Uxin Ltd. (UXIN), the Chinese used car superstore company, has been on life support for two years, struggling to prove the viability of its business model. The company’s precarious financial situation has been a constant concern for investors, but a recent $15 million investment from ride-sharing company Dida Inc. (2559.HK) has injected a much-needed dose of optimism. This investment, while modest, represents a significant lifeline for Uxin, which had just $3.3 million in cash at the end of March, highlighting the company’s rapid cash burn.
Dida’s investment is structured in two parts: a $7.5 million share purchase and a $7.5 million loan. The share purchase, at a discounted price of $1.4575 per ADS, will grant Dida a stake of between 1% and 2% in Uxin. The 18-month loan demonstrates Dida’s cautious approach, reflecting a lack of confidence in Uxin’s long-term prospects. Dida aims to leverage this partnership to offer used car sales and after-market services through its ride-sharing platform.
Despite the positive news, Uxin’s investors remain cautious. The company’s stock rose slightly after the announcement but is still down 78% for the year, reflecting concerns about its long-term viability. Dida shareholders were even less impressed, selling off their shares, likely due to concerns about the wisdom of investing in a financially struggling company.
Uxin faces a challenging environment. The used car market in China is fiercely competitive and plagued by price wars, exacerbated by a slowing economy. However, Uxin believes its scale and focus on high-quality reconditioning and after-market services will ultimately give it an edge over smaller competitors. The company’s strategy mirrors that of successful US used car superstores like Carmax (KMX) and AutoNation (AN), which have proven the viability of the model.
Uxin reported narrowing losses in its latest quarterly results, citing improved efficiency and a growing gross margin. The company is aiming for adjusted EBITDA profitability by the end of December. It also expects to see significant revenue growth in the current fiscal year, driven by the opening of new stores and increased retail sales.
Despite the challenges, Uxin is determined to stay in business long enough to achieve profitability. The company’s recent investment from Dida offers a glimmer of hope, but the ultimate success hinges on its ability to navigate the competitive market and overcome its financial hurdles.
