Kaixin Auto(KXIN) - 2021 Q4 - Annual Report

Acquisition and Expansion - The company completed the Haitaoche Acquisition on June 25, 2021, issuing 74,035,502 ordinary shares in exchange for 100% of Haitaoche's share capital, resulting in Haitaoche shareholders owning 51.61% of the post-closing outstanding shares[303]. - The company is negotiating the acquisition of 100% equity of Henan Yujie Times Automobile Co., Ltd., a manufacturer of small-sized multifunction EVs, although no formal agreement has been reached yet[321]. - The company has integrated operations and resources from Haitaoche with its used car dealership business, enhancing its sales capabilities for both new and used vehicles[310]. - The company plans to expand into the electronic vehicle market and has initiated a strategic plan for new energy vehicles, targeting commercial applications for logistics[479]. Dealership Operations - As of December 31, 2021, the company operated 14 used car dealerships across 14 cities in 12 provinces in China, focusing on premium brands such as Audi, BMW, and Mercedes-Benz[307]. - The company is focused on tier 2 and below cities for dealership operations, where the cost structure and consumer demand are favorable for growth[316]. - The company is actively expanding its dealership network by evaluating potential markets using a scoring system that considers factors such as location, population density, and estimated customer traffic[317]. - The company has a unified operating model for its dealerships, retaining majority control and centralizing cash flows and operational activities to promote customer loyalty and operational advantages[318]. Sales Performance - The company sold approximately 1,630 vehicles in 2021, a decrease from 6,005 in 2019 and 664 in 2020, indicating a need for operational recovery post-acquisition[308]. - The company reported that revenues from auto sales accounted for 100% of total revenues in 2021, up from 99.5% in 2020 and 99.4% in 2019[314]. - The company's total revenues for the year ended December 31, 2021, were $253.84 million, with used-car sales contributing $251.05 million (98.9% of total revenues) and new-car wholesales contributing $2.79 million (1.1%)[486]. - From January 1, 2019, to December 31, 2021, the dealerships sold approximately 8,308 used vehicles, with 1,582 vehicles sold in the second half of 2021 following the Haitaoche Acquisition[469]. Financial Management - The company faced significant inventory write-downs in 2019 due to operational disputes, with a net impact of US$2.9 million recorded as a reduction of general and administrative expenses for the year ended December 31, 2020[315]. - The company has established a performance-based payment structure for dealership acquisitions, with potential adjustments based on a target compound growth rate of 110% for profits[327]. - The company provides inventory financing to its dealerships using both its own funds and third-party financing partners, while monitoring financial performance in real-time[340]. - Operating expenses for the year ended December 31, 2021, totaled $187.87 million, with impairment of goodwill accounting for $143.66 million (76.5% of total operating expenses)[490]. Market Strategy - Haitaoche aims to expand into the electric vehicle market and has set up a New Energy Vehicles Department, targeting to deliver a NEV prototype by the end of 2022[310]. - A strategic partnership with Beijing Bujia Technology Co., Ltd. has been established, with a sales order for 5,000 new energy logistics vehicles worth approximately RMB1 billion (around US$156 million) for 2022 and 2023[311]. - The company aims to establish strategic partnerships with platforms that have significant sales potential for customized production according to customer needs[322]. - The competitive landscape in the used car industry in China is highly fragmented, with a trend towards consolidation and increased online technologies[476]. Regulatory Compliance - The company is subject to various PRC regulations governing used automobile trading and sales, which require compliance with specific operational standards[359][362]. - The Foreign Investment Law, effective January 1, 2020, aims to unify corporate legal requirements for foreign and domestic investments in the PRC[383]. - The company must comply with regulations on the collection and use of personal information, ensuring user consent is obtained[400]. - The company must ensure that mobile applications allow users to uninstall easily and comply with pricing regulations[394]. Customer Engagement - The company has committed to providing a superior car purchase experience through integrated online and offline sales channels, enhancing customer engagement and trust[312]. - The company has a strong customer support team available via online chat or telephone to assist customers throughout the car purchase process, enhancing customer experience and referrals[349]. - The company anticipates future sales and marketing expenses will focus on performance-based advertising, targeting vertical automotive media and selected online and offline channels[348].