83: Chapter 83 Stormy Waves

The 3:00 AM Digital Dagger

Beijing time, August 5, 2017, 3:07 AM. It was 3:00 PM in New York. The clamor of Wall Street had not yet subsided when an 87-page PDF file was silently posted in the most prominent position on the official website of "Gray Rhino Capital."

The report's title used a cold, dark gray font: "Spark Technology: An Overvalued Empire — Three Unsustainable Signals." The subtitle was even more scathing: "A study based on in-depth supply chain investigations, interviews with former employees, and financial model analysis."

The report had no preface; it opened with the bloody conclusion of its core findings:

"We believe that Spark Technology's current market value of over 2 trillion rmb is built on three fragile and unsustainable pillars. Our financial models indicate that its fair value should be in the 800-850 rmb per share range, representing a downside of over 50% from the current price. We have established corresponding short positions."

At 3:30 AM, the English summary of this report began to spread through professional terminals like Bloomberg and Reuters. By 4:00 AM, the Chinese translation, rushed through the night, began circulating on major domestic financial forums, paid research report platforms, and within institutions. While most people were still asleep, a precise sniper attack against Spark Technology had already completed its first round of fire coverage in the dark night of the capital market.

Three "Unsustainable" Signals

The body of the report was clearly structured, like a logically rigorous academic paper, but between the lines, it was full of inducement and suggestion.

Chapter One: Valuation Bubble — "Order Accumulation Under the Mask of Prosperity"

The report acknowledged the "astonishing" 42 billion rmb net profit of Spark Technology in the first half of the year, but immediately questioned its "quality." The core argument was: of the 60 billion rmb in three-electric system revenue, over 70% came from "strategic framework agreements" with a few giants like Geely, Volkswagen, and Tesla. The report cited an "unnamed supply chain executive at a car company" saying: "These agreements have a strong window period nature, aimed at helping the supplier (Spark Technology) quickly build scale. With the advancement of self-development plans by various companies and the rise of second and third-tier suppliers, order shares will naturally decline over the next two years."

The model predicted: The gross margin of the three-electric business would slide from its high point of 38% to a "normal manufacturing level" of 25%-28% within two years. This alone would erode over 15 billion rmb of annualized profit.

Chapter Two: The Red Flag Black Hole — "A Cost Abyss Covered by National Sentiment"

This was the sharpest blade of the report. It directly quoted "explosive news" from "a recently resigned former senior project director of Hongqi Automobile," detailing hidden costs that were not fully disclosed after the merger:

The environmental upgrade and intelligent transformation of the three old Red Flag factories (total capacity of 150,000 vehicles) were expected to require an additional investment of 8-10 billion rmb.

The research and development of the new generation high-end pure electric platform "Xingyao," due to its aggressive technical route, had already exceeded its actual budget by 60%, and would require an investment of 12 billion rmb over the next three years.

Rebuilding the global supply chain system to match the high-end positioning (especially for high-end European components) would lead to a 15%-20% increase in material costs per vehicle.

The conclusion was sensational: "Our conservative estimate is that over the next three years, the Red Flag project will require the parent company (Spark Technology) to continuously 'transfuse blood' of over 20 billion rmb, and it will be unable to achieve self-sufficiency until at least 2022. This will severely drag down the overall cash flow and profit margin of Spark Technology."

Chapter Three: Technical Bottleneck — "The Cruel Distance Between Ambition and Reality"

The report pointed its spearhead at the jewel in the crown of Spark Technology — the chip. It threw out a highly lethal "piece of data": "According to reliable supply chain sources, the actual mass production yield of Spark Technology's 28nm 'flint one' chip is only about 65%, far lower than the 'over 90%' claimed to investors, and also significantly lagging behind the industry average of 85%."

The report further pointed out that low yield meant high implicit costs and seriously questioned Spark Technology's ability in more advanced processes: "The research and development of 14/16nm chips is not only a design challenge but also a leap in manufacturing technology. According to industry experience, its R&D and equipment investment will be several times that of 28nm. Spark Technology's capital expenditure preparation for this is clearly insufficient."

The report ended with a meticulously crafted chart: on the left was the "technology empire" blueprint depicted by Spark Technology, and on the right were the "cash flow gap," "technology cliff," and "order cliff" marked with red arrows. The visual impact was extremely strong.

The Dominoes of the Market

9:15 AM, call auction.

Spark Technology's stock price opened lower, jumping down to 1900 rmb, a drop of 5%. Selling orders were surging, while buying orders were sparse. Panic had already permeated during the bidding phase.

9:30 AM, the market officially opened.

The stock price continued to probe downward without resistance. 1880, 1860, 1850... The critical 1850 rmb level was an important psychological barrier for the bulls, and also a dense area for early warning lines of many financing accounts.

10:30 AM, the first domino fell.

A top international investment bank in Asia released a brief comment titled "Short-term risks rise, rating downgraded to 'Neutral'." Although the report was cautious in its wording, only stating "some of the problems pointed out by the Gray Rhino report are worth paying attention to, and investors are advised to wait for the company to clarify," at this sensitive moment, the four words "rating downgraded" were themselves a bombshell.

The stock price fell below 1850 rmb in response.

1:00 PM, the death spiral began.

The trading risk control systems of major brokerages began to sound alarms intensively. Data showed that Spark Technology's financing balance was as high as 42 billion rmb, involving more than 126,000 credit account investors.

