Deal focus: Investors see value in China auto disrepair

While most online used-car auction platforms in China facilitate the trade of cars in good condition, Bochewang has found its niche at the other end of the spectrum - by selling vehicles in disrepair.

Following a similar business-to-business (B2B) business model to US-listed Copart, the company collects damaged cars from insurance companies and serves as intermediary as the vehicles are sold on to dealers, rebuilders and exporters. The buyers then repair the cars and re-sell them to individuals.

Fosun Kinzon Capital saw the success of Copart and found there were few players in this space in China. In May last year, it participated in a RMB100 million ($15 million) Series A round for Bochewang, alongside New Horizon Capital, Ping An Insurance and Tsinghua University-owned Suzhou Automotive Research Institute.

Last week, China Pacific Insurance Corporation led a RMB200 million Series B round for the company, having committed RMB100 million from its own. Other new investors included Sino-Ocean Land and Far East Horizon, while Fosun Kinzon re-upped.

"Although Bochewang is working in a niche market, the supply of damaged cars is very reliable," says Wilson Jin, an investment director at Fosun Kinzon. "They work with large Chinese insurance companies, which place great value on the quality of service. Once they establish a relationship with a platform, they become very sticky and are unlikely to shift to a competitor. It's almost a monopoly business."

This is also one of the reasons why several insurers decided to invest in Bochewang's Series B.

In the US, approximately three million damaged vehicles are sold by insurance companies through online platforms every year. China's annual figure is over 10,000 but Jin expects it to surpass the US market within 5-10 years.

Bochewang already claims to account for more than 50% of salvaged vehicles sold through online platforms. The company has formed partnerships with nearly all Chinese insurance companies and recently added government agencies and car rental companies to its client list. It puts up more than 2,000 used cars for auction every month, facilitating over RMB100 million in transactions, and receives a 10% cut from each one.

Bochewang now has a presence in more than 60 Chinese cities, and plans to expand into 100 cities by the end of this year. A portion of the new capital will also be used to launch auto-related financial products and to enter the salvage car components re-selling market. This is a relatively untapped market in China, although once againt there is an established model in the US.

"The largest company operating in this space in the US is called LKQ, which has a market capitalization of about $8 billion. That's definitely a key area that Bochewang wants to expand into. We see almost no competitors in this space," says Jin.

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• Topics
• Expansion
• Venture
• Greater China
• Technology
• Consumer
• China
• Venture
• Growth capital
• automobiles
• TMT
• Fosun Group
• New Horizon Capital