2003: Starting with Foreign Trade

Chapter 509 Car Manufacturing Capability? I Have It!
The automotive industry is a matrix-like product, and the aggressive buying spree by companies like Zhongtai is a last resort, stemming from a lack of fundamental expertise.

Like other private enterprises, Flash Motors' first step in manufacturing cars was to absorb technology through acquisitions and mergers. For example, Geely also absorbed Volvo's technology after a series of acquisitions before finally gaining a foothold in the automotive market.

Relying on just one model to dominate the market, it seems that only Tesla can do that worldwide.

"Building cars requires a lot of money. Your company doesn't have that much money, does it?"

Cars seem to be every man's dream, but not everyone dares to think about building cars. It's impressive that my son has such an idea, but the most realistic problem is that Flash doesn't have that much money.

Tan Lihua was also afraid that his eldest son might accidentally overreach and ruin the empire he had worked so hard to build.

"Money can only come little by little. FlashCheer certainly doesn't have that much money for a one-time investment, but it's not impossible."

Speaking of money, we need to talk about Shanchi's financial situation in 2007. Excluding Orange Technology, Tan Jincheng's businesses are divided into six categories: foreign trade import and export, clothing, electric vehicles, mobile phone batteries, power batteries, and investment.

The electric vehicle sector includes not only two-wheeled electric vehicles, but also niche models such as electric tricycles, electric vehicles for the disabled, ATVs, and electric bicycles, which are popular among Europeans and Americans.

Niche products also have their own market. For example, electric tricycles are hard to find in cities, but the rural market is vast.

Three-wheeled vehicles have sold quite well in rural areas. Electric bicycles, which have almost no sales in China, are very popular with foreigners and sell quite well. Moreover, these things don't require much technology, so the profit margin is quite good.

Export trade has been very profitable this year. As in previous years, Flash continued to participate in the Canton Fair. The Canton Fair, held twice a year, is still the most important export channel for many traders, at least for the next few years.

A large part of the business of Ali's listed entity is similar to the Canton Fair, essentially an online version of the Canton Fair. FlashDrive also has some business in this area, but it does not rely on it.

Tan Jincheng knew what kind of person Lao Ma was. Right now, he was making grand pronouncements, saying he would help all small and medium-sized enterprises across the country open up the market and expand it, but in reality, he wanted to turn these factories into his contract manufacturers.

If you rely entirely on Ali's international platform, your future foreign trade will be in their hands. Flash mainly builds its own trade channels through the Canton Fair and customers on Ali's international platform.

In fact, both now and in the future, the Canton Fair's channels are superior to Alibaba's international platform. At least the review system for foreign merchants is stricter. Online trading customers are full of tricks and schemes, making Dangdang quite different.

There are many difficulties in manufacturing cars, but there are no strict standards for start-up capital. Companies like Chery, BYD, Geely, and Zhongtai all started with very small amounts of start-up capital, which is different from the tens of billions of dollars that later Internet companies often invest.

There's nothing we can do about it; they're just rich. Lei Jun is known as the "Cash King of Beijing." We can only envy them.

Tan Lihua was not very familiar with Flash's financial situation. In his view, Flash had spread its operations so far, building factories here and bases there, and even getting involved in some kind of big power battery project.

Many outside observers predicted that the company was suffering heavy losses and was the culprit dragging down the entire Flash Group, believing that Tan Jincheng should not have taken on this ambitious project.

Simply put, it's too early. The market prospects look promising, but that depends on consumers being able to accept electric vehicles. At present, this thing is still mostly in the research stage.

Each company has invested heavily, but all they see is investment without any return. The application scenarios are limited to public service industries procured by the government. As for emerging private car manufacturing companies, they can forget about it; they simply cannot obtain such services.

"Actually, we do have the capability to manufacture cars, and our finances are actually much better than outsiders imagine."

The media always says that FlashDrive makes a lot of noise but accomplishes little, spending a lot of money on marketing while having high actual operating costs, but this shows that they don't understand FlashDrive's specific structure.

Or perhaps it's because Flash Technology, which shares the same name as Flash Group, is so well-known that the media only focuses on the data of this one company, which may be intentional, since it has taken away the livelihoods of many people.

If we were to ask which company in the entire Flash Group is the most profitable, it wouldn't be Flash Technology, nor would it be ByteDance, which has been making waves in the A-share market this year, but rather Jinyi Industry, which has virtually no presence in the entire group.

Jinyi Industrial is a purely import and export trading company responsible for the entire group's 3C business. The profit margin of the 3C electronic products business is still very good in this era, and the profit margin of exports is also quite good.

In 2007, electronic products remained the largest export category in China, with a total export value of US$8047 billion. The market was enormous. Jinyi Industrial had been operating for two years and had also taken over the 3C export business of Dexian Electronics.

With the merger of the two companies' export businesses, Jin Yi Industrial's export volume surged to US$6.25 million in 2007, nearly a fraction of the total export volume of electronic products, which was a very good result.

In terms of profit margin, Jin Yi Industrial's combined export and import businesses yielded a net profit of US$2.17 million, equivalent to nearly RMB 16.5 billion. These days, despite the booming online shopping industry, nothing is more profitable than foreign trade.

Any small business, as long as the boss knows how to run a business, can easily earn hundreds of millions a year.

Jin Yi Industrial usually keeps a low profile, but it is a major contributor to the company's profits and cash flow. Of course, the reason why the outside world knows little about Jin Yi Industrial, which is now hidden in the headquarters building of Shan Chi, is largely due to Tan Jincheng's deliberate actions.

