DSC NASDAQ: DSC reported second-quarter revenue growth and a substantially narrower adjusted loss as the company expanded artificial intelligence offerings for China’s used-car dealers and explored opportunities tied to rising used-car exports.
Qin Zou, DSC’s director and chief financial officer, said the company’s revenue increased 3.7% year over year and 14% sequentially from the first quarter. Adjusted net loss narrowed 61.5% from RMB19.2 million in the prior-year quarter to RMB7.4 million, driven primarily by lower operating expenses.
The results came amid significant pressure in China’s auto market. Zou said intense new-car price competition had accelerated depreciation in used-car inventories, with data from DSC’s DaFengChe operating system showing prices for mainstream models held by mid-sized and large dealers falling 10% to 15% over two months.
Despite those conditions, national used-car transaction volume increased about 1.5% in the first half to a record 9.72 million units, according to the China Automobile Dealers Association. Zou said used-car transactions exceeded new-car retail sales for the first time in June.
AI products gain dealer adoption
DSC described itself as an enabler of used-car dealers rather than a vehicle merchant. The company provides its DaFengChe operating system along with B2B matching, vehicle inspections, delivery, warehousing and other dealer-channel services.
According to Zou, DaFengChe has maintained market share above 90% for several years, citing China Insights Consultancy. DSC said its inspection network includes more than 4,000 inspectors across 250 cities, while its delivery network includes more than 100 self-operated warehouses, partnerships with 40,000 car carriers and coverage of more than 2,600 counties and cities.
The company has been rolling out AI-enabled tools designed to help dealers make purchasing, pricing, marketing and sales decisions. These include a Market Intelligence Assistant, imaging and video-generation tools, and a Sales Script Assistant.
More than 4,100 dealerships were using the AI assistants by the end of June, Zou said, with average daily token consumption rising to more than 150 million from zero at launch in March.
DSC has also deployed “digital employees,” including a social-media operations specialist and a management assistant. The social-media product had more than 3,215 paying deployments at the end of June, while the management assistant had 295 paying deployments, according to Zou.
The company is training digital sales and procurement employees, though Zou did not provide a deployment date. DSC is also developing a platform-level AI agent that management described as combining industry-wide intelligence with the company’s nationwide service capabilities.
During the question-and-answer session, Zou said most AI tools are currently offered free or at low cost, although certain products, including the Market Intelligence Assistant, carry small fees. Digital employee products are generally paid offerings. She said DSC is testing dealers’ willingness to pay for AI-generated intelligence and plans to evaluate additional monetization approaches.
Operating metrics and revenue mix
Beginning this quarter, DSC will report operating metrics focused exclusively on used-car dealers rather than including new-car brokers. The company reported more than 65,000 average monthly active dealerships and nearly 200,000 average monthly active user accounts during the quarter.
Dealership monthly active users declined slightly from the first quarter, while individual user accounts rose modestly. Zou attributed that trend to some smaller dealerships exiting the market while workers moved to other dealerships.
- Revenue was generated from more than 9,000 used-car dealerships.
- Average revenue per monetized used-car dealership exceeded RMB6,600.
- DSC recorded 214,000 monetized transaction services.
- Average revenue per monetized transaction service was RMB259.
Transaction services, including B2B matching, inspections, delivery and dealer-channel collaboration, remain DSC’s principal source of revenue. Zou said the company does not expect its operating system and other digital solutions to become a primary revenue driver, and expects their revenue contribution to decline proportionally as transaction-services revenue grows.
The company said its revenue growth during the quarter came primarily from software services provided to original equipment manufacturers, partly offset by DSC’s decision to discontinue certain OEM marketing services. The incremental revenue carried a lower gross margin than the company’s overall level, causing cost of revenue to rise faster than revenue.
IPO costs affected GAAP results
DSC’s GAAP net loss was RMB240.5 million, compared with RMB25 million a year earlier. Zou said the current-quarter figure included about RMB227.8 million in share-based compensation recognized in connection with the company’s Nasdaq initial public offering, as well as other IPO-related expenses.
Excluding share-based compensation, general and administrative expense declined 14% year over year, sales and marketing expense fell 14%, and research and development expense decreased 29%.
Zou said operating expenses are predominantly personnel-related and that the company’s efficiency initiatives included a companywide AI adoption campaign. The program required most non-frontline employees to present AI application results in a competitive internal process, with rewards including additional stock options and, in some cases, penalties for lower-performing participants.
Looking ahead, management said it is focused on expanding transaction-service revenue, increasing monetization per dealership, testing monetization models for AI products and maintaining cost discipline in pursuit of profitability.
Used-car export opportunity
DSC is also cautiously evaluating international opportunities as China’s used-car exports rise. Zou cited China Automobile Dealers Association data showing exports increased 61% year over year in the first half.
She said new regulations requiring automaker consent for exporting vehicles registered for fewer than 180 days have curtailed exports of “zero-mileage” pseudo-used cars, potentially increasing the share of genuine used-car exports. DSC believes its real-time inventory pool of more than 1.7 million vehicles, inspection services, logistics and warehousing could support export-oriented dealers.
However, Zou said the pace of overseas investment and expansion will be determined by customer value and monetization results, and the company did not provide a financial outlook.
About DSC (NASDAQ:DSC)
DSC Holdings Ltd. is an AI application infrastructure for used car industry. Its services engage and benefit of dealers collaborators such as inspectors, transporters and other internet platforms, creating an ecosystem with used car dealers at its center. DSC Holdings Ltd. is based in BEIJING.
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