Key Takeaways:

• Yixin’s financing for sales of electric vehicles surged 225% to 1.3 billion yuan in the third quarter, becoming the new growth engine for the car-loan facilitator
• The market for used vehicles, which was slowed by the pandemic, will weigh on the company’s fourth-quarter performance

By Tina Yip

Covid lockdowns hurt many sectors of the Chinese economy this year, but goverment stimulus policies injected fuel into the auto market, benefiting companies that make cars or enable consumers to buy them.

Those moves help to explain how auto finance platform Yixin Group Ltd. (2858.HK) managed to expand its business in the third quarter, despite the dampening effects of the pandemic.

Seeking to accelerate economic recovery, China brought in a raft of policies this year to encourage car ownership, including halving the sales tax on some vehicles and promoting electric vehicles (EVs) in rural areas.

The measures helped Yixin to stay on a growth path after a crackdown on peer-to-peer lending forced the company to move away from direct financing towards facilitating bank loans for car buyers. Under the revised business model, Yixin earns fees from lenders or borrowers, as well as revenues from after-sales services.

Yixin’s total vehicle financing amount rose 9.4% to 13.6 billion yuan ($1.95 billion) in the third quarter from the same period a year earlier, according to business data released last Monday. By vehicle type, the financing total for used cars rose 7.4% to 6.8 billion yuan while the amount for new passenger vehicles increased 11.4% to 6.8 billion yuan, with both categories accounting for half of the combined financing.

Notably, the company’s number of EV-related transactions logged a 174% rise and the amount of financing surged 225% to 1.3 billion yuan, with the help of the government support.

The figures reflect the broader trend of Chinese car sales. Electric vehicle sales jumped 107% in the third quarter from the year-earlier period, a faster growth pace than the industry average, according to data from the China Association of Automobile Manufacturers. For Yixin, EV financing made up just 8.5% of total transactions and the new energy vehicles are likely to become a strong business driver going forward.

Investors have high hopes for this side of the business because of the incentives to develop and sell new energy vehicles, said Kenny Wen, KGI Asia’s head of investment strategy. The electric cars are also generally more expensive that gasoline vehicles, which is pushing up the company’s total financing tally, he noted.

Industry figures show that the stimulus measures, as well as the easing of supply chain problems, lifted the Chinese automobile market in the third quarter. Sales of new and used passenger vehicles rose 20% from the year-earlier quarter. As for Yixin, its vehicle financing amount rose 9.4% year on year, but the number of transactions actually edged up a mere 1.4% to 142,000.

Last year, sales of used passenger vehicles in China grew 26%, and Yixin has expanded its presence in the second-hand car market. In the first half of this year, it helped finance the purchase of 150,000 used vehicles, around double the previous year’s total and accounting for 56% of total transactions, up from 32% in the year-earlier period. And the amount of its financing for used vehicles soared 170% to 14.1 billion yuan.

Into the slow lane for used cars

Meanwhile, a survey of used car dealers painted a glum picture. Forty percent of companies surveyed reported that their customer flow had fallen by 30% to 50% in November. And more than 15% of businesses suspended operations for more than 60 days in 2022. The respondents were not optimistic about December either, worried about a continuing fall in demand due to cold weather, the pandemic and other factors.

Yixin’s used car business is likely to have struggled in the fourth quarter, dampened by pandemic controls that were not eased until early December. But as Covid constraints are lifted, consumer spending could rebound, and demand for second-hand electric cars looks set to be particularly strong. The company’s used vehicle business is therefore likely to pick up speed early next year, driven by EV momentum.

After hitting roadblocks as a direct financier, the company has headed down a new road as a loan facilitator in challenging economic times. Investors will need to watch whether it can navigate a return to the revenue fast lane, fueled by EV demand, as China’s economy pulls out of a period of pandemic controls.