From Nezha to WM Motor, hundreds of billions have been burned in car - making. In the end, who will foot the bill?

When an automaker collapses, the real "loss list" is just beginning to unfold.

The intelligent car systems of car owners become useless, and suppliers lose tens of millions of dollars in payments. However, the deepest losses are often overlooked - they are the investment institutions at the bottom of the capital structure and the LPs (Limited Partners) behind them.

Building cars is a money - burning game and also a high - stakes capital gamble. The GPs are the participants in the game, while the LPs are the ones who ultimately foot the bill.

There is a delicate relationship among enterprises, investment institutions, and investors.

Equity investment has a lower repayment priority than employee salaries and supplier debts in liquidation. So, if an automaker goes bankrupt, hundreds of millions of dollars invested by investment institutions may instantly vanish. Similarly, there is often no return agreement for a single project between LPs and GPs. If the automaker invested by the GP fails, the LP cannot hold the GP accountable and can only silently bear the cost of the automaker's bankruptcy.

1. From Nezha to WM Motor, Hundreds of Billions Gone with the Wind

Another new - energy vehicle startup is on the verge of bankruptcy.

On June 13, the National Enterprise Bankruptcy and Reorganization Case Information Network showed that Shanghai Yuxing Advertising, one of the suppliers of Nezha Automobile, applied for its bankruptcy a month ago, trying to preserve its own creditor's rights.

Once the liquidation process begins, suppliers may be able to recover some of the debts.

However, behind this storm, Nezha Automobile has already shown signs of crisis. From employees asking for unpaid salaries, the CEO being removed, to the rumor that the company's account "only has 400 yuan left", this company, which once topped the monthly sales list of new - energy vehicle startups, is sliding towards the edge of collapse.

Now, there is no money in the account, only a mountain of debt.

Previously, Nezha tried to relieve the pressure through debt - to - equity swaps. It planned to convert half of its total debt of 6 billion yuan into equity, aiming to resolve 3 billion yuan. However, only some suppliers accepted the plan, helping to reduce the debt by about 2 billion yuan, and the debt - to - equity swap failed.

As we mentioned above, equity liquidation has a lower priority than debt, so suppliers are not willing to "share the hardships" with Nezha.

How much money has Nezha burned? The answer is astonishing.

According to Tianyancha data, Nezha Automobile completed 15 rounds of financing in 8 years since its establishment, with the total financing amount preliminarily estimated to exceed 20 billion yuan. Coupled with the existing debt, the cumulative capital investment is close to 30 billion yuan.

What's more ironic is that this is not the "champion of money - burning". Among the failed new - energy vehicle startups, the one that burned the most money may be WM Motor.

As one of the early "Three Little Dragons of New - Energy Vehicle Startups", WM Motor received far more financial support than its peers in the early stage but also fell into serious losses due to continuous high - investment.

When it entered bankruptcy liquidation, WM Motor's liabilities reached as high as 30 billion yuan, and it had previously raised more than 35 billion yuan in total, with the total amount of money burned exceeding 60 billion yuan.

In this capital purgatory, the most affected are still the investment institutions.

According to Tianyancha data, WM Motor completed 13 rounds of financing, with more than 60 investors, including strategic investors like SAIC Group and financial investment institutions like Xinding Capital.

In the industry's review reports on WM Motor, many investors mentioned the key point of investment discipline.

"If small investment institutions do not have strict investment discipline and encounter a case like WM Motor, they may suffer heavy losses."

To put it simply, strategic investors can still seek industrial synergy, while financial investors, regardless of their size, will suffer pure "net losses" if they cannot exit.

Take Xinding Capital as an example. This institution, which was widely concerned for its aggressive bets in the automotive field, had its founder Zhang Chi publicly state that he heavily invested in new - energy vehicle startups and repeatedly invested in multiple rounds in WM Motor. It's easy to imagine the losses when WM Motor failed to go public.

It's worth noting that Xinding Capital's investment in WM Motor also caused controversy because it "took over old shares", a practice quite taboo in the primary market.

First of all, taking over old shares is related to the fiduciary responsibility of fund managers. As the fiduciary party, GPs should prioritize the interests of LPs rather than acting as a "cash - out channel" for old shareholders.

The difference between taking over old shares and buying new shares is that when a company issues new shares for financing, the money usually goes directly to the company for its own development. In contrast, old - share transactions mean that the money goes directly to old shareholders, and the company does not benefit from the process.

Secondly, taking over old shares naturally carries the risk of "conflict of interest".

It's difficult to define whether the fund manager's purchase of old shares is intended to help the original shareholders exit. Take WM Motor as an example. The controversy in the market was triggered because Sun Jiexiao, the chairman of Chunxing Precision, one of WM Motor's shareholders, was rumored to have a need to cash out due to personal financial difficulties. If an institution steps in to take over at this time, whether it constitutes a conflict of interest is worthy of in - depth investigation.

