Vision Fund, which is a massive fund set up by the CEO of SoftBank to invest in fast-growing tech companies, has just announced that it will invest $1.5 billion in the Chinese second-hand car startup Chehaoduo. The word “Chehaoduo” means many cars in Chinese, and SoftBank is taking a huge bet on the fast-moving auto market in China through this deal.
Chehaoduo is a Beijing based online car trading group. The company has a two-pronged operational approach; one is the peer-to-peer online marketplace for cars codenamed ‘Guazi’ which lets users sell their used cars on the platform; the other is ‘Maodou’, which sells brand new sedan cars through financial lease agreements and direct sales.
Chehaoduo has come out with a statement that it will use this huge investment to shore up its technology and improve its existing products and services while developing new products for the rapidly growing auto market of China. The company also plans to keep investing in its brick-and-mortar stores and increase its visibility in Chinese cities. Chinese people are used to visiting car dealerships to purchase their vehicles, and Chehaoduo believes that having more retail stores will help their brand to increase its reputation and trust so that more consumers can experience their services. This is a distinctly different approach by the company and will help them to differentiate their brand from their competitors who solely focus on the online side of their business.
This latest investment comes at a time when China’s economy struggles to keep its growth momentum, thus negatively affecting consumer confidence. Chehaoduo plans to shield themselves from the sluggish Chinese economy by covering a broad spectrum of customer demands.
The auto industry in China is the biggest in the world. The industry saw a sharp downturn in new car sales numbers, which fell to 23.7 million vehicles in 2018. China’s top auto association, the Association of Automobile Manufacturers reports this figure, which decreased for the first time since the 1990s.
The Chinese society has been very slow at adopting the second-hand culture, unlike other Western societies who deem used cars as an economical option.
This phenomenon has seen a shift as consumers feel the heat of the slowing Chinese economy. Thus, the sales figures of second-hand cars in China has risen by 13 percent in the preceding 11 months of 2018.
The second-hand car market in China is booming recently, but auto financing leases have been underutilized, which is preventing lower-income households to adopt used cars in the market. Online penetration of the second-hand car market also remains low, which is holding back the industry. That’s why Chehaoduo’s two-pronged business approach has helped the company to quickly become one of the largest auto trading platforms in China.
SoftBank, who is a prolific Japanese investor in the auto industry, have leveraged their affiliated companies such as the Vision Fund to invest in Uber and Grab, which are two of the world’s largest ride-sharing companies.