Chery Automobile's history dates back to March 1997 with the establishment of Anhui Automotive Parts Co., Ltd. (Chery's predecessor). In May 1999, the first engine rolled off the production line; in December of the same year, the first sedan (Fengyun) was produced. In 2001, Anhui Automotive Parts Co., Ltd. transferred 20% of its equity (valued at 350 million yuan) to SAIC Group free of charge and was renamed "SAIC Chery," thereby obtaining vehicle manufacturing qualifications. SAIC invested no money, participated in no management, assumed no risks, and received no dividends, but Chery could "borrow" SAIC's sales channels and service networks. With qualifications, SAIC's brand halo, and affordable pricing, Chery's national bestsellers like Oriental Son and QQ were successively launched. SAIC gained nothing from Chery's hot sales and was rejected when attempting to increase investment to become a "real shareholder." In 2003, SAIC returned its shares, and both parties parted on bad terms. In 2004, Chery attempted a backdoor listing but failed due to "complex equity relationships." In 2007, Chery became the first domestic brand to achieve cumulative sales of over 1 million units. In 2016, Chery New Energy's backdoor listing attempt also failed. From 2018-2020, Chery struggled between losses and minimal profits, failing to meet A-share and Hong Kong stock requirements for stable profitability of main board companies. On February 28, 2025, Chery submitted its IPO application to the Hong Kong Stock Exchange, but by August 28, it still hadn't passed the hearing, facing application expiry (the Hong Kong Stock Exchange requires financial report cutoff dates no earlier than 6 months before publication). It wasn't that Hong Kong capital markets lacked enthusiasm for this IPO with a fundraising scale of $1.5-2 billion, but rather that Chery didn't receive the CSRC's "Filing Notice" until August 27. On August 29, Chery's listing application reappeared on the Hong Kong Stock Exchange website with the audit report cutoff date updated to March 31. On September 7, the Hong Kong Stock Exchange Listing Committee issued a hearing approval announcement. BYD Company Limited, Geely, and Chery started almost simultaneously, and in the near future, the three giants will gather at the Hong Kong Stock Exchange.

**Maximizing the "Learning from Others" Strategy**

In 2023, China's new energy vehicle sales reached 9.495 million units with a market penetration rate of 31.6%. However, 94.8% of Chery's passenger vehicle sales revenue still came from fuel vehicles. Such composure is rarely seen worldwide. Entering 2024, Chery's new energy vehicle business rapidly advanced, and fuel vehicle revenue proportion began declining: Q1 2024, fuel vehicle sales revenue was 45.95 billion yuan, accounting for 90.9%; full-year fuel vehicle revenue proportion dropped to 76.1%; Q1 2025, fuel vehicle and new energy vehicle sales revenues were 42.97 billion yuan and 18.67 billion yuan respectively, with new energy vehicles accounting for 30.3%.

In Q1 2025, new energy vehicle penetration in China's market exceeded 40%. Like a 100-meter race where others ran 40 meters before Chery started, but Chery completed in one year what took others several years. The key is that by 2024, Chery "learned" from competitors about plug-in hybrid and pure electric "two legs walking together": In 2022, pure electric vehicle sales revenue was 10.95 billion yuan, accounting for 89.4% of new energy vehicles; in 2023, pure electric vehicle sales revenue plummeted 52.7%, while plug-in/range-extended sales revenue surged 110%, accounting for 34.5% of new energy vehicles; in 2024, pure electric vehicle sales revenue grew 355.5%, plug-in/range-extended sales revenue exploded 1195%, accounting for 59.9% of new energy vehicles; in Q1 2025, the ratio of pure electric to plug-in/range-extended sales revenue was approximately 4:6.

Some say Geely always "learns from others" to significantly reduce its own trial-and-error risks. Moreover, followers definitely move faster than pathfinders, saving effort and worry. Chery maximized this strategy, being more refined than the refined.

**Overseas Sales Miracle**

Since 2003, Chery's passenger vehicle exports have ranked first among Chinese domestic brands for 22 consecutive years. Overseas sales revenue accounts for around 40% of passenger vehicles: In 2022, overseas sales revenue was 29.15 billion yuan, accounting for 35.3% of passenger vehicle revenue; in 2023, overseas sales revenue was 74.53 billion yuan, accounting for 49.3% of passenger vehicle revenue; in 2024, overseas sales revenue was 97.87 billion yuan, accounting for 39.7% of passenger vehicle revenue. After the Russia-Ukraine conflict, the Russian market made extraordinary contributions to Chery's overseas sales: In 2023, revenue from Russia reached 40.5 billion yuan, accounting for 26.8% of Chery's total passenger vehicle revenue; in 2024, revenue from Russia remained at a high of 45.9 billion yuan, accounting for 18.6% of Chery's total passenger vehicle revenue; in Q1 2025, revenue from Russia was approximately 6.7 billion yuan, accounting for 10.9% of Chery's total passenger vehicle revenue.

It's well known that China's automotive industry started late, and the technology-for-market approach yielded mediocre results. However, relying on strong industrial manufacturing capabilities, China formed the world's most competitive automotive supply chain. Similar to Transsion phones dominating Africa, Chery's overseas success is essentially an overflow of Chinese industrial capacity rather than representing new quality productive forces. New energy vehicles represent China's new quality productive forces. Chery's fuel vehicle sales revenue still accounted for as high as 95% in 2023, and the export product structure speaks for itself. Therefore, in Europe, where traditional automotive powerhouses are concentrated, Chery only made breakthroughs in recent years: In 2023, Europe (excluding Russia) sales revenue was approximately 1.8 billion yuan, accounting for 2.4% of Chery's overseas revenue; in 2024, Europe (excluding Russia) sales revenue was approximately 5.4 billion yuan, accounting for 5.5% of Chery's overseas revenue; in Q1 2025, Europe (excluding Russia) sales revenue was approximately 3.7 billion yuan, accounting for 15% of Chery's overseas revenue. Chery's impressive performance in European markets is again related to plug-in hybrids - the EU imposes high additional tariffs on Chinese pure electric vehicles, while plug-in hybrid models only face 10% tariffs. BYD Company Limited is the biggest winner, and Chery also gained substantially: In March 2025, plug-in hybrid models accounted for 71% of new energy vehicles Chery sold in the EU.

