With orders from major customers plummeting and the company involved in multiple lawsuits, where will Jingjin Electric go?

The electric drive system, known as the "heart" of new energy vehicles, is the main executive structure of new energy vehicles during driving and plays an incomparable and important role. It is also the core component that determines the performance of new energy vehicles. Its performance directly affects the performance of the electric vehicle drive system, especially the maximum speed, acceleration performance and climbing performance of electric vehicles.

Jingjin Electric Technology Co., Ltd. (hereinafter referred to as "Jingjin Electric" or "the Company") is one of the leading domestic enterprises in electric drive systems for new energy vehicles. It mainly supplies motors and electric drive systems with international technical standards for new energy vehicles, aiming to be the best electric system in the world. Previously, in the article "How can Jingjin Electric continue to lose money with low capacity utilization and gross profit margin?", the author analyzed the possible problems of low capacity utilization and gross profit margin of Jingjin Electric.

Judging from the prospectus, Jingjin Electric is also facing the problem of being heavily dependent on large customers for revenue, and is involved in a number of lawsuits, and has many disputes with downstream customers and upstream suppliers.

Sales to major customers continued to decline

It is understood that domestic electric drive system companies are mainly divided into two categories. One is car companies such as Yutong Bus, BYD, and CRRC Times that use their own brand supporting products. The other is third-party manufacturers represented by Jingjin Electric and Suzhou Green Control.

According to the prospectus, Jingjin Electric's new energy vehicle electric drive systems are mainly passenger car electric drive systems and commercial vehicle electric drive systems. Its main customers include well-known vehicle manufacturers such as Fiat Chrysler, Geely Group, GAC Group, Xiaopeng Motors, BYD, Dongfeng Group, Xiamen Golden Dragon, and BAIC Group.

Specifically, from 2017 to 2019 (hereinafter referred to as the "reporting period"), its sales to the top five customers were RMB 452 million, RMB 520 million and RMB 527 million, respectively, accounting for 58.27%, 61.45% and 67.57% of the main business income, respectively.

It should be noted that GAC Group was Jingjin Electric's largest customer in 2018, but it dropped sharply to third place in 2019. The sales amount to GAC Group also dropped from 168 million yuan to 71.4884 million yuan, a year-on-year decline of 57.57%, and the proportion of main business income also dropped from 19.92% to 9.16%.

It is understood that this is because GAC Group has adopted a large number of electric drive system products provided by Nidec since 2019, which has led to a decline in Jingjin Electric's supply volume.

According to Jingjin Electric's reply to the inquiry letter, due to a sharp decline in sales of the two models supplied to GAC, the sales amount from GAC further declined in 2020.

In addition, Jingjin Electric's sales to Geely Group in 2019 amounted to 191 million yuan, but in 2020 it took a sharp turn for the worse, falling by 90.99%, mainly because: First, Jingjin Electric's mass-produced models supporting Geely Group's sales have all experienced a sharp decline. Second, Geely Group introduced competitive suppliers and reduced the proportion of purchases from the company.

In addition, as far as I know, Geely has built its own electric drive company - Weirui Electric, which will also have an impact on the subsequent supply of Jingjin Electric.

Judging from the disclosed data, Jingjin Electric has a high customer concentration, and its major customers have a greater impact on the company's operating performance. If it fails to develop other customers in a timely manner, and once its major customers change suppliers or have other operating situations, Jingjin Electric's production and operations will be significantly affected.

Involved in multiple lawsuits

According to the prospectus, Jingjin Electric also has arbitration lawsuits with former suppliers and 7 recovery lawsuits as the plaintiff, all involving large amounts of money. Among them, Jingjin Electric was arbitrated by the other party for 11 related requests due to its default on payment for goods from its former supplier Semikron Group in the purchase of controller-related products.

Previously, the International Court of Arbitration of the International Chamber of Commerce extended the deadline for the arbitration tribunal to make a ruling in this case to June 30, 2020. However, the latest inquiry reply letter from Jingjin Electric shows that the arbitration ruling has been released, and the amount of compensation, interest and arbitration fees that Jingjin Electric needs to pay is about 149 million yuan in total.

However, as of December 31, 2020, Jingjin Electric's cash balance was 193 million yuan, accounts payable was 420 million yuan, net cash flow from operating activities was -141 million yuan, and net cash flow from investment activities was -148 million yuan in 2020. The company is facing huge debt repayment pressure. If it cannot expand financing channels or improve cash flow in the future, the arbitration matter will bring great operating pressure to the company.

In addition to the litigation and arbitration with Semikron, Jingjin Electric is also involved in a lawsuit as the plaintiff to recover payment for goods. This is mainly because due to the decline in subsidies for new energy vehicles, some of the company's customers have experienced a decline in income and difficulties in capital turnover, and are unable to pay for goods.

According to statistics, the defendants include Shenzhen Jinglan, Nanjing Golden Dragon, Lingtu Automobile, China Power, Qiantu Automobile, Guoneng New Energy (twice), Ankai Automobile and CRRC, and the amount involved in the case is more than 53 million yuan.

As of now, Jingjin Electric has already set aside 50% bad debt provision for the RMB 20.1934 million owed to Guoneng New Energy. Due to the financial difficulties of Nanjing Hongkai Power System Technology Co., Ltd., it has also set aside separate bad debt provision at a ratio of 100%.

In addition, Qiantu Motors, Lingtu Motors, and China Power have a large number of supplier lawsuits. If they are listed as dishonest enterprises subject to execution or their actual controllers are restricted from high consumption, the company will make provisions for bad debts at 100% of the book balance for the above three accounts receivable.

The phenomenon of separate provision for bad debts is becoming more and more serious. For the current Jingjin Electric, it is undoubtedly a double whammy. On the one hand, it is in arrears with upstream purchases, and on the other hand, it is constantly accruing bad debt losses from downstream customers. This is not a long-term solution for the operation of the company.

As foreign companies accelerate their predation, car companies' self-built electric drive projects begin to increase in volume, and the situation of third-party motor companies becomes increasingly difficult. Jingjin Electric's IPO road is also full of thorns.