When the stock price fell below 1850 rmb, the first batch of accounts with the highest leverage ratios (usually exceeding 1:1.5) hit the brokerages' forced liquidation lines. Forced sell orders were automatically executed by the system, and cold selling pressure poured out.

The stock price was smashed down to 1820 rmb.

More accounts hit warning lines or forced liquidation lines.

More automatic sell orders...

The market fell into a self-reinforcing vicious cycle: stock price drop → triggering forced liquidation of financing positions → passive selling intensifies the decline → stock price falls further → triggering more forced liquidations.

On the screen, the decline curve of the time-sharing chart became steeper and steeper, the trading volume expanded dramatically, and almost every transaction was a green sell order.

2:30 PM, the intraday abyss.

The stock price finally touched the extreme point of panic — 1800.18 rmb.

Compared to the previous day's closing price of 2004 rmb, it plummeted by 10.15%. More than 200 billion rmb in market value evaporated in a single day.

The Dragon and Tiger List data was miserable: the top five selling seats were all "institutional only," with a total selling amount as high as 18.03 billion rmb. On the buying list, there was only one institutional seat and a few business departments picking up the slack weakly.

The two-trillion-rmb empire saw its walls shake within a single day.

In the bright yet oppressive investment and research department of a public fund in Shenzhen, 28-year-old Zhang Tao was experiencing the darkest moment of his career.

The "Future Growth Mixed Fund" he managed had a scale of 35 billion rmb, and because it heavily held Spark Technology (holding 12 billion rmb, accounting for over 35%), his performance had been the envy of the industry over the past year, and he was hailed as a "new generation stock god." At this moment, the fund's net value was estimated to have plummeted by 8.5% in a single day, and the redemption applications displayed in the background were flying in like snowflakes.

"Fake! It's all fake!" Zhang Tao punched the desk, and the display screen shook. His eyes were bloodshot, and he growled at the team members gathering around: "I have studied Su Chen for two years! I have tracked every press conference, every financial report, and every technical roadmap of Spark Technology! They have strict models for Red Flag's costs internally, and I have asked people in the supply chain about the chip yield, it's impossible that it's only 65%! This is short selling! This is malicious short selling!"

His deputy, a slightly older female fund manager, was relatively calm: "Director Tao, this is not a question of truth or falsehood, it's a liquidity problem. The stampede of financing positions, panic is spreading. Our holdings are too heavy, selling now is suicide, and not selling... what about the redemption pressure?"

Zhang Tao grabbed his hair, forcing himself to calm down. He looked at the trader: "How much... available cash do we have left?"

"Less than 1.5 billion rmb, we've already passively bought over 300 million rmb today..."

"Stop buying." Zhang Tao gritted his teeth, "Contact the channels, appease the big clients. Issue an announcement, just say... just say we firmly believe in the company's fundamentals, and short-term fluctuations will not change its long-term value. Also," he took a deep breath, "Help me schedule a conference call with Spark Technology's IR (Investor Relations), immediately, now!"

Meanwhile, in a low-key old building on the Bund in Shanghai, Chen Jianhua, the founder of the 10-billion-rmb private equity firm "Jinshi Capital," was leisurely drinking Pu'er tea.

In front of him were four screens, one of which was showing the glaring large negative line of Spark Technology. His trading director stood on the side, his tone slightly excited: "Mr. Chen, according to the plan, we bought 1.5 billion rmb in batches in the 1800-1820 range, with an average cost of 1815."

Chen Jianhua nodded, not looking at the screen, but flipping through the printed Gray Rhino report. "The report is well-written, with data, interviews, and logic. Unfortunately, the perspective is too small." He smiled, "It only saw the costs and risks, but didn't see the person, Su Chen, and even less did it see the momentum represented by Spark Technology."

He picked up his phone, took a picture of the corporate biography "Spark Three Years" (unofficial) on the table, and posted a Moments update:

"Be greedy when others are fearful. Today, the mud and sand are falling together, and the real gold is covered in dust. What we see is not the cracks in the empire, but another emotional loss of control by Mr. Market. Has the fundamental logic of Spark Technology changed? Is the battery still leading? Is the chip still iterating? Has the mission of Red Flag wavered? None of them have. What has changed is only people's hearts and prices. Jinshi Capital has slightly increased its position today, walking with time."

This Moments update quickly swept through the financial circle. Some scoffed, thinking it was the self-delusion of a "die-hard bull"; others secretly admired it, as it required great confidence and courage to publicly state one's position at such a moment.

And in the online world, the gathering place for retail investors, "Guba," had completely exploded.

The refresh rate of posts was so fast it was hard to see clearly:

"It's confirmed! Gray Rhino shorted 'Xinchi' electric vehicles last time. Three months after the report came out, the company's financial fraud was exposed, and now it's delisted!"

"I've long said Red Flag is a bottomless pit! Can sentiment be eaten as food? Look at those traditional car companies getting into new energy, which one isn't losing money heavily!"

"chip yield 65%? My god, this isn't panning for gold in the sand, this is panning for diamonds in the sand! How high must the cost be?"

"Financing positions exploded, it will fall tomorrow! 1800 is definitely not the bottom!"

"Where is Su Chen? Why hasn't he come out to clarify? Is he feeling guilty?"

"Hold on! Trust Mr. Su! The plunge is an opportunity to increase positions!"

The bulls and bears clashed fiercely, panic, anger, suspicion, encouragement, abuse... all kinds of emotions intertwined, turning the online forum into a huge field for emotional venting.