“We have forgotten our original intention…”
At 5 p.m. on March 14, in a hotel in Tongxiang, more than 60 suppliers who were owed money were sitting in the audience. Fang Yunzhou walked onto the stage, but choked up before he could say a word. He wiped the tears from the corners of his eyes and bowed affectionately to everyone.
On the same day, Fang Yunzhou, the founder and chairman of Hozon New Energy Automobile Co., Ltd. (Nezha Auto for short), was restricted from high consumption by the Chaoyang District People's Court of Beijing. This was the ninth time he had been restricted from high consumption.
At present, Nezha Auto is insolvent as a whole and is unable to repay matured debts to financial institutions and suppliers. In order to obtain new investment, it is sorting out existing debts and promoting debt agreement restructuring in accordance with the requirements of potential investors.
In August 2024, Nezha Auto contacted an overseas sovereign fund and announced the news of its E round of financing, with a planned financing scale of approximately 4 billion to 4.5 billion yuan, of which the lead investor will invest approximately 3 billion yuan.
Nezha Auto said that if the debt restructuring agreement fails and the investment funds cannot be obtained, the company will most likely enter into a legal restructuring process, and the majority of creditors, especially suppliers, will face heavy losses.
Before Fang Yunzhou took the stage, Zhang Honglei, assistant to the president of Nezha Auto and executive vice president of the Automotive Engineering Research Institute, proposed a "debt conversion" repayment method to suppliers, namely "70% debt-to-equity conversion + 30% interest-free installments."
In short, 70% of the suppliers' claims will be converted into equity of Hozon Auto (the parent company of Nezha Auto), and the remaining 30% of the claims will be repaid in cash in installments as interest-free debt; the claims will be divided into 15 installments on average, and will be repaid at a rate of one installment per month starting from May this year.
"What Nezha Auto meant was that investors were willing to invest, but after investigation, they found that the debt ratio was too high. After both parties negotiated to reduce the debt ratio, they were still willing to invest."
Zhang Xiaodong (pseudonym), a supplier of Nezha Auto, told Xuanyuan Business Review that Nezha Auto’s debt is close to 10 billion yuan, and the largest “creditor” is the supplier, whose total amount accounts for nearly 2/3 of the total debt.
"In fact, the people from Hezhong had already communicated with us before they came. Most of the suppliers who came to participate accepted this plan. There was also a small number of foreign and state-owned enterprises that could not give an immediate response due to the long decision-making process."
"Xuanyuan Business Review" learned that the supplier's conversion price is calculated based on the pre-investment valuation of 6 billion yuan, that is, for every 2.1146 yuan of debt claims, the supplier can obtain 1 yuan of the company's registered capital.
There are two options for suppliers to hold shares. Either the supplier establishes a limited partnership to hold the supplier's equity in Hozon Auto after the debt-to-equity conversion, and the supplier, as a limited partner, obtains equity income by holding a share of the supplier's shareholding platform property; or the supplier establishes a trust with its debt claims against the company, and the trust holds the supplier's equity in the company after the debt-to-equity conversion, and the supplier obtains equity income as the beneficiary of the trust.
Nezha Auto told suppliers that "the debt-to-equity swap and the lead investor in this round of financing will be delivered at the same time and relevant industrial and commercial change registrations will be carried out."
Zhang Xiaodong sighed and said resignedly that he had signed the contract on March 15, "It seems like we have a choice, but in fact we have no choice at all. We have to give it our all."
“My goal is to get 30% of the money back”
"Nezha Auto has come to this point today, and everyone is now in the same boat. If we can get everyone's cooperation, there is still hope for financing. If things can't be pushed forward and Nezha Auto goes bankrupt and reorganization..." Zhang Honglei was the first Nezha executive to go on stage to face suppliers on March 14.
Zhang Xiaodong told Xuanyuan Business Review that Nezha Auto’s communication style is quite frank and they just say what they think.
