Tuhu, a Case Study in Fraying Business Relations Between the U.S. and China
Tuhu, a Tencent-backed online car service startup for spare parts, maintenance, and installation, recently submitted a prospectus to launch as an IPO on the Hong Kong Stock Exchange.
Launched in 2011, this Shanghai-based platform has witnessed rapid revenue growth despite its persistent unprofitability. The company seeks to raise capital from the IPO to cover a projected rise in operating costs as demand continues to increase. Despite China’s formidable tech regulations, Tuhu remains hopeful in its endeavor to go public. The startup seeks to raise roughly $300 to $400 million from stock issuance. As of September 30, 2021, Tuhu registered 72.8 million users on its digital application, up 36% year over year.
Tuhu’s IPO underwriters include American conglomerates Goldman Sachs and Merrill Lynch, as well as UBS and China International Capital Corporation. Initially, the IPO was planned to launch on the New York Stock Exchange. After crackdowns over data security, regulators in both Beijing and Washington are pushing Chinese tech companies to reroute their listings back to Hong Kong. Tuhu is one of several businesses to shift their scheduled offering away from the U.S. market due to political repercussions and security concerns.
Tuhu remains a fast-growing company reflecting China’s surge in private car purchases. In 2021, the company’s total sales were up 42% on year by the end of the third quarter posting revenue of $1.33 billion. Despite pandemic-related impacts to the economy, China increased purchases of private cars by 6.32% year over year, totaling 395 million automobiles. The insatiable appetite that China’s expanding middle class has for cars, and thus car parts, suggests a market ready to make Tuhu profitable.
Due to a burgeoning Chinese middle class, Tuhu can expect company growth to continue for the foreseeable future. If the IPO is launched, Tuhu is expected to invest the additional capital in operational costs, such as automized robots, to efficiently expedite auto component production thereby increasing productive output capacity. However, Tuhu is yet another company caught in the crosshairs of a swelling economic rivalry between China and the U.S., further indicating how tense bilateral relations disrupt business developments.