eHi, as a leading car rental company in China, has continued to expand its fleet in recent years. However, this strategy of rapid expansion does not seem to have given the company sufficient liquidity buffer, but has instead increased its financial pressure. Fitch Ratings recently downgraded eHi's Long-Term Issuer Default Rating to 'B-', noting the company's weak liquidity buffer and uncertainty about available access to financing.
According to public information, eHi Car Rental was founded in 2006 and mainly provides comprehensive car travel services for individuals and government and enterprise users. Headquartered in Shanghai, the company's service network covers more than 500 cities across the country. In 2014, eHi Car Rental was listed on the New York Stock Exchange, becoming the first Chinese car rental company to be listed in the United States. Despite its privatization and delisting in 2019, eHi remains one of the key players in China's car rental market.
However, the continued expansion of the fleet seems to have put pressure on eHi's finances. To meet the growing demand for travel, eHi Car Rental expanded its fleet in the first nine months of this year, with a net increase of 10% to 15% expected in 2023. However, this strategy does not provide sufficient liquidity buffers. As of the end of June 2023, eHi's short-term debt reportedly reached $2.5 billion, while its available cash increased from $6.5 billion at the end of 20221.1 billion to 36.4 billion yuan. This means that the funding gap between the company's cash flow and short-term debt has widened.
In addition to operating cash flow and new vehicle purchases, eHi Car Rental's free cash flow generation relies on used car disposal. However, market conditions and dealer financials may affect used car sales and collections, which in turn can have an impact on the company's financial health. In addition, as the market is unable to absorb a large number of used cars in the short term, eHi Car Rental may need to disperse the disposal of vehicles, which will have an impact on the company's revenue performance.
It is worth noting that Zhang Ruiping, the founder of eHi, has rich experience in the automotive travel service industry and a deep technical background. He founded a company engaged in the development and sales of automotive dispatch system software in Silicon Valley, and became one of the leading vehicle dispatch system companies in the United States. After returning to China, he founded Suri Software to help many companies improve their operations and management, and solve problems in car scheduling. These experiences laid a solid foundation for the rise of eHi Car Rental in the future.
Although eHi continued to grow in terms of revenue, its net profit fell sharply and its debt ratio continued to rise. From 2014 to the first half of 2018, eHi's revenue was 85.1 billion yuan, 145.1 billion yuan, 210.9 billion yuan, 27400 million yuan and 150.1 billion yuan. However, the net profit was 69.7 billion yuan, 33.1 million yuan, 12.2 billion and 119680,000 yuan. At the same time, the total debt ratio increased from 3699% to 6232%。This trend raises questions about its profitability and ability to continue as a going concern.
Regarding the reason for the delisting of the U.S. stock market, Zhang Ruiping once said that the valuation method adopted by the U.S. car rental market is not reasonable for eHi Car Rental. However, the low valuation is only one of the reasons why eHi Car Rental chose to delist. It is reported that eHi Car Rental has considered a US$1 billion IPO, seeking a valuation of US$5 billion, and plans to go public in Hong Kong by the end of the year. This plan, if realized, will provide new financing options for eHi.