China Auto Aftersales Sector_UBS Evidence Lab inside_ dark clouds gathering

Investment Rating - The report maintains a Sell rating on TUHU Car Inc [6][87]. Core Insights - The Q424 data indicates that TUHU and JD Auto accelerated store expansion, particularly in high-tier cities, while Tmall Auto's store count in tier-4 cities decreased, suggesting declining profitability for franchisees [2][3]. - Competition among TUHU, Tmall Auto, and JD Auto has intensified, with significant overlap in store locations, leading to limited differentiation and weaker marginal benefits from new store openings [4][5]. - The report highlights that over 85% of JD Auto and TUHU stores compete with themselves within a 15-minute drive, indicating increasing cannibalization [5][41]. Summary by Sections Store Footprint - TUHU leads with approximately 6,600 stores, followed by Tmall Auto with around 2,100 and JD Auto with about 1,900 stores. The expansion in Q424 saw JD Auto and TUHU adding over 210 and 160 stores respectively, while Tmall Auto only added 35 stores [3][10]. - The majority of new store openings (over 60%) were concentrated in tier-1 and tier-2 cities, with a notable decline in Tmall Auto's presence in tier-4 cities due to economic pressures [18][19]. Competition - The report notes a significant overlap in store locations, with an average of 4.6 JD Auto and Tmall Auto stores reachable within a 15-minute drive from a TUHU store, indicating high competition [4][22]. - Nearly 65% of TUHU stores compete with at least one JD Auto store within a 15-minute drive, reflecting the competitive landscape in high-tier cities [37][38]. Cannibalization - The cannibalization share for JD Auto and TUHU stores is over 85%, with the number of competing stores increasing significantly in Q424, suggesting that new store openings are not yielding the expected benefits [5][43]. - The report indicates that the internal competition is intensifying, with the number of stores competing with another store of the same brand increasing close to or outpacing net store additions [5][43]. Stock Implications - The report suggests that TUHU's pace of store openings is likely to slow down, which may negatively impact its topline growth and margin expansion [6].