On the evening of November 25th, the listed company Longzhou Stock (002682) issued a major announcement, disclosing that its controlling subsidiary, Dongguan Zhongqi Hongyuan Automobile Co., Ltd. (referred to as “Zhongqi Hongyuan”), is the defendant in two lawsuits. The lawsuits involve massive claims totaling approximately 431 million yuan (RMB) due to power battery failures in pure electric buses.
The two lawsuits have been filed by Dongguan Bus Co., Ltd. (claiming 205 million yuan) and Dongguan City Bus Transport Co., Ltd. (claiming 226 million yuan), with both cases currently under first instance judgment by the court.
According to the official website, Dongguan Bus Co., Ltd. is a large state-owned enterprise mainly engaged in ground public transportation. It is responsible for providing bus operation services in 28 towns and streets in Dongguan City, excluding the Water Village area, making it the largest bus enterprise in Dongguan. It opened its first bus route on September 25, 2014, and by the end of June 2024, it operated 339 routes with 5,311 vehicles. Dongguan City Bus Transport Co., Ltd. is a subsidiary wholly owned by Dongguan Bus Co., Ltd.
In an article by the “Daily Economic News,” the core issue of this major lawsuit stems from a batch of pure electric buses sold by Zhongqi Hongyuan to the plaintiffs in 2018. A total of 672 buses (250+422) in this batch were equipped with lithium manganese power batteries produced by Micro Power System (Huzhou) Co., Ltd. (referred to as “Micro Power Company”).
Although the related contracts stipulated an eight-year warranty period for the power batteries, since 2021, these buses have experienced consecutive power battery failures or abnormal decay, resulting in a large number of vehicles being taken out of service.
The claims of the two plaintiffs focus on three points: demanding that Zhongqi Hongyuan fulfill its warranty obligations, compensate for the losses incurred from the suspended operation of faulty vehicles (calculated until May 31, 2025), and pay legal fees and guarantees (insurance) and request for the relevant case acceptance fees and preservation fees to be borne by the defendant.
It is noteworthy that in one of the lawsuits, Dongguan Joint Profit Non-financial Guarantee Co., Ltd., as the second defendant, is required to bear joint and several liability within a limit of 9.502 million yuan.
In fact, this is not the first time Zhongqi Hongyuan has been sued due to battery issues. In August of this year, it was sued by Dongguan Binhaiwan Public Transport Co., Ltd. for a similar sales contract dispute, involving an amount of 123 million yuan, concerning 166 buses equipped with batteries from Micro Power Company.
According to the announcement made by Longzhou Stock in January of this year, Zhongqi Hongyuan sold a total of 1,196 pure electric buses equipped with fast-charging lithium manganese batteries from Micro Power Company to several bus companies in Dongguan from 2018 to 2019. Due to battery issues, a total of 938 buses (about 78% of the total) have been successively parked, indicating the severity and pervasiveness of the issue.
Longzhou Stock has been performing poorly in recent years, with three consecutive years of losses, and the losses have continued to increase in the first three quarters of this year. The net loss for the first three quarters of this year widened to -95.6357 million yuan. In the years 2022 to 2024, Longzhou Stock incurred net losses of 79.2269 million yuan, 352 million yuan, and 348 million yuan, respectively.
The substantial claim of 431 million yuan in the two lawsuits, against the backdrop of three consecutive years of losses and pressure on cash flow, further magnifies its business risks.
Although Zhongqi Hongyuan has set aside funds for the post-sales maintenance of some vehicles and has stated that it will seek recovery from the battery manufacturer Micro Power Company, the specific impact of this lawsuit on the current or future profits of Longzhou Stock remains highly uncertain until the case is settled.
In the secondary market, as of the close of November 25th, Longzhou Stock’s share price was at 5.59 yuan per share, with a total market value of approximately 3.144 billion yuan, showing a cumulative increase of over 32% since the beginning of this year.