Even wealthy people should adhere to the principle of not flaunting their wealth. Jin Yi Industrial's profitability is probably only known to the Beicang government and customs. Outsiders and even company employees don't pay much attention to the company, but it's very popular with the customs department.

Another major source of profit is Jinpeng Industrial's garment export business, which is where the brothers made their fortune. The garment industry is already highly competitive, with all sorts of brands springing up like mushrooms after rain. But in reality, the net profit margin in the garment industry is still very high, especially in exports. Due to exchange rate differences and tax rebates, Jinpeng Trading's actual export net profit can reach over 30%.

As for the internet industry after the intense competition, the high return rate in the women's clothing industry is actually not as difficult as merchants claim. Almost all merchants will complain about being poor.

Take the women's clothing industry, where the return rate can reach as high as 80% after the discounts are pushed to the limit, for example. In fact, there is a way for merchants to not lose money, which is to extend the pre-sale period. Don't think that the merchants don't have the goods to send to you. They definitely have the goods in stock.

The reason for doing this is simply that merchants are concerned about the high return rate and are shifting the risk to consumers.

For example, if a merchant pre-sells 1000 pieces of clothing, and assuming an 80% conversion rate, at most only 200 pieces will be sold. Therefore, the merchant only needs to produce 200 pieces of clothing to control the risk and cost.

Out of 1000 buyers, only 200 are shipped. Priority is given to those who placed orders earlier. Once those orders are returned, the remaining 200 items are shipped back and forth.

There's an even more impressive method: the seller only makes sample garments, and only negotiates with the manufacturer for bulk orders after a certain number of pre-orders have been completed. They're making clothes while they're selling them.

The saying "the buyer is never as shrewd as the seller" applies here. You might think you're getting something brand new, but you don't know how many times it's already changed hands.

Otherwise, so many women's clothing stores wouldn't be opening one after another; it's because there's money to be made that they do it.

With its two main export businesses, women's wear and children's wear, Jinpeng Trading's actual export value reached US$3.54 million in 2007, and its net profit reached RMB 9.95 million.

What the outside world doesn't know is that, in addition to being a key enterprise supported by Beicang, Flash Group is also an outstanding foreign exchange earning enterprise in Ningbo. Including the export volume of its electric vehicle business, the annual export value of Flash Group is close to 10 billion US dollars.

This single business segment is enough to garner support from Ningbo for the FlashCar manufacturing project.

As for the newly established GXG brand, after being criticized by Tan Jincheng for opening stores too slowly in the first half of the year, it accelerated the pace of store openings. The annual turnover barely exceeded the target of 1 million yuan, reaching 1.05 million yuan.

However, GXG not only didn't make money this year, but also suffered losses. The costs of opening stores and marketing were too high, but having revenue is enough.

FlashTech, which was targeted as a target, sold 148.07 million electric vehicles throughout the year, and with the addition of niche models, its annual revenue reached 27.31 billion yuan, with a profit margin of 5.33 million yuan.

As for the two subsidiaries, Dexian Electronics and Bafang Electric, Dexian Electronics has barely managed to break even this year due to acquisitions, investments, and the merger of its exports into Jinyi Industrial.

Bafang Electric's profits are also quite good. As a core supplier of Flash Technology, coupled with its own technological advantages, its profits can exceed 100 million.

Wang Qinghua is very capable. Bafang Electric retained him and his team, which Tan Jincheng considers the biggest gain. It is very fortunate that such a person, who can take a parts factory public, was able to achieve cooperation in the early stages.

Including the seven subsidiaries including ByteDance Engine, the only loss-making subsidiary is indeed Hangxin New Energy. As expected, Hangxin New Energy has indeed suffered a huge loss this year, amounting to 7.25 million yuan.

A year ago, this level of loss would have crippled the entire FlashCheer, and Xiao Tan, the boss, might have had to resort to sewing machines due to a broken cash flow caused by the losses. But this year, it's no longer a problem.

We can afford to lose money!

Unbeknownst to many, through various acquisitions, financial consolidation, and optimization of its corporate structure, the entire Flash Group has grown from a company with an expected annual sales of 5 billion yuan in mid-2007 to a large private enterprise with total sales exceeding 10 billion yuan and annual profits approaching 3 billion yuan.

Most importantly, whether it's electric vehicles, self-operated apparel, or foreign trade, these three business segments can all provide Flash Group with cash flow security!

In Tan Jincheng's view, a company's greatest advantage is not how high its net profit is, but its sales volume and ability to maintain good cash flow, which is the foundation for the company's continued operation.

Of course, it would be even better if it could have sales volume and profit margin as high as Moutai, but that's obviously impossible for Flash.

Whether it's electric vehicles or clothing, Flash's gross profit margin and net profit margin are actually lower than its peers. To put it bluntly, it's simply because Mr. Tan is willing to spend money, pouring it all into R&D and marketing, and striving to expand its scale.

With a large enterprise that generates over 10 billion yuan in annual sales, achieves an actual profit margin of around 25%, and has excellent cash flow, Flash Group already has the capability to fully manufacture cars.

Back when Boss Ying was tinkering with Zhongtai, his parent company, Tieniu Group, was actually about the same size as the current Shanchi Group. The only difference was that Tieniu Group was listed on the stock exchange and could profit from investors in the capital market.

Having fulfilled the first step, and with Boss Ying as a ready-made role model, Tan Jincheng didn't mind setting things up first. Acquiring some industrial design companies and cooperating with design institutes were among Boss Tan's plans.

However, before that, we need to finalize the brand name and Flashpoint Technology's IPO plan.

(End of this chapter)