Finally, old - share transactions often lack transparency, especially when the transaction amount is large, which is more likely to arouse suspicion. Compared with the reviewability of public new - share offerings, the off - market transfer of old shares lacks valuation review and market supervision, making it more likely to become a space for "gray operations".

Therefore, without a reasonable valuation basis and clear interest boundaries, taking over old shares is often not a prudent move.

Xinding Capital has caused market controversy because of its heavy bet on WM Motor and taking over old shares. Moreover, the complex relationship between Zhang Chi of Xinding Capital and Sun Jiexiao, the chairman of Chunxing Precision, has further intensified market speculation.

According to New Economy IPO, as early as 2019, Sun Jiexiao sold 7.33% of his shares in WM Motor to five affiliated companies under Xinding Capital through three equity transfers.

Meanwhile, Sun Yanwu, Sun Jiexiao's son, also joined the "Ningbo Meishan Bonded Port Area Xintiandingdi Investment Management Partnership" in 2020 and once held nearly 40% of the shares, which later dropped to 33.41%.

The actual manager of this institution is Beijing Xinding Rongsheng Capital Management Co., Ltd., controlled by Zhang Chi.

The financial transactions between the two parties are not limited to this. Chunxing Precision once announced that Sun Jiexiao pledged about 80 million shares of Chunxing Precision to Xintiandingdi. In addition, the Sun father - son duo indirectly holds about 1.38% of the equity in WM Motor Holdings through Xintiandingdi, forming a complex capital link.

Zhang Chi also manages the funds of Wang Lei, the wife of Shen Hui, the founder of WM Motor. In the "Beijing Huichi Capital Management Co., Ltd." established in 2018, Xinding Rongsheng under Zhang Chi contributed 60% of the capital, and Wang Lei contributed 40%.

With Sun Jiexiao's arrest for insider trading, there was even a rumor that he was the "real founder of WM Motor". This series of personnel and financial relationships has made Xinding Capital's investment in WM Motor particularly sensitive and thought - provoking in public opinion.

2. Xinding Capital Stepped into Three "Pits"

As we mentioned above, the investment boom in building cars has created many wealth - creation myths. It's not just about vision and courage but also involves quite technical operations. For example, Wang Xing's personal investment in Li Auto and his exit this year brought substantial returns.

However, some institutions have "got stuck in the mud".

Financial investment institutions aim for high returns. In industries like car - building, which require high investment and have high uncertainty, risk management is particularly crucial. Take Xinding Capital's investment in WM Motor as an example; it made three typical mistakes that should be strictly avoided in the primary market.

The first problem is over - investing in a single project.

As a financial investor, Xinding Capital made a heavy bet on WM Motor.

Zhang Chi himself once said that he "repeatedly invested in multiple rounds" in WM Motor. "Invested in WM Motor with 11 funds in multiple rounds." According to data compiled by YIDU Finance, as early as in the Series C financing of WM Motor in 2018, Xinding Capital invested 200 million yuan. Xinding's official website also disclosed that it made additional investments in WM Motor in 2019.

In addition, Dolphin Finance reported that "Zhang Chi took over a total of 7.33% of the shares in WM Motor held by Sun Jiexiao, which was worth about 3 billion yuan at that time." Even if acquired at a lower discount, it was still a significant amount, and the cumulative investment amount may be close to one billion yuan.

This highly concentrated investment in a project with an unproven business model amplifies the risk exposure and violates the basic principle of risk diversification in the primary market.

Generally, institutions should set an investment cap for a single project. Especially, Xinding Capital entered the WM Motor investment relatively late. After the Series C financing, WM Motor's financing was mainly from industrial capital. As an early - stage financial investor, entering the WM Motor project in the middle and late stages did not promise good returns.

In contrast, Xinding Capital also invested in XPeng Motors at an earlier stage. Entering the WM Motor project so late did not offer "good value for money".

The second problem is the scatter - gun investment strategy, leaving returns to probability.

The scatter - gun investment strategy is not new. In the early days of the booming Internet venture capital, many angel investment institutions adopted this strategy to some extent.

However, projects like car - building, which require high investment and have a long cycle, have extremely high requirements for exit efficiency and post - investment management. Relying solely on probability games cannot meet the increasingly urgent return expectations of LPs. The combination of difficult fundraising and blocked exits has continuously magnified the risk that "scattering more does not necessarily mean getting more back".

Xinding Capital has a wide - ranging layout in the new - energy vehicle field. It not only invested in WM Motor but also in XPeng Motors, Freedom Motors, and other projects. Zhang Chi once explained that because NIO has an overseas structure and the first - generation products of Li Auto had flaws, he chose to invest in "the other two" and later also invested in Freedom Motors, indicating an obvious tendency towards the "scatter - gun" strategy.

