In-Depth Analysis of Client Concentration Risk and Its Impact on IPO for Zhenqu Technology

Based on collected information, I will provide you with a comprehensive risk assessment and analysis of Zhenqu Technology’s client concentration issue.

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According to public information, Zhenqu Technology’s client concentration shows a continuous upward trend [1]:

Period	Revenue from Top 5 Clients	Percentage of Total Revenue	Revenue Percentage from Client D
2023	138 million yuan	86.1%	10.7% (4th largest client)
2024	1.067 billion yuan	92.0%	36.4% (1st largest client)
First 9 Months of 2025	1.146 billion yuan	94.0%	63.1% (1st largest client)

Client D established a business relationship with Zhenqu Technology in 2022, purchasing motor controllers and power bricks from it. Notably, Client D is also a supplier of Zhenqu Technology; in the first 9 months of 2025, Zhenqu Technology purchased approximately 1 million yuan worth of motor controllers from Client D for production line testing [2].

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is the core issue of greatest concern to regulatory authorities. When revenue from a single client accounts for more than 50% of total revenue, it constitutes a “material reliance” as defined by regulators [3]. Zhenqu Technology’s revenue percentage from Client D surged from 36.4% in 2024 to 63.1% in the first 9 months of 2025, indicating that the company’s reliance on this client is deepening sharply.

This reliance relationship entails multiple risks: Firstly, if Client D reduces purchases due to adjustments in market strategy, supply chain restructuring, or deteriorating financial conditions, Zhenqu Technology’s revenue will face a cliff-like decline; Secondly, as an automaker, Client D’s vehicle sales directly affect demand for electronic control systems, and the new energy vehicle market is highly competitive with frequent price wars, so the risk of downstream demand fluctuations cannot be ignored; Thirdly, the rapid concentration trend from only 10.7% revenue share in 2023 to over 60% in 2025 itself indicates limitations in the company’s business expansion capabilities.

There is a “two-way transaction” relationship between Zhenqu Technology and Client D — acting as both a client and a supplier. This model easily attracts regulatory attention to the

[3]. Specifically, the following key issues need to be examined:

Whether the pricing of related-party transactions is fair is the focus of regulatory inspection. Zhenqu Technology sells motor controllers and power bricks to Client D while purchasing products from it for testing. The pricing mechanism of this cross-transaction must be reasonably explained in terms of whether it follows market principles and whether there is suspicion of interest transfer. In addition, if there is an equity relationship or personnel connection between Client D and Zhenqu Technology, it will further intensify doubts about independence. Even if no direct connection is shown in current public information, regulators may still require the sponsor to conduct a penetration inspection.

When reviewing cases of client concentration, regulatory authorities focus on the

[4]. Zhenqu Technology needs to prove to regulators that:

First, the cooperation has a historical basis and rationality. Whether client concentration conforms to the general characteristics of the new energy vehicle electronic control industry requires comparative analysis with comparable companies in the same industry. Second, whether the business acquisition method is independent. Whether Zhenqu Technology independently acquires business through open and fair means or relies on specific relationships or channels is related to business sustainability. Third, the term and binding force of the cooperation agreement. If a long-term framework agreement rather than an annual procurement contract is signed with Client D, business stability is relatively more guaranteed.

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The new energy vehicle electronic control industry has obvious

characteristics. The downstream automaker market is highly concentrated, with leading enterprises such as Fudi Power, United Power, and Tesla occupying the main market share [5]. Against this background, it is reasonably justified in the industry for suppliers to form a high revenue share from leading clients.

According to industry data, the CR10 market share of electronic control installations for new energy passenger vehicles reaches 80%, 73% for motors, and 78% for drive assemblies [5]. This industry structure makes it inevitable for electronic control suppliers to rely on leading clients. In its prospectus, Zhenqu Technology cites data from Frost & Sullivan stating that it ranks among the top three motor controller suppliers in China and first in main drive power bricks [1]. This market position provides technical support for its cooperation with leading clients.

The case of Inovance United Power has certain reference value. The company’s sales percentage to the top 5 clients decreased from 81.74% in 2021 to 66.28% in 2024, showing a trend of

[5]. The regulatory attitude towards client concentration review is: the key lies not in the ratio itself, but in whether it constitutes a material adverse impact on continuous operation capability. If the issuer can prove that the business is stable, client concentration conforms to industry characteristics, and it is actively expanding diversified clients, it will not necessarily constitute an obstacle to listing [3].

However, Zhenqu Technology’s situation is different from that of Inovance United Power — its client concentration has not decreased but continued to rise, reaching as high as 94% in the first 9 months of 2025. This trend may trigger further regulatory doubts about its business expansion capabilities.

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According to the “Q&A on Several Issues of Initial Offering Business” and relevant review practices, the key focuses of regulatory authorities on client concentration review include [3][4]:

is the primary consideration. Regulators will focus on whether the issuer’s reliance on large clients may lead to material uncertainty in future continuous profitability. Specifically, if Client D reduces purchases, does the company have other clients to make up for the revenue gap? Can the company’s technical strength and product competitiveness support the development of new clients?

is another key focus. Regulators will examine whether there is a related relationship between the issuer and large clients, whether the pricing of related-party transactions is fair, and whether there is any interest transfer. For cases where a party is both a large client and a supplier, regulators will pay special attention to the necessity and rationality of two-way transactions.

is also a focus. Does the issuer acquire clients through open market competition, or rely on specific relationships, resource binding, etc.? If the independence and sustainability of the business acquisition method are questionable, it will have an adverse impact on IPO review.

is also a key review point. Whether the prospectus fully discloses and prompts the risk of client concentration, and whether it explains the rationality of reliance and response measures.

