You Are What the Market Makes of You
You Are What the Market Makes of You
...not everyone gets treated equally, or fairly
Over in India, Ola Electric is in the process of getting listed on the Indian bourses. The company is the largest electric two-wheeler manufacturer in the country. The IPO, expected to be at more than USD 5.5bn, would make Ola Electric the world’s most valued electric two-wheeler manufacturer, valuing the Indian company more than Livewire (roughly USD 1.5 bn), AIMA (3.25 bn) and even Yadea (USD 3.91 bn).
No other pure-play player comes even close, and that has started making the local media question the valuation.
However, that is not what we are analyzing today.
In light of a heavy-duty listing, we started looking at how the publicly traded electric two-wheeler manufacturers have fared. This is the third and concluding part of our series. In the last two weeks, we have covered Livewire, Volcon, Arcimoto, Niu, and Zapp and realized that the glory days are long gone, with many now trading at more than 90-percent discount from their peak valuations.
The nature of the beast is electric two-wheelers, and the glory days may not come back for a long time.
Some of the above are listed through SPAC, and the common thread seems to be investors rushing to the exit as soon as the company gets listed. That reeks of low confidence in the businesses or entities erected on thin straws.
This week, we continue with VMoto and the Chinese factories: Yadea, Jiangsu Xinri (SUNRA), Luyuan, and AIMA Tech.
Not all are equally bad; that is the market telling us what it sees electric two-wheelers as.
VMoto (ASX: VMT)
The challenge with analyzing VMoto is that we don’t know what start date to use as a point of reference. Unlike most other players discussed here, VMoto has a complex and rather long history. The Australian-Chinese manufacturer was technically publicly traded even before it existed as a manufacturer.
The VMoto group originated as a small distributor of motorcycles in Australia in 1999. 2006 was eventful for the company as it was first acquired by the ASX-listed Optima group, with the business reverting to the VMoto brand name. Later that year, VMoto acquired Shanghai-based Freedomotor, which is significant as the current managing director, Charles Chen, came from there.
Mind you, VMoto was still a trading company, not a manufacturer. That would change in 2008 with two events: They started the construction of a two-wheeler plant in Nanjing, China. Then, they acquired German scooter manufacturer E-Max, which turned the company into a bonafide manufacturer.
Ironically, the E-Max range would not find sales, and VMoto would have to develop new products to start moving. Things would only begin progressing in the right direction in 2017 after starting a relationship with Super Soco, a Shanghai-based manufacturer.
The relationship did two things: Super Soco started manufacturing at VMoto’s underutilized Nanjing plant. Second, they decided to become ‘global’ players together, focusing more on the European, UK, and North American markets than China, where they knew the mega factories churning out low-cost products would have them for breakfast.
This would mature further in 2020, when the group would assume the identity of VMoto Soco, taking over the distribution rights for Super Soco globally and maintaining exclusive manufacturing rights.
So, it is safe to assume that the modern VMoto has roots in 2020 and has been a ‘linear’ progressing organization since then. Somewhere along the way, VMoto retired the E-max brand and continued with the Super Soco and VMoto brands.
That’s a long history for a company that sold 25,000 units last year. Against these sales numbers, VMoto had revenues of about AUD 69m (USD 46.5m) in FY 2023. This declined from FY 2022 revenues of AUD 116m (USD 78.2m).
This revenue fall further erodes investor confidence in VMoto, considering the share price has been on a long-term decline since the pre-COVID peak in 2020.
If we were to use traditional methods of stock picking, this is an undervalued share. VMoto’s PAT in 2023 was AUD 7.2m and the market cap represents a P/E ratio of 7.25. Compared to this, the rest of ASX sits at a comfortable P/E of 20+.
Look at it another way: VMoto’s market cap is lower than its revenues from last year.
Something in the company doesn’t entice shareholders. No one else, not even Zapp or Volcon, is treated with this disdain.
For one, the company has been experiencing hiccups and spending cash to safeguard its business.
In 2023, Shanghai-based partner Super Soco fell on hard times and went into receivership. VMoto had to swoop in to pick up the IPs for all the Super Soco products—TS, TC, CU, CUX, TC-MAX, VS1, CPX, CU mini, TS Street Hunter, and TC Wanderer—so that manufacturing and sales could continue uninterrupted. Worse, another player could have picked them up if VMoto hesitated. The company had to shell out AUD 2.9m to settle Super Soco’s IPs.
Since then, VMoto has been on a mopping spree, picking up related entities and controlling them. Amongst these is the UK distributor—Vmoto UK Distribution Limited—which VMoto acquired in March 2023. This acquisition was critical as the distributor had gone insolvent. The UK is an important market for VMoto as the CPx sells in good numbers and is the best-selling scooter in the UK in 2022. The company spent AUD 1.0m on the acquisition.
A year later, Vmoto acquired the Italian distributor VMoto Soco Italy S.R.L., increasing its stake from 50 percent to 100 percent. This was a share swap deal.
In October 2023, VMoto also announced a European recall of certain products to fix the steering column mount. This recall was expected to cost AUD 1.6m, with the insurance company paying half.
