The strongest point of this article revolves around the proposition of the investment thesis. This is not a question of whether this business is positioned with an extremely good moat, but rather, whether industry trends can carry this business until a point where consolidation leaves it the only player.
1) There are many businesses here, it is very fragmented. TUHU only has 0.9% of market share. There is no question that it is a very competitive business. But for a store that only opened in 2011, this is a very interesting proposition to have captured so much of market share so soon
2) haggling for bargains is a key trait of the Chinese consumer and car-owners are no different in that respect.(LEK consulting). This applies for tier 1 and 2 cities. Hence, the only way a manufacturer can win is through margins. Given such an impressive turnaround in margins, 7.4% in 2019 to 24.2% in the first quarter of 2023, I think there is something this is doing right
3) as industry consolidation happens with big brands coming in (JD, tmall, tuhu) which are all very new but have steadily gotten market share, I am inclined to think that the industry will conolisdate and competition will get tighter—given time.
4) This positions TUHU as a unique economic moat, eventually. And what TUHU will have when it comes to that is the sheer number of stores it already has (see location densities)
5) Given consumer downgrade, TUHU will win against these larger corporations.
This is my take on it, but key to this thesis will be consolidation.
1) How will consolidation fare given the bigger players wanting such as JD if they choose to play? What if they choose to acquire given their wider balance sheet?
2) Do you see car ownership increasing given consumer downgrade in china?
Hello, thanks for the insightful and well-researched article! I'm curious about your perspective on potential headwinds surrounding the increasingly higher share of BEV vehicles in China, and how that may impact their biggest revenue source of repair and maintenance, since BEVs require lower maintenance costs based on my understanding. I also really liked your distribution channel diagram.
I shared many similar sentiments with Jo Vial, so I’d just like to add some questions.
1) Is Tuhu taking steps to reduce cannibalisation and overlap between its own stores? Although Tuhu adopted a franchise model and faces little impact from competition and overlap between its franchised stores, their recurring profit-based royalty fees will be affected. Potential franchisees may also be less inclined to open a store, particularly given the downward trend in average profitability since 2020.
2) With most franchised Tuhu Workshops being profitable after 6 months, why do you think Tuhu is offering incentives – especially for the upper tier markets – when there isn’t a need to?
The strongest point of this article revolves around the proposition of the investment thesis. This is not a question of whether this business is positioned with an extremely good moat, but rather, whether industry trends can carry this business until a point where consolidation leaves it the only player.
1) There are many businesses here, it is very fragmented. TUHU only has 0.9% of market share. There is no question that it is a very competitive business. But for a store that only opened in 2011, this is a very interesting proposition to have captured so much of market share so soon
2) haggling for bargains is a key trait of the Chinese consumer and car-owners are no different in that respect.(LEK consulting). This applies for tier 1 and 2 cities. Hence, the only way a manufacturer can win is through margins. Given such an impressive turnaround in margins, 7.4% in 2019 to 24.2% in the first quarter of 2023, I think there is something this is doing right
3) as industry consolidation happens with big brands coming in (JD, tmall, tuhu) which are all very new but have steadily gotten market share, I am inclined to think that the industry will conolisdate and competition will get tighter—given time.
4) This positions TUHU as a unique economic moat, eventually. And what TUHU will have when it comes to that is the sheer number of stores it already has (see location densities)
5) Given consumer downgrade, TUHU will win against these larger corporations.
This is my take on it, but key to this thesis will be consolidation.
1) How will consolidation fare given the bigger players wanting such as JD if they choose to play? What if they choose to acquire given their wider balance sheet?
2) Do you see car ownership increasing given consumer downgrade in china?
Hello, thanks for the insightful and well-researched article! I'm curious about your perspective on potential headwinds surrounding the increasingly higher share of BEV vehicles in China, and how that may impact their biggest revenue source of repair and maintenance, since BEVs require lower maintenance costs based on my understanding. I also really liked your distribution channel diagram.
I shared many similar sentiments with Jo Vial, so I’d just like to add some questions.
1) Is Tuhu taking steps to reduce cannibalisation and overlap between its own stores? Although Tuhu adopted a franchise model and faces little impact from competition and overlap between its franchised stores, their recurring profit-based royalty fees will be affected. Potential franchisees may also be less inclined to open a store, particularly given the downward trend in average profitability since 2020.
2) With most franchised Tuhu Workshops being profitable after 6 months, why do you think Tuhu is offering incentives – especially for the upper tier markets – when there isn’t a need to?