Jinzhong Auto Parts Sells 19.5% Stake to NIO Capital Affiliate for ¥586 Million

Guangzhou Jinzhong Auto Parts Manufacturing (301133.SZ) announced that its controlling shareholders have agreed to sell a 19.50% stake to an investment fund managed by NIO Capital for approximately ¥586 million ($81 million). The deal comes after the auto parts supplier reported its first annual loss since going public and is aimed at securing a strategic investor with deep ties to the electric vehicle industry.

Deal at a Discount

According to a company filing on September 7, the agreement was signed on September 3. The transaction involves the sale of 23.686 million shares at a price of ¥24.73 per share.

This price represents a 25.35% discount to Jinzhong's closing price on September 7. The filing states the price was set at 80% of the closing price on the trading day prior to the agreement, the lowest permissible level under their terms. Following the news, Jinzhong's shares plunged, closing down 13.01% on September 8.

Upon completion, the NIO Capital-managed fund, Hangzhou Weizhi, will become Jinzhong's second-largest shareholder. The deal is not expected to change the company's ultimate controlling shareholder.

Strategic Terms and Rationale

The agreement includes several key provisions beyond the share transfer, indicating a strategic rather than purely financial investment. These include:

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• Performance Commitment: The sellers have guaranteed that Jinzhong will achieve a cumulative net profit of at least ¥150 million from 2027 to 2029. They are liable for compensation if profits fall below 80% of this target.
• Capital Support: The sellers will provide no less than ¥256 million of the proceeds back to Jinzhong as an interest-free loan to support the company's development.
• Board Representation: NIO Capital's fund will have the right to nominate two non-independent directors to Jinzhong's eight-member board.

Analysts suggest this structure allows NIO Capital to secure and influence a key supplier for its automotive ecosystem without seeking full control. For Jinzhong, the deal provides crucial capital and a direct link to a major EV player, which could lead to a substantial increase in orders.

Financial Headwinds

This strategic investment comes as Jinzhong faces significant financial challenges. The company, which specializes in wheel hub caps and other decorative auto parts, has been a supplier to NIO.

For its most recent full fiscal year, Jinzhong reported its first-ever annual loss since its 2021 listing on the Shenzhen Stock Exchange, with a net loss of ¥7.52 million. The losses deepened in the first half of the current year, reaching ¥34.29 million. The transaction still faces uncertainty, as it requires shareholder approval to waive a pre-existing share transfer restriction commitment made by the selling shareholders during the company's IPO.