Beyond the Crisis of NETA Automobile: Are State-Owned Shareholders the Biggest Suppliers?

By Rocky Wang | Spring Studio

The brief outage of NETA Automobile’s official website has once again heightened the anxiety among stakeholders. Since October last year, the company has been sending out distress signals, including production halts, wage arrears, layoffs, and the departure of its CEO. After a series of negative news, even minor fluctuations now cause tension among suppliers and customers.

Recently, several listed suppliers have issued debt collection announcements, bringing their disputes with NETA Automobile to the public eye. The cumulative unpaid bills owed by NETA Automobile are now in the hundreds of millions of yuan. According to research by Spring Studio, in addition to these third-party suppliers, NETA Automobile’s largest suppliers are actually its state-owned capital (SOC) shareholders.

Spring Studio learned that，after the SOC of Nanning and Yichun invested in the operating entity of Neta Auto, Hozon New Energy Automobile Co., Ltd. (Hozon Automobile), they likely reached supply and sales agreements with the company.

On one hand, SOC companies supply batteries and other components to Hozon Automobile. On the other hand, these SOCs also act as agents to sell “NETA”-branded vehicles. This arrangement has boosted the annual performance of SOC companies but also exposed them to the risk of unpaid bills. To mitigate this risk, some SOC shareholders have obtained asset pledges from NETA Automobile, including vehicles and production equipment.

In 2024, how much did these state-owned companies supply to NETA Automobile?Have the payment obligations been duly settled?Will the SOC suffer losses on both the equity investment in NETA Automobile and the receivables?

State-owned capital may be the largest supplier

Recently, Neta Auto has been in a rather difficult situation. At least 2 billion yuan worth of equity in companies under Neta Auto has been frozen, and its founder, Fang Yunzhou, is restricted from high-consumption activities.

According to the announcements, currently, Neta Auto owes 48.195 million yuan to EFORT Intelligent Equipment Co., Ltd. (688165.SH), a supplier of intelligent manufacturing solutions, 13.11 million yuan to Dong Feng Electronic Technology Co., Ltd. (600081.SH), a parts supplier, and 53.5507 million yuan to FS Development Investment Holdings (300071.SZ), a marketing company. As a result, it’s sued by multiple parties. According to media reports, some of the other unlisted suppliers have also been owed payments by Neta Auto.

According to the collation by Spring Studio, in addition to these third-party suppliers, Neta Auto's larger suppliers may be its major shareholders with state-owned backgrounds.

Currently, Neta Auto has three complete vehicle production bases, located in Tongxiang, Zhejiang Province, Yichun, Jiangxi Province, and Nanning, Guangxi Zhuang Autonomous Region respectively. These three factories correspond to the state-owned shareholders of the three regions. According to the prospectus, the Nanning State-owned Assets Supervision and Administration Commission (SASAC), the Yichun SASAC, and the Tongxiang SASAC hold approximately 11.46%, 12.18%, and 4.44% of the equity in Hozon Auto respectively.

According to the information obtained by Spring Studio, Nanning Industry Investment Group Co., Ltd. under the Nanning SASAC and several supply chain companies are all major suppliers of Neta Auto.

In 2023 and 2024, companies under Nanning SASAC signed annual agreements with Neta Auto. According to the annual agreements, Neta Auto purchased components such as batteries and motors from companies under Nanning SASAC. The tentative transaction amounts including tax in 2023 and 2024 were 2 billion yuan and 3 billion yuan respectively. These transaction amounts do not serve as the specific amounts for the transactions agreed upon by the parties, and the final amounts shall be subject to the specific purchase and sales contracts or orders signed by the two parties.

In 2023, Neta Auto was one of the main customers of Nanning Industry Investment Group in its equipment, accessories, and material sales business. Nanning Industry Investment Group achieved sales of up to 1.78 billion yuan to Hozon Auto, the main company of Neta Auto, and this amount accounted for 75.5% of its annual sales amount. By the end of that year, Nanning Industry Investment Group had 205 million yuan in accounts receivable from Hozon Auto that had not been recovered.

At the same time, Nanning Industry Investment Group may also be helping Neta Auto sell complete vehicle products. In 2023, it achieved a purchase amount of 320 million yuan from Neta Hezhi (Shanghai) Automobile Sales Service Co., Ltd. At the same time, Nanning Industry Investment Group also sold 300 million yuan worth of goods to Shenzhen Yimao Auto Technology Service Co., Ltd., an online automobile sales platform, in the same year.

In 2024, what was the cooperation amount between Nanning Industry Investment Group and Neta Auto? And have these payments been recovered? These are all unknowns for now.

By building factories in the local area, Neta Auto has also received strong support from the Yichun Municipal Government. Yi Chun City Venture Investment Co.,Ltd. (Yichun Investment) under the Yichun SASAC has been both a financial backer and a hands-on contributor.

In 2019, as a company attracted through Yichun's investment promotion initiatives, NETA Auto established a smart factory in Yichun. Yichun Investment Company acquired multiple plots of land to support the construction of NETA's factory. Meanwhile, its subsidiary, Yichun Chuanghe New Energy Investment Co., Ltd., took charge of the factory construction project for Hozon New Energy Auto.

While exerting efforts, Yichun Investment also provided funds by investing in shares and lending to Neta Auto.

As of the end of March 2024, Yichun Investment Co., Ltd. had a combined equity and debt investment of approximately 926 million yuan in Hozon New Energy and its affiliates, accounting for 46.37% of its total external investment.

