Cango Jumps On China Car Export Bandwagon With Focus On Used Vehicles

Key Takeaways:

• Cango’s used car exporting platform has listed more than 60,000 car models and signed up more than 20,000 registered users since its launch in March
• The company is shifting gears from direct car trading to an asset-light model of providing related services to reduce its inventory risk as China’s car market slows

By Doug Young

When its history is written, the story of Cango Inc. CANG will be a tale that in many ways parallels the many twists and turns in China’s rapidly evolving car industry.

The company initially focused on car finance, as it profited from a booming auto market that passed the U.S. to become the world’s largest, fueled by a new Chinese middle class racing to buy new vehicles. Later, the company shifted gears and began providing domestic auto trading services after China began reining in private financial companies over concerns about their lack of risk management experience.

About a year ago Cango also put the brakes on its fledgling business of directly trading in autos, worried about getting stuck with unsold inventory as China’s car market began to slow. Now, its latest results released last week show it’s tapping the accelerator on its latest initiative to export used Chinese cars to the rest of the world. At the same time, the company is continuing to develop its domestic car-trading business, but with a focus on providing related services that typically carry much higher margins than its previous focus on self-trading.

All those changes, most within just the last three years, have caused the company’s revenue to rapidly shrink, in large part because it no longer buys and sells cars and instead only generates revenue from fees related to such trading. That shifting of gears led the company’s revenue to tumble by 93% in the second quarter year-on-year to 45.1 million yuan ($6.4 million) from 675.4 million yuan a year earlier.

Investors seem to like the company’s conservative approach as China’s car market undergoes a painful correction after more than two decades of explosive growth. Cango’s shares are up 74% so far this year, in sharp contrast with leading car trading services provider Autohome’s ATHM 10.8% decline over that period and an even larger 78% drop for smaller rival Uxin UXIN, which directly buys and sells used cars. The stock gave back a little of those gains after the results came out, closing down 2.8% the next day.

One of Cango’s biggest assets is its huge cash pile, which the company can use to weather the current downturn while it determines what direction it will ultimately take. The company had 3.65 billion yuan in cash and short-term deposits at the end of June, which was up slightly from three months earlier, thanks to its cautious posture that allowed it to earn a profit for the latest reporting period. It has maintained those high cash levels despite authorizing $250 million in share buybacks and doling out three large special dividends in the six years since its 2018 IPO.

Cango CEO Lin Jiayuan has watched China’s car market sputter over the last year, frequently noting how a majority of dealers are losing money as the market remains gripped in near-constant price wars. He repeated that refrain with the latest results, saying a sluggish car market in the second quarter created “significant challenges for the industry.” He pointed out that sales of vehicles made in China fell 2.7% in June year-on-year to 2.55 million units.

The rate of decline accelerated to 5% in July, according to the China Association of Automobile Manufacturers. Sales of China-made passenger vehicles inside China tumbled by an even bigger 10% for the month, though that was partly offset by a 20% jump to 400,000 locally made Chinese vehicles that were exported during the month.

Focus On Exports

With Chinese car exports booming, even as the domestic market stalls, it’s not difficult to see why Cango is shifting its focus to strong global demand for Chinese cars. Seeing that opportunity, the company launched its Autocango.com site in March, and reported the site had attracted more than 20,000 registered users in 207 countries and regions worldwide by the end of August. It added that Autocango.com now lists more than 60,000 car models covering 85,000 actual products and got an average of more than 10,000 views per day in June.

Lin said that Autocango.com has “quickly gained traction among global audiences.”

“In the second quarter, we significantly expanded Autocango.com’s market coverage as well as its range of products and services offerings,” he said on the earnings call. “Ultimately, we aim to position Autocango.com as the premier gateway for exporting Chinese used cars.” 

Cango is making its export drive as China tied or passed Japan to become the world’s biggest car exporter last year, depending on which statistics you look at. China’s vehicle exports continued to zoom in the first half of 2024, rising 30.5% to nearly 2.8 million units, meaning it’s almost certain to take the undisputed global crown as the world’s top exporter this year.

China’s broader export drive has started to meet with some pushback in markets including the U.S., Europe and Canada, which have levied big tariffs to prevent a flood of Chinese imports. But so far, at least, those other markets haven’t announced tariffs against used Chinese cars that are Cango’s export focus. The company didn’t give any data for revenue or transactions from Autocango.com so far, meaning the numbers are probably still relatively small.

On the domestic front, Cango continued to refine its Cango U-Car platform in the second quarter to focus on the more asset-light model of providing services to car traders rather than directly engaging in actual car trading. The platform, which was only launched early last year, facilitated 266 vehicle transactions during the second quarter and successfully auctioned 124 vehicles. It currently has over 260,000 vehicle listings.

“Over the past quarter, we focused on enhancing the competitiveness of Cango U-Car by ensuring a consistent supply of high-quality vehicles, optimizing dealer experiences and supply chain management, and improving the convenience and security of cross-regional deliveries,” said Lin.

Cango forecast its revenue would continue dropping to between just 20 million yuan and 25 million yuan in the third quarter, which would represent a 94% year-on-year decline at the midpoint. But the figure doesn’t really tell too much about the company’s latest direction, since most of it comes from other things besides Cango’s core car-trading business.

Under its more asset-light model, Cango reduced its cost of sales to 58.8% of revenue in the second quarter from a much higher 91.2% a year earlier. The company is also being quite cautious with most of its expenses, with the exception of general and administrative expenses, which rose by a modest 6.5% in the second quarter. As a result, it was able to more than double its net profit for the quarter to 86 million yuan from 36.2 million yuan a year earlier.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.