Nezha Auto told its suppliers that there is a priority order for repayment after bankruptcy. Nezha Auto's current qualification assessment shows it is more than 1.1 billion yuan. Employees and the government will get priority to share about 800 million yuan because of the priority guarantee agreement. The remaining suppliers will get about 300 million yuan, and each person will receive 1% of the debt.
"He tells you these two situations, one represents hope, and the other represents that if it fails, everyone will die together in the end." Zhang Xiaodong said that what he values more now is 30%.
“10 million yuan of debt, 7 million yuan was transferred to equity, leaving 3 million yuan divided by 15 months, more than 200,000 yuan a month. Nezha lives one more month, I can collect one more month, if they tell the story for another 15 months, I can at least recover 30% of the debt.”
As for equity, if Nezha Auto survives, the equity can still be bought and sold, but Zhang Xiaodong said that day is too far away, "I don't want to think about it so much."
Similar to the shareholders' meeting on March 14, Nezha Auto held another shareholder meeting at its Shanghai headquarters on March 19. The content was basically the same as five days ago, also to "repay debts." The supplier communication meeting on March 14 was for suppliers who owed more than 10 million yuan, and the one on March 19 was for suppliers who owed 1 million yuan.
"I heard that there are all kinds of people in there. They even said that some people who are not owed money also come to collect debts," said Zhang Xiaodong.
The process was chaotic, but the effect was significant, and the process of persuading suppliers was unusually smooth. It is understood that the debts that Nezha Auto has confirmed for debt-to-equity swaps are about 2 billion yuan, and the bottom line given by investors is 3 billion yuan. Nezha hopes to get 4 billion yuan. The planned time node was originally March, but now it has been delayed to April.
This result is predictable. No one wants to sink. Nezha Auto offers a way to survive. "I have sued before, and the court is ready to enforce the decision, but I don't have the money," Zhang Xiaodong said. "Too many people have sued."
Public data shows that from December 2024 to date, Hozon Auto has more than 30 records of persons subject to execution, with a total amount of execution exceeding 160 million yuan. From November 2024 to January 20, Hozon Auto has more than 70 records of equity being frozen by the court. According to incomplete statistics, the cumulative amount of frozen equity exceeds 3.1 billion yuan.
Nezha "forgot his original intention"
On February 24, 2024, Zhang Yong, then CEO of Nezha Auto, wrote a statement in response to rumors that the year-end bonus would be delayed.
"Since 2016, we have never been late in paying employees' salaries, bonuses and social security. Even though times were difficult last year, we didn't think about cutting salaries or laying off employees. Perhaps a small number of employees in the company are not used to hard times, so it seems necessary to pass on the cold message to everyone," Zhang Yong wrote on Weibo.
Since around October 2024, Nezha Auto has been reporting operational difficulties, with news of layoffs, salary cuts, and strategic adjustments. However, people familiar with the matter told Xuanyuan Business Review that in fact, Nezha Auto's cash flow has been poor since around the Spring Festival, and suppliers were the first to sense that Nezha was in trouble.
"Since the Spring Festival in 2024, Nezha Auto's payment method has changed. In the past, there were payments every month, but since the Spring Festival, the proportion has become smaller and smaller, and by May, only 20% was left."
Another supplier, Yang Fang (pseudonym), told Xuanyuan Business Review that he had contacted Nezha Auto in May last year, and the person in charge at the time assured him that there would be no problem and asked him to give him another three months. However, by August, there was still no news, and he had no choice but to take legal action.
Founded in 2018, Nezha Auto has had a smooth journey. In 2022, it won the annual sales champion of new car-making forces and became the first new force brand with annual sales exceeding 150,000 vehicles. It took only one year for Nezha Auto to go from champion to near bankruptcy.
In Fang Yunzhou's opinion, Nezha Auto has forgotten its original intention. It originally wanted to make cars that ordinary people could afford, but later chose to break through upwards. "We shouldn't have taken the high-end route so quickly and lost our user base," Fang Yunzhou said with regret at the supplier conference.