As early as 2021 and 2022, Yichun Investment had provided nearly 40 million yuan in loans to the Yichun branch of Hozon Automobile in the form of entrusted loans. In 2024, Yichun Investment extended an entrusted loan of 669 million yuan to the Yichun branch of Hozon Automobile, with an interest rate of 6.80%, set to mature in April 2027.

This investment has also provided a significant boost to Yichun Investment's performance.

In 2020 and 2021, Yichun Investment Company generated revenues of 200 million yuan and 95 million yuan, respectively, from its new energy vehicle (NEV) trading segment, which accounted for over half of its total trading revenue. The company's NEV trading mainly involves the agency sales of the “NETA” brand of new energy vehicles produced by Hozon New Energy.

Under this agency model, Yichun Investment Company would collect vehicle orders from local 4S dealerships within the region, prepay the purchase amounts, and then have Hozon Automobile’s sales company directly ship the vehicles to the designated 4S stores. Upon delivery, Yichun Investment would settle the payment with Hozon Automobile. After 2022, as the sales volume of NETA brand new energy vehicles grew rapidly, the business model was adjusted, and Yichun Investment no longer acted as the regional master agent for distribution.

Subsequently, Yichun City began purchasing batteries from suppliers and reselling them to NETA Automobile. In 2023, Yichun Investment’s battery trading revenue reached 200 million yuan, accounting for 75.28% of its total trading income. By the end of 2023, Hozon Automobile owed Yichun Investment over 35 million yuan in unpaid accounts.

Yichun Investment Company’s nearly 1 billion yuan in investments and claims against NETA Automobile accounts for 46.37% of its total external investments, signaling a high degree of concentration in equity and debt exposure. As NETA Automobile finds itself in a precarious situation, doubts have emerged over whether these investments, loans, and receivables can be successfully recouped.

According to China chengxin International Credit Ratings Company Limited（CCXI），the future performance of Hozon Automobile will be critical in determining the recoverability of Yichun Investment Company’s investments

A large amount of assets have been pledged

To ensure the payment of goods under the annual agreement, NETA Automobile has repeatedly pledged its produced vehicles to companies under the Nanning SASAC.

According to available information, NETA Automobile has pledged several models of complete vehicles, with unit prices ranging from 80,000 to 90,000 yuan, and the total number may reach thousands. Additionally, NETA Automobile has also pledged a range of raw materials, auto parts, and semi-finished products to the Nanning SASAC.

In 2024, in order to secure investment from the Tongxiang municipal government, NETA Automobile even pledged some of its production equipment.

NETA Automobile received significant support from the Tongxiang SASAC in 2024. The Tongxiang Science and Technology Innovation Service Center Co., Ltd. (Tongxiang Sci-Tech Innovation Company), a company under the SASAC and the Finance Bureau of Tongxiang, invested 1 billion yuan to take a stake in NETA Automobile and also provided it with a loan of 1.3 billion yuan.

The two parties had collaborated several years ago. In 2020, Tongxiang Industrial Development Investment Group Co., Ltd., under the Tongxiang Finance Bureau, supplied new energy vehicle components to Hozon Automobile in a deal worth 150 million yuan. It is currently unclear whether they have continued supply transactions in recent years.

In April 2024, NETA Automobile issued a convertible bond worth 940 million yuan to Tongxiang Sci-Tech Innovation Company. According to information obtained by Spring Studio, this bond not only includes a share conversion agreement but is also backed by a series of collateral.

To secure the convertible bond, NETA Automobile pledged assets worth over 800 million yuan to Tongxiang Sci-Tech Innovation Company. Specifically, it pledged equipment from its financial center, management and operations center, and parts companies, valued at 343 million yuan. It also pledged accounts receivable from multiple dealers and customers, amounting to 306 million yuan. In August, NETA Automobile further pledged a value-added tax (VAT) carryforward credit of 177 million yuan to the company.

In addition, Zhejiang Tongxiang Rural Commercial Bank Co., Ltd. also provided loan services to NETA Automobile. According to information obtained by Spring Studio, NETA Automobile pledged a total of 8185 units/sets of assets to the bank, including: A subsidy fund of 750 million yuan for the promotion and application of new energy vehicles from 2022 and earlier years;Equipment worth over 40 million yuan; A large number of electronic devices, machinery, production molds, and tooling from its financial center, management and operations center, parts company, digital center, R&D system, marketing, manufacturing systems, and supplier molds; R&D equipment used for research and development.These assets were pledged to secure the loans from the bank.

A series of developments suggest that by 2024, NETA Automobile had pledged at least part of its assets, ranging from raw materials and semi-finished products to production equipment and even complete vehicles, to shareholders or banks. The company may have few assets left to liquidate for debt repayment, and the road ahead for other creditors is likely to be arduous.

According to media reports, NETA Automobile’s management is actively seeking external capital support, with hopes of securing a new round of social financing in mid-January. However, the deal has yet to be finalized. At the beginning of 2025, as China’s new energy vehicle (NEV) industry remains in the midst of a “brutal survival of the fittest,” it remains to be seen whether NETA will follow in the footsteps of other struggling brands such as WM motor, HiPhi, and Jiyue, or whether it will attract another dreamy white knight.

Written by Rocky Wang; Editing by Alicia Chiu

This text has been translated by AI, and the content is subject to the Chinese version. Click to view the original Chinese text.