises in the city is also conducive to industrial integration and avoids vicious competition. As a major local taxpayer, Longxing can obtain better policy support, which is something Longxing is very interested in.

This is where the merger of the two businesses is advantageous to Longxing. For Xinlifan, the benefits of selling the motorcycle business are also obvious. Not only did it bring in nearly 20 billion yuan in cash flow, but most importantly, it completed the asset-light operation model.

As for the revenue growth path after the sale of the motorcycle business, it is actually very clear.

With increased production of new models, a robust supply chain for electric vehicles, and capital operations, Lifan is poised to replace its existing motorcycle business with a three-stage leapfrog development model, thus completing its industrial upgrade. If the process goes smoothly, Lifan could double its revenue within three years, and it's not impossible for it to return to a company with tens of billions in revenue.

Even if the execution is not smooth, Xinlifan can become a contract manufacturer for Weilai. Although it loses its growth potential, it has the advantage of stable revenue and very little risk. As long as Weilai's cars can be sold, as a supplement to Weilai's industry, even if it is just reduced to a contract manufacturer, there is no need to worry about survival.

Zeng Jixiang learned a lot about capital operation from Tan Jincheng. Apart from not wanting to waste energy on the motorcycle business, he actually hoped that Xinlifan could maintain a light-asset operation.

Zeng Jixiang envisions Xinlifan using the profits to make investments and contribute to Weilai Technology, rather than becoming a burden on it.

"What do you need me to do?"

Under normal circumstances, Zeng Jixiang could complete these sales and mergers independently, but since he had come to Chongqing, Tan Jincheng didn't mind providing some assistance, even if it meant staying a few more days.

"It would be great if the boss would be willing to help. I'm currently talking to Longxing. It would be easier to negotiate with the Shancheng government if you were involved."

According to the 14th Five-Year Plan for High-Quality Development of Manufacturing in Chongqing, which includes the creation of a world-class motorcycle industry cluster, Chongqing's motorcycle enterprises account for 25% of the national total, but their output value accounts for only 18%.

With only 25% of the enterprises, they only generate 18% of the output value. The fragmented, small, and weak nature of the motorcycle industry in Chongqing is the biggest problem at present.

"After the merger of Longxing and Lifan, the concentration of production capacity can be increased to about 35%, which can be compared with Honda's factory model in their home country."

"The benefits of the merger to both companies are very obvious. The new Lifan can focus on the new energy vehicle industry, while Longxing can reduce its procurement costs by 12% after merging with Lifan's motorcycle business. In terms of technology synergy, Longxing's infinite displacement engine can complement Lifan's V-cylinder patent, which can fill the gap in Chongqing's models above 400cc."

Convincing the Chongqing government is actually quite simple; it's just a matter of providing convincing data on industrial advantages, employment, GDP, and so on.

The current top leader of the mountain city was transferred from Zhejiang Province and has some connection with Tan Jincheng. His term ends next year, and having an opportunity to promote industrial upgrading before the end of his term is a great surprise.

"Weilai has its own advantages in electrification. I wonder if President Tan can promise to help the city's motorcycle companies complete a certain degree of electrification transformation?"

Mega-cities including Beijing and Shanghai continue to restrict the registration of gasoline-powered motorcycles. Motorcycles, which were once popular on the streets, are now rarely seen in most cities in China.

Once wildly popular gasoline-powered motorcycles are now considered a sunset industry in China. It is an inevitable trend for traditional motorcycle manufacturers and users to shift towards electric two-wheelers, which also includes some electric motorcycles and mopeds.

Chongqing and Chang'an, major motorcycle manufacturing hubs, still retain some road rights for gasoline-powered vehicles in order to delay the pressure of transformation. Although FlashTech's motorcycle business accounts for a small percentage of its total business, it is a purely electric motorcycle.

Since last year, Flash Motors has launched the Flash series of electric motorcycles, which adopt intelligent central control and OTA upgrades, targeting first- and second-tier cities. Although the average price of over 4000 yuan has limited the volume, it is still welcomed by some consumers.

The advantages and disadvantages of electric motorcycles are actually similar to those of electric bicycles, so they don't need much explanation as everyone understands. However, for users who pursue fashion, want to experience a sense of technology, and have a limited budget, Flash Technology's Flash series electric motorcycles are a good choice.

With updatable battery management and power output, similar to Weilai Motors, it is the first electric motorcycle equipped with an automotive-grade central controller, featuring functions such as device linkage and AI adaptive capabilities, plus triple satellite positioning and 4G connectivity, and anti-theft tracking with accuracy down to the meter level.