In April 2024, the Super Soco brand was retired; all products came under the VMoto name. This should complete the circle for VMoto’s consolidation.
Overall, these acquisitions and the recall have been significant from a long-term perspective but are a short-term drain on cash. However, they are small and should not have impacted the share price.
So, what else has been draining investor confidence?
One primary cause is VMoto’s lack of sales. The brand is bigger than the company, and VMoto has been steadfastly focused on making profits. In that sense, it behaves more like a ‘business’ than a ‘start-up.’ However, at 25,000 odd sales, it remains very small.
These 25,000 sales come from 12 products under the VMoto brand and five more under the VMoto Fleet brand. Even though many of these share platforms, there are still too many products for too few sales.
An even bigger problem is VMoto’s lack of access to the biggest markets - the brand stays predominantly Europe-centric, with some more sales coming from other small markets. VMoto is likely uncompetitive in China and won’t enjoy an edge against the Chinese factories of SUNRA, AIMA, and Yadea.
The fast-growing Indian market is also out of bounds for VMoto - the local players are too strong, and the government would only incentivize if you manufacture locally. That is capital intensive - big markets need significant deployment. A few years back, VMoto had stuck a deal with an Indian start-up, Revolt Motors, to supply the TC Max (previous generation of the TS Street Hunter) in Completely Knocked Down (CKD) kits. The company’s FY 2023 report mentions that they shipped about 5k units to India. However, Revolt has been sold once and is, at best, a marginal player selling a few hundred units every month in a market that is touching a million.
Even Europe, where VMoto has enjoyed good sales, maybe becoming a difficult geography now. Multi-brand dealers like the KSR Group and LaSouris have found white-labeling in Chinese factories and can sell electric scooters cheaper than VMoto. VMoto has not created enough technology or design barriers to make an exciting case for itself.
In that sense, VMoto and Niu, which we discussed earlier, are similar stories. They came and tried establishing themselves as high-quality brands, drawing attention away from their Chinese-built origins. A lot of it was achieved by being ahead of the curve because the curve itself had lagged. Li-ion batteries, IMUs, better quality, dependability, appealing aesthetics, funkier brand image, etc., were some of the things where Niu and VMoto both did well.
Both succeeded in their niches, but the curve is catching up. The Chinese factory brands led by Yadea have been investing in engineering and new tech development. The dependability of even the laggards like Luyuan, AIMA and SUNRA has improved.
There is also a focused move towards Europe, as seen by Yadea’s bigger-than-ever participation in the last two editions of EICMA.
In short, Yadea wants to do what VMoto and Niu did… except Yadea can do it cheaper, faster, and with more products.
For VMoto’s shareholders, this means that the sales will not go 10X any time soon.
Luyuan (Luyuan Group Holding (Cayman) Ltd. 2451.HK)
The Chinese factories —Yadea, SUNRA, AIMA, and Luyuan (also TailG and many more)—rule the world through brochures. Ask any salesperson, and they will quickly bring out multiple brochures offering the customer a thousand SKUs. There are even more variations on offer if the customer desires. If you want something—a different styling or specs you saw in some other brochure—that can also be arranged.
We at InsightEV are not big fans of Chinese factories, but we cannot ignore the stark reality of a business that risks becoming too commoditized too early in its journey. If Niu and VMoto are the industry's froth, the Chinese factories represent the body.
There is a stark difference between how market players view a Yadea and how they view a Niu/Vmoto (and we hate to say this)- there is greater honesty in a Yadea or a SUNRA as compared to their better-known but much smaller compatriots. As a result, the share price stays stable, improving or declining in line with how the sales volume behaves.
Of all the Chinese factories, Luyuan is the purest one in the sense that it has displayed little ambition beyond being a ‘brochure’ supplier. It was also the latest one to go public—in October 2023.
Since then, the share price has declined nearly 20 percent, mainly because 2023 was a bad year for the Chinese electric two-wheeler market. All comparable brands (Yadea, AIMA, SUNRA) have declined similarly.
For FY 2023, Luyuan revenues were RMB 5.08bn (USD 698m), growing by 6.2 percent from previous years. The operating profit of RMB 15.1m indicates a business with low margins.
Luyuan has a market cap of HKD 2.52bn (USD 327.6m) and a P/E ratio of 12.83. This may be low in Nasdaq terms, but the typical Hong Kong Stock Exchange P/E ratio is between 8 and 12. This also recognizes how the market players view Luyuan—as a commodity enterprise.
AIMA (603529.SS: Shanghai)
AIMA Technology Group Ltd is listed on the Shanghai exchange. This diversified group manufactures bicycles, electric cycles, electric tricycles, and electric two-wheelers (scooters/motorcycles).
As of the financial year last reported (2022), E2W sales accounted for only 35 percent of total sales. The bulk of sales came from electric cycles.
This is a profitable business lagging behind others in terms of product design. The company has had some popular models in the ASEAN market (white-labeled by local players), but the new range falls short compared to a competitor like Yadea.
Depending on your point of reference, AIMA Tech stock has risen 46 percent in the last five years, though it is down 41 percent from its peak in March 2023. It has a market cap of CNY 24.01bn (USD 3.3bn).