Of course, this is Xinding Capital's consistent investment style.

For example, Xinding Capital also adopted a scatter - gun approach in the aerospace rocket field, investing in almost all commercial rocket companies in the market, such as Orient Space and Interstellar Glory, also at relatively late rounds.

For instance, around 2022, the energy storage track became a hot topic in the secondary market, and Xinding Capital repeatedly invested in multiple rounds in related enterprises such as China Energy Storage.

It's not hard to find that new - energy vehicles and commercial aerospace are all tracks that require large investments, have long return cycles, and low survival rates. This way of investing in an entire track is not suitable for small and medium - sized investment institutions. Generally, buying an entire track is a strategic defense strategy for leading enterprises. Investing in an entire track like the automotive project will consume a large amount of capital. Looking back at new - energy vehicle startups, no one can buy the entire track.

The third problem is the lack of post - investment management.

Less post - investment management is related to the scatter - gun investment strategy.

It's easy to understand that scatter - gun investment institutions probably do not have systematic post - investment service capabilities. This approach of "hitting one or two high - return projects to cover the losses of the rest" results in a lack of substantial support for the subsequent development of projects, greatly reducing the growth and survival rate of enterprises.

Investing in a company is not only a bet but also like raising a child. In nature, there are two reproduction strategies: one is the "oviparous reproduction" of fish and insects, with a large number of offspring but a very low survival rate; the other is the "high - investment breeding" of primates, which exchanges long - term care for a high survival rate. Scatter - gun investment is like the former, while institutions that can truly cultivate unicorns are more like the latter - accompanying, post - investment management, acceleration, and empowerment are all essential.

For institutions like Xinding Capital, if they do not have an independent post - investment management team, once the invested enterprises do not develop well, they can only wait to swallow the bitter fruit.

3. Good Investment Discipline Is the Self - Cultivation of Investors

As we mentioned above, investment discipline is particularly important in investing in popular projects.

Investment discipline is not only about due diligence and investment decision - making in the process but also includes strict control of financial risks and valuations.

For example, setting a cap on the investment amount for each round, avoiding over - concentration in a single project, and designing a clear exit path before investment, such as IPO, mergers and acquisitions, or equity repurchase, to avoid getting stuck in "unsolvable" projects.

Exiting in the primary market cannot rely solely on IPOs; it must have diversified strategies.

For example, moderately selling old shares when the valuation is high to lock in some returns (different from "taking over old shares", this is an active exit rather than a passive takeover), or clearly defining the exit conditions for future rounds of financing in the agreement.

Still taking the new - energy vehicle startup WM Motor as an example. Projects like this have a long cycle, are capital - intensive, and have extremely high risks. Investment institutions cannot only rely on IPOs for exit. If they do not design an exit mechanism at the beginning of the investment, they are essentially giving up risk control.

WM Motor completed 13 rounds of financing in seven years, and each round was theoretically an opportunity for early investors to exit. Xinding Capital held 5.21% of the shares in WM Motor before its IPO. The inability to cash out these shares caused heavy losses to the LPs.

Investment discipline also lies in evaluating the dynamic balance between returns and risks. When and how to exit is also a technical task for investment institutions.

Especially for financial investment institutions, they need to carefully evaluate the risks of repeatedly increasing investment in a single project. In 2018, WM Motor only delivered 3,844 vehicles throughout the year, but its valuation continued to rise, which could easily lead institutions to repeat the mistakes of "chasing high and selling low" in the secondary market in the primary market.

Whether it is the new - energy vehicle industry or the commercial aerospace industry we mentioned above, many large - scale investment projects were hot topics at that time. This is a great test of the judgment, determination, and risk - return management ability of investment institutions.

Chasing hot topics and investing in a project when the market is most excited and fundraising is easy does not show any real ability. Instead, this is usually the peak of the cycle and the valuation is high.

The primary market is different from the secondary market. After all, there is a liquidity problem. If one looks for investment targets in the primary market just because a project is hot in the secondary market and uses "long - term investment funds" as "hot money", the risk and return are not matched. If there is no careful management after investment, it is easy to cause losses.

Let's go back to the original question. GPs have a fiduciary responsibility to LPs, especially financial investment institutions that pursue high returns as their top priority.

For example, GPs cannot take advantage of LPs' psychology of chasing hot topics to expand their investment scale, blindly pursue quantity, and let the investment portfolio "fend for itself". In essence, this is using LPs' money to bet on probability.

For GPs, the main sources of income are twofold: one is the annual management fee at a fixed percentage, and the other is the performance fee after successful project exits.

If an institution adopts the "scatter - gun" strategy as its core: hitting one successful project can cover the costs and even bring huge profits, and the LPs bear the losses of the failed projects. Although the GP can make a stable profit, it violates the fiduciary responsibility.

Once an