As the automotive electronics industry accelerates, Wuhu ETAC Automotive Electronics Co., Ltd. (referred to as "ETAC") has applied for a listing on the Shanghai Stock Exchange's main board and has completed its first round of inquiries.
ETAC's IPO journey faces multiple challenges. On the governance front, the company's actual controller maintains control through a complex equity structure, raising regulatory concerns over stability and legitimacy. Meanwhile, ETAC's deep ties with CHERY AUTO (09973.HK) present both opportunities and risks. While CHERY AUTO contributes over 50% of ETAC's revenue, it also accounts for a growing share of receivables, raising cash flow concerns. Despite slowing sales growth and declining capacity utilization, ETAC plans aggressive capacity expansion through its IPO, prompting questions about necessity and rationale.
### 1. Complex Cross-Border Control Structure ETAC was established in 2002 as a joint venture between Australia's ETAC and Wuhu CHERY Technology Co., Ltd., with ownership stakes of 51% and 49%, respectively. Foreign investment incentives at the time played a key role in this arrangement.
As of the prospectus filing date, Australia's ETAC holds 13.2% of shares, while CHERY AUTO is the largest single shareholder with 14.99%. CHEN ZEJIAN, along with several acting-in-concert parties, controls 34.36% of shares. Although CHEN does not directly hold ETAC shares, his control exceeds 30%, making him the de facto controller. Since December 2002, CHEN has served as ETAC's general manager, director, and chairman.
A detailed breakdown reveals CHEN's control path: - Through Wuhu Jiatai Intelligent Technology Co., Ltd. and Australia's ETAC, he controls 27.77% of shares. - Wuhu Jiatai acts as the executive partner for employee shareholding platforms, granting CHEN indirect control. - Additionally, CHEN holds 1.71% of shares via agreements with SHEN Rong and LUO CHANGAN.
The Shanghai Stock Exchange has questioned the stability of this control structure, particularly regarding employee shareholding platforms and CHERY AUTO's influence. ETAC responded that CHEN has decisive authority over operations and management, while CHERY AUTO's role is limited to board nominations.
Notably, ETAC's management has strong ties to CHERY AUTO. CHEN, an Australian national of Chinese descent, briefly served as deputy dean of CHERY AUTO's Engineering Research Institute in 2005. Vice Chairman LI ZHONGBING and Director/CFO LI QIUSHENG also have extensive CHERY AUTO backgrounds.
ETAC previously had special rights agreements with certain shareholders, but these were terminated in September 2025. However, if ETAC fails to list, these clauses could reactivate, transferring risks to CHEN.
### 2. Over Half of Receivables Tied to CHERY AUTO ETAC specializes in R&D, production, and sales of automotive electronics across four domains: body, smart cockpit, powertrain, and autonomous driving, alongside EMS and technical services.
From 2022 to H1 2025, ETAC's revenue grew from RMB 2.17 billion to RMB 3.47 billion, but growth slowed sharply from 38.1% in 2023 to 15.45% in 2024. Net profit growth also plummeted from 107.96% to 11.19% over the same period.
ETAC's heavy reliance on CHERY AUTO is evident: - CHERY AUTO accounted for 27.6%, 35.21%, 53.89%, and 50.26% of revenue in respective periods. - Excluding CHERY AUTO, revenue would have declined in 2024.
This dependency extends to receivables: - Receivables stood at RMB 745 million, RMB 1.08 billion, RMB 1.22 billion, and RMB 1.12 billion in respective periods, with CHERY AUTO comprising 32.51% to 55.94%. - Bad debt provisions rose steadily, reaching RMB 110 million in H1 2025. - Receivables turnover ratios lagged behind industry peers, attributed to CHERY AUTO's six-month payment terms via CHERY Baoxiang.
### 3. Falling Capacity Utilization Despite Expansion Plans ETAC aims to raise RMB 1.5 billion for capacity expansion, including: - 5 million automotive electronics units/year (RMB 287 million). - BETAC production base expansion (RMB 450 million). - R&D centers and working capital.
However, capacity utilization has declined: - Overall rates dropped from 99.43% in 2023 to 74.05% in H1 2025. - Body electronics utilization fell from 101.4% to 77.99%. - Smart cockpit electronics utilization halved to 52.47%. - Powertrain and autonomous driving electronics utilization also slumped.
ETAC attributes the decline to seasonal fluctuations and new capacity ramp-up. However, with sales growth slowing (42.13% in 2023 vs. 15.94% in 2024), the rationale for aggressive expansion remains questionable.
Comments