Jiangsu Xinri (603787.SS: Shanghai)
Jiangsu Xinri (popularly known under its brand name SUNRA) started trading on the Shanghai exchange in April 2017. Like AIMA and Yadea, this diversified group manufactures electric cycles and scooters. We get the sense that SUNRA has managed a higher public profile. They also put a picture of a Nobel Laureate on its website.
The company once collaborated with MIT and now touts another collaboration with Huawei. The website teases fabulous tech, though most are computer-generated animations. Most of it is the typical Chinese factory marketing gibberish aimed at impressing the unsuspecting traders in Malaysia.
Recently, the company has been working on breaking the Chinese factory shackles. It has been widening its range to offer more high-speed offerings and widen its brand's reach. In doing so, it does not shy away from what the Chinese have always done best - bring out quick-first copies of iconic European designs.
We are unsure whether the SUNRA Dream (above) is already in production or still under development.
Overall, SUNRA is much smaller than AIMA or Yadea. Currently, the company has a market cap of CNY 2.04bn (USD 283.3m), though the market affords it a better P/E ratio of 28.58, significantly higher than the competition and the exchange itself.
Yadea (1585.HK)
Yadea is the biggest Chinese electric two-wheeler enterprise. It is also the biggest E2W manufacturer in the world. They sell more electric scooters in China than the next five manufacturers (Luyuan, TailG, SUNRA, Zongshen, and Huaihai), combined.
Like AIMA and SUNRA, Yadea is diversified, manufacturing electric bicycles and scooters. In 2023, sales were 16.5m units, of which 4.9m were scooters, the rest being electric bicycles. This was a 17.9 percent jump in overall volume from last year, although the scooter volume has decreased from 5.84m units to 4.9m units.
Recently, the company has focused on moving upwards from being a Chinese factory to a brand to reckon with. It has invested extensively in new product development and launched 16 new scooter and motorcycle models last year. The company has maintained a strong presence at the last two editions of the EICMA motorcycle show, aiming to make inroads in the European market.
At EICMA 2023, Yadea displayed the Kemper and Keeness motorcycles. The Keeness is a good-looking, competent sports commuter motorcycle, but the Kemper interests us most. The motorcycle has a 320V architecture, perhaps the first high-voltage electric two-wheeler from a Chinese brand. The Kemper can do 160kph and fast-charge (80 percent in 10 min).
Apart from Kemper and Keenness, Yadea also introduced a few new scooter models to make its range contemporary. A few years back, it hired KTM-owned KISKA Design to create products that would appeal to the international audience, especially the European market. Frankly, we did not like the first effort—the C1S scooter—but the recent introductions like the Fierider, VoltGuard, Keeness, and Kemper have a sense of maturity and sophistication in the styling.
Yadea trades on the Hong Kong Exchange. Last year (2023), the company had gross revenues of RMB 34.76bn (USD 4.78bn) and managed a PAT of RMB 5.88bn (USD 808m). This is a nearly 17 percent net profit margin, healthy any way you slice it.
Over the last five years, Yadea has delivered a 345 percent return in stock price. At the same time, it is now down 54 percent from its peak market cap of Feb 2021. The market cap sits at RMB 29.84bn (USD 4.1bn). The market cap is even lower than the annual sales, meaning the market still treats it as a China-centric commoditized business.
Something that Yadea wants to change in a hurry.
P/S Ratios and How They Stack Up
As we approach the end of this analysis, we realize that not everyone is treated equally. An E2W is an E2W is an E2W is not an argument that the global share markets buy as of now. The market differentiates and has its criteria. Let’s try to decipher, if we may.
Usually, the markets love the P/E ratio, but when it comes to electric mobility, not many have a positive ‘E.’ So, instead, let’s use the Price-to-Sales P/S ratio as a benchmark.
Livewire manages a very high P/S even as it bleeds heavily. Perhaps it is the technology consideration (the market thinks the Arrow platform, with its modularity and battery-as-a-structure construction, is all sorts of awesome). However, the volumes are dismal and not expected to improve with the price points. The only thing that can sustain Livewire is the smaller, more mass-market motorcycles.
Damon (planning to list)
This brings us to Damon. The Canadian electric superbike developer desperately wants to become a manufacturer. The Hypersport has been around for a long time now—the media started reporting on it more than five years ago. However, production hasn’t started because of a lack of funds.
Then Damon announced an SPAC aimed at listing on the Nasdaq. This was back in October 2023, and it seems the combined entity is going through the SEC process. Then, in June 2024, Damon provided us with another update indicating that “The transaction is currently expected to close in the coming months.” The language is confusing, and ‘coming months’ often means ‘many months.’
We wait.
When they do list, Damon will have the same challenge as Livewire. They have the technology, but they are targeting a high-end niche. Unlocking value means coming down the value chain.
This analysis concludes here. We haven’t discussed Gogoro because the biggest name in E2W deserves a post of its own.
This post draws heavily from the detailed Company profiles of VMoto, AIMA, SUNRA, Luyuan, Yadea, and Damon in InsightEV’s upcoming Global Landscape and Future Prospects Report, a comprehensive analysis of the global E2W and urban mobility industry.