Trans-China Automotive Holdings Limited: 1H2025 Financial Review and Investor Analysis

Trans-China Automotive Holdings Limited (“TCA”), a premium automobile dealership group operating in China, has released its unaudited interim financial statements for the six months ended 30 June 2025. The report provides insight into a challenging operating environment, significant competitive pressures, and company-specific actions aimed at financial stability and future positioning.

Key Financial Metrics and Performance Comparison

Historical Performance Trends

• Revenue has seen a sharp decline of nearly 30% YoY, driven by lower unit sales (2,660 vs 3,530) and intense discounting across the sector.
• Gross loss worsened, reflecting deteriorating margins in both new car sales and after-sales services. The gross margin for car sales was -16.1% in 1H2025, down from -11.3% in 1H2024.
• Net loss narrowed by 10.5%, primarily due to cost control efforts, reduction in selling and administrative expenses, and lower finance costs.
• No dividends have been declared or recommended for the current or previous period, as the company aims to conserve cash.

Chairman’s Statement

“As we report our financial results for the first six months ended 30 June 2025 (“1H2025”), I am tempted to repeat a lot of the same usual commentary about the state of the automotive industry in China. For the past two years, the narrative and commentary from us revolved around intense competition, an insane price war, steep discounting, oversupply due to massive overcapacity in production, a surplus of automotive start-ups and too many brands, too much local government support and financing for unviable manufacturers, and the list goes on. All these factors remain today, and the environment continues to be exceedingly challenging for us. However, to just repeat the same story as years past would be overlooking some very fundamental changes that we are starting to see on the ground in China today.
The central government has recently started to fully recognize the scale and depth of the problems affecting the automotive industry and the automotive supply chain. The term “neijuan” (内卷) or “involution” is used in China to describe a cycle of excessive and self-defeating competition … The big change is that there are clear signs that the central government is starting to publicly mount efforts to address these issues. We will comment on this in relation to our financial results below in more detail.
Our financial results for 1H2025 have been disappointing. Compared to the same period in 2024, our revenues declined by almost 30% and our gross loss widened by more than 50% as gross margins continued to deteriorate sharply. These were offset by stable Finance & Insurance income, continued tightening and reduction in selling and administrative expenses, and a reduction in finance costs leading to a 10% improvement in net loss compared to the same period in 2024.
We believe that centralized efforts led by the government to reign in the intense competition and overcapacity will start to have a positive effect on the industry and the environment we face. Clear directives have been issued advocating against price discounts and the sale of products below the cost of production. Directives have also been issued to clean up and speed up payments to supply chain providers and parts makers, and most importantly for us, the central government has reiterated that manufacturers cannot use their market position to force additional supply to retailers and dealers if this leads to excessive inventory and unsustainable price discounting.
It will take some time for the various guidelines and directives to filter through the entire automotive ecosystem, but we believe that special attention from the central government will likely be a catalyst for consolidation in various parts of the automotive industry.
Within the dealership business environment, we continue to see consolidation of the network. Many dealership groups have been forced to close, including BMW network. For us specifically, there are several initiatives under way to reduce the financial strain. For BMW, we are in active discussions on reducing additional inventory coming our way and have temporarily suspended inbound wholesale of cars at our Guangzhou store. For Genesis, our cost base continues to shrink and the OEM has agreed to allow us to reduce the footprint and staffing levels of all three showrooms, which will lead to further expense reduction. For McLaren, full consolidation has been achieved and we will be operating only the business in Guangzhou. Within our specific markets, we have seen some competing BMW dealers close down in Chongqing and Guangzhou, and we expected some additional closures of competitors in Foshan and Shenzhen in the next six months. We expect that this will reduce competitive pressures and lead to an increase in our aftersales business, which remains a positive contributor.
As the overall rationalization continues, we see other hopeful signs as well. For example, abnormally high commissions from banks have been stopped. This was another area in which “involution” was at play, and it led to a distortion of car prices and excessive discounts from dealers while misaligning dealer and customer benefits.
We remain cautious on our outlook for the remainder of the year and we will continue to face significant financial challenges within a greater context of a positive change in direction of the overall industry. We hope to be in a position to benefit once real tangible changes start to take hold.
Sincerely, Francis Tjia”

The tone of the Chairman’s Statement is predominantly negative, reflecting disappointment in current results and ongoing industry headwinds. However, it shifts to cautious optimism about regulatory intervention and industry consolidation, suggesting the possibility of future improvement.

Exceptional Earnings/Expenses and Corporate Actions

• Gross profit continues to be negative, with the company forced to sell cars below cost to meet OEM volume targets and combat fierce market competition.
• No asset revaluation or divestments were disclosed.
• Exceptional items include a RMB3.8 million gain on early lease termination and increased agent commissions from new model launches and OEM subsidies.
• There was no dividend declared or paid, and no share buybacks, placements, or other major fundraising actions.
• The company dissolved a dormant subsidiary, Changsha Bright Focus Automobile Sales and Services Co., Ltd.

Related Party Transactions and Debt

• The only significant related-party transaction was an interest expense of RMB709,000 paid to Octo Holdings Limited (controlling shareholder), reflecting a loan at 8% interest.
• Net interest-bearing liabilities total RMB444.8 million, with net debt to equity ratio surging to 16.5x due to ongoing losses eroding equity.

Macroeconomic and Industry Environment

• The Chinese auto sector is highly competitive, especially with the rise of new energy vehicle (NEV) brands and ongoing price wars.
• Government intervention is underway to curb excessive discounting, clarify rebate and supplier payment rules, and rightsize dealership networks. These changes are expected to eventually restore price discipline and profitability.
• Major OEM partners are actively consolidating their dealership networks, which TCA believes will reduce intra-brand competition and support remaining dealerships.
• Despite these positive policy developments, the company remains cautious as tangible financial improvements are yet to materialize.

Dividend Policy

• No dividends have been declared or recommended for 1H2025 or the previous period, with management citing the need to conserve cash for investment and working capital.

Conclusion and Investor Recommendations

Overall Financial Performance and Outlook:
TCA’s interim results reflect a weak financial performance, marked by sharp revenue declines, widened gross losses, and continued net losses. While cost-cutting and lower finance expenses helped narrow the net loss, the company continues to struggle with negative margins, high leverage, and a volatile industry landscape. The Chairman’s Statement offers some cautious optimism regarding regulatory and industry changes, but acknowledges that meaningful recovery will take time.

Recommendations for Investors

• If you currently hold TCA stock:
  Consider reviewing your position carefully. The company is facing persistent losses, high net debt, and an uncertain recovery timeline. If your investment horizon is long and you believe in the eventual success of regulatory reforms and industry consolidation, you may choose to hold and monitor further developments. However, risk-averse investors should assess whether continued exposure is warranted given the lack of near-term catalysts, weak financials, and no dividend yield.
• If you do not currently hold TCA stock:
  It is prudent to wait on the sidelines until there is clearer evidence of operational improvement, margin recovery, and stabilization in the industry. The stock does not offer an attractive risk/reward profile at present, given ongoing losses, high leverage, and uncertain timing for sector reforms to translate into financial results. Monitor quarterly updates for signs of turnaround and consider entry only when the company demonstrates sustained progress.

Disclaimer: This analysis is based solely on information contained in the latest interim financial report of Trans-China Automotive Holdings Limited and does not constitute investment advice. Investors should consider their own financial circumstances and consult with a professional advisor before making any investment decisions.

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