Auto Industry

The latest contender

Can Hozon make its mark in electric cars with the Nezha EV brand?


Nezha V: Hozon Auto’s electric SUV (the brand is NETA in English)

In the novel The Investiture of the Gods, Nezha is born during the late Shang Dynasty (around 3,000 years ago) in a fortress at Chentang Pass where his father served as a military commander.

One day in a deadly fight Nezha killed the son of the Dragon King who ruled the East Sea. The Dragon King wanted revenge and threatened to flood Chentang Pass. Nezha killed himself to settle the dispute. He would later be resurrected and help end the tyrannical rule of the last Shang emperor. 

A superhero in Chinese folklore, the mythical figure has just become a hot topic as a car brand in China’s electric vehicle market.

In the first quarter of this year, Hozon Auto, the maker of the Nezha brand (which in English uses the capitalised spelling NETA), took third place locally. Delivering a total of 30,152 new cars, more than NIO’s 25,768 and not far back from XPENG (34,561) and Li Auto (31,716). In light of the strong sales, TMT Post reports that Hozon is now gearing up for a Hong Kong initial public offering in June that could raise about $1 billion  (NIO, XPENG and Li Auto are all dual-listed in Hong Kong and New York).

Hozon, which is an offshoot of Shenzhen-listed LED manufacturer Hongli Zhihui, sells EVs at competitive prices. Prices for its flagship model the Nezha V, for instance, start at just Rmb62,000, which is less than a third of Tesla’s most affordable sedan in China.

Tang Lin, a recent buyer from Guangxi province, told 36Kr that he was looking to buy an EV from Chang’an, before changing his mind and purchasing the top of the range version of the Nezha V for Rmb100,000. Tang explained that he was ultimately sold on the Hozon electric SUV model because of the battery life, the size of the trunk, and the roomy backseat.

After his purchase, Tang began to notice more Hozon cars on the roads of Nanning, where the company has a factory. “It seems like the brand has suddenly caught fire,” he claimed.

Based in Zhejiang province, Hozon has been targeting smaller cities and rural regions, where consumers are more likely to make buying decisions based on price and practicality.

The EV maker actually got its start selling to business clients like car-hailing platforms. It wasn’t until last year that it began to market to individual buyers, splashing on marketing and promoting aggressively at auto shows.

According to company data, Hozon delivered 69,674 vehicles in 2021, a year-on-year increase of 362%. Similar to what has happened to most competitors, the talk is that the company has relied on substantial financial support from local governments. Its biggest shareholder is an investment arm of Yichun, a city in Jiangxi province. Other big shareholders include investment vehicles controlled by Tongxiang, a city in Zhejiang and Nanning.

As sales climb, new problems start to emerge. If Hozon continues to compete in the low-end segment it doesn’t have much room in gross profit margins. Phoenix Technology reckons that its profit margins aren’t much more than 5%, compared with large EV makers like NIO  and Li Auto, which were reporting 11.5% and 16.4% respectively. Even at that rate the two are losing money.

Hozon is yet to develop the scale and R&D ability to compete against the bigger producers too.  

“The low-cost business model can help the company penetrate the market and capture a larger number of consumers. But the problem is also clear: razor thin margins and low brand loyalty,” Phoenix Tech warns. “More importantly, once Hozon has established a low-price reputation, it is very difficult to move to mid- to high-end segments. Xiaomi now struggles to convince users to pay for its high-end mobile phones because of its low-cost image in the early years.”

Ora, another low-price EV producer owned by Chinese carmaker Great Wall, has struggled with a similar challenge. Its chief executive Dong Yudong said that the company had to stop taking orders for its Black Cat model because of increases in the costs of batteries and other raw materials, as well as the withdrawal of government subsidies. “Even including subsidies, Ora Black Cat is selling at a loss of Rmb10,000 per car,” he laments.

Hozon risks becoming trapped in a similar situation. According to the performance data disclosed in a financial report from 360 Security, its second largest shareholder, Hozon achieved a reported a net loss of Rmb1.3 billion on its sales in 2020. It did better last year, however, with sales of Rmb1.6 billion and a net loss of Rmb693 million.

The company is now betting on its latest flagship – the medium-sized electric sedan Nezha S, which will launch later this year – to improve the situation further.

Prices for the car are expected to start at Rmb200,000 and Hozon is hoping that the launch will help to upwardly reposition the company’s brand image.

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