**Profiting Through Cost Control, Making Money Through Scale**

1) Low Gross Profit Margins, Low Expense Ratios The blue line represents gross profit (margin), and colored stacked bars represent expenses (ratios). Only when blue overwhelms colors can operating profit be achieved. The higher the blue line, the stronger the target company's profitability. Chery's gross profit margin is not high - it profits through cost control and makes money through scale. Taking 2024 as an example: gross profit was 36.3 billion yuan, but gross profit margin was only 13.5% (passenger vehicle gross profit margin was 13.2%). During the same period, BYD Company Limited's automotive business gross profit margin was 22.4%; marketing expenses were 8.4 billion yuan, expense ratio 3.1%; administrative expenses were 6 billion yuan, expense ratio 2.2%. Combined marketing and administrative expenses totaled 14.38 billion yuan, total expense ratio 5.3%. During the same period, NIO Inc.'s marketing/administrative expenses were 15.74 billion yuan, expense ratio as high as 23.9%! Li Auto, always known for cost control, also had marketing/administrative expenses of 12.23 billion yuan, expense ratio 8.5%. R&D expenses were 9.24 billion yuan, expense ratio 3.4%; during the same period, Li Auto's R&D expenses were 11.07 billion yuan, expense ratio 7.7%; NIO Inc.'s R&D expenses were 13.04 billion yuan, expense ratio 19.8%!

Three observations: First, despite overseas revenue accounting for as high as 40%, vehicle sales gross profit margin is not high, only 11.8% in Q1 2025, with fuel vehicles at 14.4% and new energy vehicles at 5.7%. Second, Chery exports 1.14 million units to over 80 countries, yet marketing/administrative expenses are less than NIO Inc.'s and slightly higher than Li Auto's - they are more frugal than the frugal. Third, R&D expenses were only 3.6 billion yuan in 2022, increased to 6.7 billion yuan in 2023, and further raised to 9.2 billion yuan in 2024. Despite this, R&D investment remains insufficient, making it difficult for investors to have expectations for Chery's technology reserves.

2) Net Profit and Cash Flow Chery profits through cost control and makes money through scale: In 2024, Chery's revenue was 269.9 billion yuan, up 65.4% year-over-year; but net profit margin dropped to 5.35% (1.1 percentage points lower than 2023); net profit reached 14.33 billion yuan, up 37.2% year-over-year. In 2024, Chery's operating cash flow reached 44.9 billion yuan, up 80.1% year-over-year.

In Q1 2025, Chery's net profit was 4.7 billion yuan, profit margin 6.9%, largely related to improved domestic and overseas product structure. However, operating cash flow dropped to 4.5 billion yuan (compared to 16 billion yuan in Q1 2024). In 2025, China's automotive industry entered an "elimination round," multilateral trade uncertainty increased significantly, and regulatory oversight on payment terms compressed automakers' financial maneuvering space.

**Asset Quality**

1) High Debt Ratio The automotive industry generally has high debt ratios. Taking two major US automotive companies as examples (as of end-June 2025): Ford Motor had liabilities of $247.6 billion, debt ratio 84.6%; General Motors had liabilities of $220.9 billion, debt ratio 76.3%. At end-2024, Chery's total assets and total liabilities were 214 billion yuan and 188.1 billion yuan respectively, asset-liability ratio 87.9%.

At end-March 2025, Chery's total assets and total liabilities were 210.5 billion yuan and 184.7 billion yuan respectively, asset-liability ratio 87.7%. Compared to other automakers, Chery's asset-liability ratio is at a high level. For example, BYD Company Limited had an asset-liability ratio of 71.1% as of end-June 2025, down 3.6 percentage points from end-2024.

2) Machinery and Equipment In 2024, Chery added/transferred (from construction in progress) machinery and equipment worth 7.5 billion yuan, with current depreciation of 2.3 billion yuan (equivalent to 12.7% of beginning-year original value). At year-end, machinery and equipment book value was 13.2 billion yuan, construction in progress book value was 3.7 billion yuan. By this calculation, Chery's machinery and equipment depreciation cycle is approximately 8 years, quite standard.

In 2024, BYD Company Limited added/transferred machinery and equipment worth 49.3 billion yuan, with current depreciation/write-offs of 50.7 billion yuan (equivalent to 24.5% of beginning-year original value). At year-end, machinery and equipment book value was 141.2 billion yuan, construction in progress book value was 20 billion yuan (peak was 44.6 billion yuan in 2022). Chery's production is about half of BYD Company Limited's, but machinery and equipment book value and annual depreciation are about one-tenth and one-twentieth of BYD Company Limited's respectively. Achieving more with less has always been Chery's style, which deserves respect. However, BYD Company Limited has completely stopped fuel vehicle production, and according to its depreciation/write-off policy, machinery and equipment unusable for new energy vehicles has been cleared. The over 140 billion yuan in machinery and equipment on the books are all advanced equipment added in recent years. Chery's 13 billion yuan in machinery and equipment on the books is mostly used for fuel vehicle production.

Chery, with its grassroots origins and global experience, has sufficient experience to handle adversity. Although its foundation appears somewhat weak, the IPO fundraising of $2 billion is truly timely assistance.