These advantages are what motorcycle enthusiasts talk about. This series was jointly created by three teams: Flash, WILAY, and Orange Group. European designers were hired, and it was actually to verify WILAY's technology in electrification and intelligence on motorcycles.

With the development of a full range of two-wheeled, three-wheeled, and four-wheeled transportation options, from ordinary vehicles priced under two thousand yuan to luxury sports cars like Lotus costing hundreds of thousands of euros, the technology can be made widely available.

When a certain technology becomes outdated in automobiles, Weilai will try to apply it to the high-end electric vehicles of Flash Technology until the cost is reduced and it is adopted in lower-priced models.

Currently, the Flash series electric motorcycles are divided into two major product camps: lightweight and high-end. The lightweight ones start at 2999 yuan and are suitable for daily travel, while the high-end ones, which are aimed at tech enthusiasts, have a much higher starting price of 14999 yuan and a gross profit margin of 35%.

Compared to the 15% gross margin of lightweight products, the gross margin of premium products is obviously much higher, which is why companies in all consumer sectors are pursuing premium products.

Consumers are more concerned about the popularity of Weilai Motors, but the industry chain and some local leaders are very interested in Weilai's model. If Weilai opens a factory in a city, it may drive the entire industry chain model in the field of transportation tools.

Just look at Ningbo's development over the years. In addition to securing a place in the field of new energy vehicle manufacturing, companies such as Top, Xushen, Haitian, and Lijing have grown rapidly and become well-known suppliers in the global new energy vehicle industry.

In the downstream electric mobility sector, Beicang and the surrounding cities and districts have also benefited greatly. A large number of factories, large and small, rely on Shanchi's industrial chain for survival. In a sense, the advantages brought by a local government introducing Weilai Automobile are even greater than those of a large joint venture car company.

The barriers to entry for automobiles are higher, and it's more difficult to get involved, but it's different for two-wheeled and three-wheeled vehicles; the barriers to entry for the industry chain are much lower.

The mountain city region was quite satisfied with having Wei Lai left behind back then; simply getting rid of the major problem of Li Fan was something they could be proud of.

"That's no problem. Motorcycle companies in the city can discuss cooperation with Weilai, Shanchi, and Chengzi. We welcome more cooperation opportunities with companies in the mountain city area."

As Zeng Jixiang said, when Tan Jincheng personally intervenes, the progress of the negotiations is naturally different, and the treatment received is also different, because Tan Jincheng has more authority, and many things can be decided with just a word from him.

Selling the motorcycle business does not mean that Wei Lai is withdrawing from Shancheng. Zeng Jixiang will continue to deal with local entrepreneurs and reach further cooperation with companies in the industry chain, which will be beneficial to all of his companies.

Besides these collaborations, the biggest problem that Tan Jincheng needed to help Zeng Jixiang solve was the handling of Lifan's idle land. The Cai family factory, which currently produces motorcycles, owns nearly 200 acres of land.

Zeng Jixiang's idea was to hope that the government would change the planning to a new energy vehicle supporting industrial park through industrial land swap, thereby attracting Weilai's battery project and developing the subsequent three-electric supply chain.

Even if it eventually becomes an OEM manufacturer, it is necessary to maintain the cost advantage of OEM manufacturing. Zeng Jixiang hopes that a portion of these 200 acres of industrial land can be retained.

"That's no problem."

The leader in charge of this matter readily agreed. Having cooperated for many years, he knew Tan Jincheng's personality well. If something could be guaranteed, there was no need for further research; he simply agreed without hesitation, which would bring him more benefits.

In fact, when Tan Jincheng, representing Weilai Technology, came forward to propose the sale of Xinlifan's motorcycle business, they were somewhat surprised. Could it be that they were planning to run away?
However, as the negotiations progressed, the leaders dispelled their concerns. This was not a matter of running away; it was about increasing investment in the new energy sector in the mountain city.

Representatives from Longxing also participated in the talks. They had no prior contact with Tan Jincheng and were somewhat unaccustomed to his pace. However, for them, this was merely an opportunity to listen in and gauge the city's attitude.

The real negotiations were conducted with Zeng Jixiang. The assets that Lifan was selling this time were the entire chain of its motorcycle business, including the right to use the Lifan motorcycle trademark (ten years with the option to renew), a factory with an annual production capacity of 30 vehicles, and supporting equipment.

In terms of distribution channels, it has a dealer network in 23 overseas countries and 47 engine technologies, including a V-twin patent.