Open the official website of Nezha Auto, there are 6 models on sale, namely Nezha X, Nezha L, Nezha AYA, Nezha S, Nezha GT and Nezha S Shooting Brake.
On April 18, 2023, the Nezha GT was launched at the Shanghai Auto Show, announcing that China's only two-door, four-seat pure electric sports car "opens a new era of sports cars". The price range of the Nezha GT is 178,800-226,800 yuan. On August 25, 2024, the Nezha S hunting suit was officially launched, with a price range of 159,900-209,900 yuan.
It is very likely that these two products are what made Fang Yunzhou regretful.
After Nezha Auto won the championship, the company did not choose to sell its subsequent products in large quantities, but instead chose the niche market in order to make the brand more youthful. This did not seem to be a fatal mistake at the time. If the auto market had given Nezha some more time, perhaps the result would have been different.
But there is no time. Nezha Auto has chosen the extended-range route early among the new forces and has taken the lead in entering the Southeast Asian market. Nezha Auto has done a lot right, but people can only judge a hero by the results.
“Reborn from the ashes and heading overseas”
Nezha Auto still has a chance of survival.
On March 20, Nezha Auto held the 2025 Thailand Dealer Conference in Bangkok, Thailand. Nezha Auto announced that it will fully cooperate with NLTH (Thailand) Finance in wholesale and retail business and obtain a quota of 10 billion baht from the latter.
Overseas markets have always been Nezha Auto's hope. Its overseas layout began in 2021, and its overseas sales reached 30,000 units in 2024, accounting for nearly one-third of total sales. Thailand is Nezha's advantageous market. In 2024, Nezha ranked third in sales of new energy vehicles in Thailand and first among new forces with 12,000 units sold.
"Strategically focus on business, be reborn from the ashes, and go overseas." In December 2024, Fang Yunzhou issued an internal letter, pointing out that basing oneself in China and conducting global expansion is the answer to Nezha Auto's second venture.
Today, Nezha, which is imprisoned in China, is still active overseas. On January 15, Nezha Automobile officially opened a new store in West Java, Indonesia; in March, Nezha Automobile announced that the Nezha X had started overseas media test drives, accelerating the localization process in the South American market, and planned to open 10 stores in Brazil in the first quarter.
Nezha Auto’s overseas executives are still cheering for Nezha, and there is still a glimmer of hope in their hearts.
If it can successfully raise funds through the "debt payoff" method, Nezha Auto vowed to its suppliers that it would never do anything that loses money again, would not participate in the domestic internal war, would not compete in sales, and would only do things that make money.
In the future, Nezha Automobile will not be sold in a conventional way, but will be produced in small batches based on orders, and the products produced will be mainly sold overseas. For example, if there is an order for 1,000 units in Thailand, 1,000 cars will be produced.
In addition, Nezha Auto will cooperate with foreign brands more in the form of providing services in the future. In other words, it will become a OEM factory and provide OEM services.
In terms of personnel, after several rounds of layoffs and optimization, Nezha Auto plans to control the number of employees to less than 2,000. The salaries of middle and low-level employees will be temporarily halved, and the operating costs will be controlled at around 100 million yuan per month. At its peak, Nezha Auto had more than 8,000 employees.
According to the "Supplier Debt-to-Equity Confirmation Letter and Resuming Production and Supply" signed by Nezha Auto and its suppliers, Nezha Auto hopes to resume production and spare parts supply based on current conditions and cash from April 1. The supplier proposed that the prerequisite for resuming production and supply is to place an order one month in advance, pay a 50% advance payment, and pay the remaining 50% within 15 days after delivery.
Can Nezha Auto hold on? Will suppliers have a chance to recover the 30% of their debts? Having served new power brands such as Byton and Aiways, and experienced the great battle royale of new Chinese auto forces, Zhang Xiaodong said helplessly that his biggest feeling is that "choice is more important than hard work."
Perhaps, Nezha Auto still needs a bit of luck.
(Original title: "Exclusive | Suppliers become shareholders, and finally make a fortune")
