NEV Insurance And AI Services Will Drive Long Term Upside Potential

Catalysts

About Cheche Group

Cheche Group operates a digital auto insurance technology platform focused on new energy vehicles, or NEVs, with an expanding suite of AI and fintech solutions for insurers and automakers.

What are the underlying business or industry changes driving this perspective?

• The rapid shift of China's auto market toward NEVs, with NEV insurance premiums growing 41% to RMB 66b and NEVs reaching 44% of new car sales, is increasing the addressable pool of NEV policies on Cheche's platform, which directly supports written premiums and net revenue potential.
• Cheche's position as a large digital auto insurance transaction platform, combined with partnerships with 15 major NEV manufacturers and embedded policies in NEV deliveries, is deepening data access and customer reach, which can support higher policy volumes and improved gross profit over time.
• The build out of AI-driven claims tools, anti fraud systems and NEV risk management solutions that use real world driving data is designed to raise claims accuracy and automation, which can support higher gross margin and, given limited incremental staffing needs, better operating margin.
• Management plans to roll out AI insurance tools and fintech services to overseas markets starting in Q4 2025, with already signed partners and a road map across Asia Pacific, Europe and Latin America. This adds a new potential revenue stream and can diversify earnings beyond China.
• The focus on higher margin NEV related services, alongside tighter control of operating expenses and lower staff and share based compensation costs, is already reflected in higher group margins and lower adjusted net loss. This can support a path toward improved earnings and net margin.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Cheche Group's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.6% today to 3.3% in 3 years time.
• Analysts expect earnings to reach CN¥115.0 million (and earnings per share of CN¥25.59) by about August 2029, up from -CN¥17.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 13.8x on those 2029 earnings, up from -13.9x today. This future PE is greater than the current PE for the US Insurance industry at 11.9x.
• Analysts expect the number of shares outstanding to decline by 0.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.82%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• NEV insurance currently carries lower service fee rates than traditional auto insurance in China, and insurers are still reporting losses on NEV policies. If pricing discipline or regulatory constraints keep take rates low for longer than management expects, the shift in mix toward NEVs could restrict net revenue growth and pressure long term earnings.
• Management is targeting NEV insurance market share of 30% to 40% within 3 to 5 years, from around 10% today. If competitors, OEMs or insurers respond aggressively, Cheche may struggle to reach that scale, which would limit the upside from the growing NEV pool and cap potential improvements in gross margin and net margin.
• The plan to roll out AI driven claims tools and fintech services globally from Q4 2025 relies on overseas partners across Asia Pacific, Europe and Latin America. Delays in regulatory approvals, integration challenges or weaker than expected adoption could mean that the projected RMB 300 million to RMB 500 million of AI related revenue does not materialize, which would hold back earnings and keep operating margins lower than anticipated.
• Cheche is still loss making, with a net loss of RMB 25.6 million and adjusted net loss of RMB 10.5 million in the first half of 2025, and cash, cash equivalents and short term investments of RMB 167.2 million. If operating expenses cannot be held flat as the company invests in AI, NEV risk management and overseas expansion, there is a risk of ongoing losses and pressure on net margin and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $80.96 for Cheche Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.94, and the most bearish reporting a price target of just $55.97.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be CN¥3.5 billion, earnings will come to CN¥115.0 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 7.8%.
• Given the current share price of $15.39, the analyst price target of $80.96 is 81.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.