Regarding the valuation of the target assets, the Xinlifan team's bottom line is 15 billion yuan, with no upper limit. A valuation of over 20 billion yuan would be even better, therefore there is considerable room for negotiation.
The negotiation teams from both sides, led by Zeng Jixiang and the general manager of Longxing, did not immediately begin negotiating the price, but instead discussed issues related to personnel and debt.

If Longxing is to take over Lifan's factory, it will need to take over the current nearly 2000 employees, some of whom will definitely have to leave.

"The acquisition of assets will definitely affect some workers. Lifan will bear the compensation for departing employees. I wonder what Mr. Zeng thinks?"

“No problem, Lifan can handle it. Those who don’t want to leave can be transferred to the new energy vehicle production line.”

Zeng Jixiang readily agreed. He already had experience in this area during the previous bankruptcy reorganization and knew how to deal with Lifan employees in Chongqing. In addition, Lifan would assume all known debts, such as supplier debts.

Longxing is required to cover the dealers' security deposits and the after-sales claim fund in overseas markets. In addition, regarding non-compete agreements, Lifan is required to commit to not building its own motorcycle production capacity within five years and to prohibit licensing motorcycle technology to third parties.

These two points are mainly aimed at Shanchi Technology, another company under Tan Jincheng. Shanchi Technology has rich experience in two-wheeled electric vehicles. If it wants to produce motorcycles, it would not be difficult for it, given Lifan's existing technology.

Longxing was extremely afraid that Lifan would dump the production capacity of these traditional fuel vehicle projects on them and then rebuild the factory themselves. In that case, they would really be taken advantage of. Such things have happened quite often in the process of corporate mergers and acquisitions.

"Haha, we can sign this agreement. You don't need to worry. Xinlifan is only going to supplement the industrial chain of Weilai Automobile. We have no intention of doing motorcycle business. This is also the main reason for our sale. As for Shanchi Technology, whether they will expand their motorcycle business is beyond our control."

"But I can assure you that we will not transfer motorcycle technology to any third party, including FlashTech, unless with your permission."

"Of course, this only applies to FlashDrive Technology."

Zeng Jixiang had worked at Flashpoint Technology for many years and had a deep understanding of the company. In fact, after he took over Lifan and reorganized the company, he had already reached some cooperation agreements with Flashpoint Technology.

Although Lifan is engaged in the low-end gasoline motorcycle business, it has accumulated a lot of technology over the years, some of which can complement Flash Technology. In fact, the two parties have already signed an agreement.

Of course, this does not include some of Lifan's core technologies. Both companies are listed companies and need to be open and transparent. Neither Tan Jincheng nor Zeng Jixiang had any reason to manipulate these matters.

Longxing was aware of all of this.

On September 20, Lailai Technology suspended trading. The motorcycle business accounts for more than 75% of Lailai Technology's revenue this year. The sale of the motorcycle business constitutes a major asset sale and must be suspended from trading.

Generally, the suspension of trading before the first disclosure of the preliminary plan takes five to ten trading days, or half a month. After the resumption of trading, there may be a second suspension due to inquiries from the exchange.

The motorcycle industry is considered a thing of the past by investors. The transaction between these two listed companies, whose combined market value is less than 200 billion yuan, would not have made much of a splash in the A-share market if it weren't for Tan Jincheng's involvement.

At the same time that Laili Technology suspended trading, Longxing also chose to suspend trading. Although there was no mandatory suspension requirement for Longxing, it still chose to suspend trading in order to stabilize its stock price.

Longxing's trading suspension period is generally three to five trading days.

The key conditions for the agreement between Longxing and Lifan to take effect are the approval of the Chongqing State-owned Assets Supervision and Administration Commission (SASAC) for integration and the approval of the shareholders' meeting of Laili Technology. Tan Jincheng has already reached an agreement with the SASAC, and at the shareholders' meeting, Zeng Jixiang, representing Weilai Group, voted in favor. Liangjiang New Area, which holds 20% of the shares, naturally has nothing to say about this transaction.

In their announcements, the two companies that suspended trading expressed their views on the transaction. After the acquisition, Longxing's market share will increase from 12% to 18%, solidifying its position as the third largest domestic company.

LaiLi Technology claims that by selling its motorcycle business to generate cash flow, it can focus on the new energy industry. However, this also means losing its core revenue of 30 billion yuan per year, which will lead to a significant decline in revenue next year.

“The rights and interests of minority shareholders will definitely be infringed to some extent, and the regulators will certainly inquire about this. You need to come up with reasonable policies.”

