On March 15, Tuhu Car Care released its 2023 performance report. The report reveals that Tuhu Car Care achieved a full-year operating income of 13.6 billion CNY in 2023, representing a year-on-year increase of 17.8%. Adjusted net profit reached 480 million CNY, marking the first full-year profitability. The gross profit margin hit a historic high of 24.7%.
As Tuhu Car Care enters a new phase of profitability, it has sparked curiosity in the market: how does Tuhu Car Care sustain its expansion and profitability in an industry notorious for its slim margins and challenges in making profits?
First Full-Year Profitability Marks Tuhu's Best Performance Yet
This marks Tuhu Car Care's first performance report since its IPO, and it stands as its best performance in its 12-year history.
In terms of revenue, Tuhu Car Care achieved a record high full-year operating income of 13.6 billion CNY in 2023, a significant increase compared to 2022, with a growth rate of 17.8%, nearly doubling compared to 2019. In terms of profit, Tuhu Car Care achieved an adjusted net profit of 480 million CNY, marking its first annual profit. The gross profit margin increased from 7.4% in 2019 to 24.7% in 2023, reaching a historic high. In terms of business, by the end of 2023, Tuhu Car Care had reached a scale of 5,909 stores, with registered users surpassing 115 million, both reaching historic highs.
Furthermore, based on data disclosed in the prospectus, Tuhu Car Care's revenue for the second half of 2023 was 71 billion CNY, an increase of approximately 9% compared to the first half of 2023, indicating continued expansion in revenue scale. In the second half of 2023, Tuhu Car Care's adjusted net profit was 266 million CNY, a significant increase of 24.3% compared to the first half of 2023. This indicates that Tuhu Car Care is not only in a state of sustained profitability but also continuously expanding its profitability, with its profitability continuously strengthening.
At the same time, Tuhu Car Care effectively controlled various costs and expenses. The sales and marketing expense ratio decreased from 13.3% in 2022 to 12.6% in 2023, and the management expense ratio decreased from 3.5% in 2022 to 3.1% in 2023.
Due to significant cost reduction and efficiency improvement, Tuhu's profitability continues to expand, and its cash reserves are increasingly abundant. By the end of 2023, Tuhu Car Care's free cash flow reached 400 million CNY, with total cash reserves (including cash and cash equivalents, restricted cash, and financial investments) reaching 68.3 billion CNY.
Adhering to Win-Win Cooperation, Tuhu Successfully Implements Car Care Business Model
Behind the strong turnaround from loss to profit and achieving full-year profitability is Tuhu Car Care's successful implementation of its car care market business model, addressing long-standing challenges in the automotive service industry.
In the traditional automotive aftermarket, ensuring uniform product prices and quality and guaranteeing service levels pose many difficulties, partly due to the characteristics of the dispersed automotive service market, numerous SKUs, and complex repair processes, and partly due to industry bottlenecks such as the complex hierarchy between upstream and downstream in the automotive service industry and opaque parts circulation.
In this context, Tuhu Car Care innovatively launched an integrated online and offline automotive service platform, bringing together users, stores, and suppliers on one platform, achieving a win-win situation for all parties involved.
For users, Tuhu significantly shortens the circulation path of automotive parts, resulting in lower prices and guaranteed quality. Tuhu has established mature mechanisms around product traceability, reducing decision-making costs and improving product and service quality.
For franchisees, the Tuhu platform aggregates a large amount of user traffic, while also building a digital system covering the entire process of store operation and management, which helps improve operational efficiency and increase store performance.
For suppliers, the Tuhu platform brings in a large number of orders from customer flow and stores, helping suppliers expand their sales scale. Tuhu's reputation among users and franchisees also helps suppliers establish stable sales channels and a good brand image.
In this model, users, stores, and suppliers not only benefit individually but also form a positive feedback loop—increased user traffic attracts more franchisees and suppliers, leading to more store coverage, improved offline fulfillment capabilities, and strengthened bargaining power upstream, thereby enhancing price competitiveness and product quality, which in turn benefits user traffic, initiating a new cycle of positive feedback.
As a result, Tuhu Car Care spontaneously attracts users, franchisees, and suppliers, and as Tuhu Car Care's store scale, user scale, and supplier system continue to expand, this positive cycle will accelerate, injecting a continuous stream of power into the Tuhu platform.
Scale Effects Emerge, Tuhu's Profit Growth is Traceable
With a leading business model, Tuhu Car Care's early profitability was expected, and a closer look at Tuhu Car Care's historical financial data reveals that the improvement in Tuhu Car Care's profitability is traceable.
From 2019 to 2023, Tuhu Car Care's gross profit margins were 7.4%, 12.3%, 16.0%, 19.7%, and 24.7%, maintaining a stable and high-speed growth trajectory until 2023, reaching a historic high.
The continuous improvement in profitability can be attributed to multiple factors. Firstly, as Tuhu Car Care's store scale and user scale continue to expand, scale effects begin to emerge, operating expenses are continuously diluted, labor efficiency gradually improves, and the increase in bargaining power in the industry brings significant advantages in terms of costs.
The important basis for this logic is that Tuhu Car Care's scale is large enough and leading. According to financial reports, by the end of 2023, Tuhu Car Care's registered user base exceeded 115 million, and the cumulative number of transaction users in 2023 reached 19.3 million, making it the largest car owner community gathered by a Chinese automotive service provider. Additionally, Tuhu Car Care has the largest and continuously expanding store network in China. By the end of 2023, the number of Tuhu Car Care workshop stores reached 5,909, with an increase of 1,256 stores in 2023 alone, representing a 27% year-on-year increase.
According to the Zhihui Consulting report, based on the revenue scale for the full year of 2023 and the number of automotive service stores operated as of December 2023, Tuhu Car Care is the largest independent automotive service platform in China, ranking first in the independent aftermarket in terms of store quantity, growth rate, and revenue stability. Next, Tuhu's business and product structures continue to improve, with a growing contribution from higher-margin car maintenance services and proprietary or exclusive-brand products, steadily enhancing Tuhu's profitability. According to the announcement, Tuhu's operating revenue in 2023 increased by 17.8% compared to 2022, with the car maintenance business showing strong growth at 22.5%, surpassing the overall revenue growth rate.
Simultaneously, the revenue contribution from exclusive and proprietary brand products is also increasing. From 2019 to 2023, Tuhu's revenue contribution from exclusive brands rose from 17.5% to 42.4%, and from proprietary brands rose from 4.7% to 25.9%.
This is also attributed to Tuhu's robust supply chain. Over the past year, Tuhu has continued to deepen its cooperation with brands such as Jiashiduo, Brebo, and Chevron, while also establishing a collaboration with Michelin for the first time, launching multiple exclusive products. Deeper collaboration with quality brands enables the platform to supply more high-margin exclusive products, thereby enhancing profit margins.
This is the secret behind Tuhu's turnaround and leading profitability. With its strong growth momentum and immense potential for development, Tuhu has successfully transitioned from expansion to profit growth, validating its business model effectiveness and further consolidating its leading position in the competitive industry.