Without the core revenue of 30 billion yuan, Laili Technology's valuation will definitely decline significantly in the short term, and a drop in stock price is inevitable. In responding to the CSRC's inquiries and protecting the rights and interests of minority shareholders, it needs to formulate strategies from three aspects: business substitutability, compensation mechanisms, and governance optimization.

"First is business continuity. Regarding the new energy vehicle business replacement plan, we can disclose that by 2023, Weilai Auto will provide 50 intended orders and three-electric supply chain business, with expected revenue of 5 billion yuan."

"In addition, the procurement subsidies for operating vehicles in the Liangjiang New Area of ​​Chongqing can also be announced at the same time."

To expedite the acquisition, Tan Jincheng assigned Cheng Linfeng and ByteDance's professional M&A team to assist Zeng Jixiang. The order for 5 Aion series vehicles should be secured by 2023 without any issues.

The ride-hailing business will definitely decline, but the sales of the Aion series will not drop to such a severe level in the short term, and will be able to support the new Lifan business system.

If, at some point, the Aion series truly reaches a point where sales become unsustainable, Weilai Technology can inject other assets, or even go public through a reverse merger and be incorporated into Laili Technology's listed financing platform, thus ensuring the stability of the listed company's revenue.

The ByteDance Engine team, which has dealt with regulators multiple times, is clearly very professional. They have almost simulated the entire inquiry process of the China Securities Regulatory Commission, and provided reasonable explanations for business substitution, valuation rationality, and the review of related-party transactions.

In addition, the compensation mechanisms for minority shareholders are nothing more than cash dividend commitments, share buyback plans when the stock price falls, and commitments to asset injection.

"30% of the proceeds from the sale will be used for special dividends over the next three years, with a cumulative dividend of no less than RMB 0.3 per share, representing an increase of more than 50% compared to this year's dividends. If the target is not met, the controlling shareholder, Weilai Technology, has committed to making up the difference in cash."

At the shareholders' meeting, Zeng Jixiang, representing Weilai Technology, solemnly promised that Weilai Technology was actually Weilai Group. This promise alone dispelled most of the concerns of the minority shareholders.

In fact, minority shareholders are also helpless. Weilai Technology holds 33.33% of the shares, and Liangjiang New Area holds 20%, with the two holding more than 50% of the shares. It is difficult for minority shareholders to have any impact on this asset sale.

"Boss Tan is quite kind; if he promises to cover the losses, then there's no problem."

Back when LeEco sold its assets, the lack of a compensation mechanism led to lawsuits from minority shareholders, something A-share investors still remember. As a highly professional team in China, ByteDance's solution would certainly not make the same mistake.

"The main reason is that Boss Tan is rich, and he dares to cover the losses."

Speaking of the term "safety net," Tan Jincheng was quite popular on the internet during his time in Chongqing. His targeted remarks about Da Zui on car forums raised suspicions that Wei Lai and Tan Jincheng were suppressing the implementation of autonomous driving technology.

However, Tan Jincheng's statement through the media at Chongqing Airport completely silenced these doubts. Four days have passed, and no company has dared to respond to the term "guarantee".

In the past, whenever a car manufacturer made a move, other manufacturers would respond and take countermeasures, either by arguing with each other or by developing corresponding marketing strategies to counter it.

However, this time no one dared to respond, including the outspoken critic.

They understood better than anyone else that Wei Lai was truly willing to take full responsibility. If he did respond, it wouldn't be long before Tan Jincheng dared to publicly declare that Wei Lai would fully cover non-human-caused accidents during intelligent driving, without needing to go through insurance companies for compensation.

If Wei Lai really uses this tactic, it will be a fatal blow to car companies, including Chrysanthemum, that use autonomous driving as a selling point.

Four days have passed, and the competitors have not responded. This indirectly shows that in the dispute over autonomous driving, between Chrysanthemum and Weilai, Weilai has won the battle of words.

"How could Chrysanthemum possibly cover the losses? They don't manufacture cars, so why should a supplier represent a car company? I don't know what Big Mouth and Boss Tan are arguing about, or is Big Mouth no longer listening to President Ren?"

Four days ago, Wei Lai's public relations department did not forget the accusations that Wei Lai and Tan Jincheng were suppressing autonomous driving technology. When public opinion reversed, they would also fight back.

Big Mouth, who has fully entered the automotive business, had been attacking Tesla and kicking Weilai before September, and was invincible in terms of public opinion. However, Tan Jincheng's first direct counterattack gave him a headache.

(End of this chapter)