Despite the prominent client concentration issue, Zhenqu Technology still has some favorable risk mitigation factors:

is a positive signal. Zhenqu Technology’s shareholders include well-known institutions such as Legend Capital, Advanced Manufacturing Fund, CICC Qichen, Lenovo Ventures, Volvo Cars Tech Fund, as well as state-owned platforms such as SDIC Merchants, CINIC, and Guangzhou Industrial Investment [1]. The due diligence endorsement of these professional investment institutions can enhance regulators’ confidence in the authenticity and compliance of the company’s business to a certain extent.

provides support. Data from Frost & Sullivan shows that Zhenqu Technology ranks first in China in the main drive power brick sector and among the top three in motor controllers [1], indicating that it has certain technical competitiveness and the ability to serve more clients.

is also a consideration. The company has accumulated 50 designations from 13 automakers, with its solutions applied to 82 vehicle models [1], indicating that the company is actively expanding client diversification, and client concentration may improve in the future.

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Based on the above analysis, Zhenqu Technology’s 94% client concentration poses a

to the IPO process, mainly due to the following reasons:

include: the percentage of Client D surged from 36.4% in 2024 to 63.1% in the first 9 months of 2025, with concentration worsening rapidly; there is a two-way transaction relationship with Client D, and the fairness of related-party transactions is questionable; the company is still in a loss state (a loss of 257 million yuan in the first 9 months of 2025), with limited risk resistance capability.

include: the high client concentration is consistent with the structure of the new energy vehicle electronic control industry; the company has a leading technical and market position; renowned investment institutions participate in endorsement; the company is actively expanding client diversification.

Zhenqu Technology needs to focus on addressing the following challenges in IPO review:

First, clearly demonstrate to regulators the matching of client concentration with industry characteristics, and provide sufficient supporting data from comparable companies in the same industry. Second, disclose in detail the related relationship with Client D, prove that the pricing of related-party transactions is fair and there is no interest transfer. Third, show substantial progress in client diversification, including the number of new client designations, the changing trend of revenue percentage from new clients, etc. Fourth, demonstrate that even if Client D reduces purchases, the company can still maintain sustainable operation capability and revenue scale.

: If the company can provide sufficient evidence to prove that client concentration conforms to industry characteristics, the cooperation with Client D has long-term stability, related-party transactions are fair, and it is actively expanding new clients, the client concentration issue may not constitute a material obstacle to IPO review, and the company is expected to complete listing smoothly.

: Regulators may conduct multiple rounds of inquiries on the client concentration issue, requiring the company to supplement a large amount of explanatory materials, which may lead to a longer review cycle. The company needs to prepare detailed demonstration materials and accept stricter on-site inspection.

: If regulators determine that reliance on Client D will constitute material uncertainty for the company’s continuous operation capability, or find compliance flaws in related-party transactions, it may lead to slowed review or even the need for further rectification.

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For investors paying attention to Zhenqu Technology’s IPO, the following information needs to be focused on:

The risk of client concentration after listing will directly affect the company’s valuation. Investors should continuously track the changing trend of revenue percentage from Client D and the company’s progress in expanding new clients. The client diversification strategy and specific implementation plan disclosed in the prospectus will be an important reference for judging the evolution of its future risks.

In addition, investors should pay attention to the specific identity of Client D (not clearly disclosed in public information as of now) and its in-depth cooperation relationship with Zhenqu Technology, which will help assess the depth and stability of business reliance. If Client D is a leading automaker, changes in its operating conditions and procurement strategies will have a significant impact on the company; if it is another type of client, the sustainability of the cooperation model needs to be evaluated.

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Zhenqu Technology’s 94% client concentration does pose a significant risk to the IPO process, but this risk is not insurmountable. The company needs to fully disclose the sources of risk, provide demonstration of industry rationality, explain the fairness of related-party transactions, and show substantial progress in client diversification in the prospectus.

From the perspective of regulatory trends, the review criteria for client concentration issues have been relaxed compared to before, and reliance on a single client accounting for more than 50% of revenue is no longer necessarily regarded as a material obstacle [3]. The key lies in whether the issuer can prove the stability and sustainability of its business and that it does not constitute a material adverse impact on continuous operation capability.

Zhenqu Technology has favorable factors such as technological advantages, endorsements from renowned investment institutions, and industry status. If it can effectively respond to regulatory inquiries, fully disclose risks, and demonstrate rationality, its IPO process still has the possibility of advancing smoothly. However, investors need to recognize that even if it successfully lists, the risk of client concentration will still affect the company’s valuation level and investment value for a long period of time.

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[1] Securities Times - “This Shanghai Unicorn is Sprinting for HK IPO! A Group of Star Capitals Back It” (https://stcn.com/article/detail/3571685.html)

[2] Sina Finance - “Loss-Making Zhenqu Technology Submits Listing Application to HKEX, Mysterious Client D Contributes 60% of Revenue” (https://cj.sina.cn/articles/view/2587691232/9a3d08e002001kyim)

[3] Sina Finance - “Does Reliance on Large Clients Constitute a Material Obstacle to IPO? Collect These Four Operational Suggestions” (https://finance.sina.com.cn/stock/hyyj/2022-07-09/doc-imizmscv0741010.shtml)

[4] Tenet Law Firm - “Case Study on Whether High Client Concentration Constitutes an Obstacle to a Company’s IPO” (https://www.tenetlaw.com/legal-detail?id=732)

[5] Eastmoney.com - Prospectus of Suzhou Inovance United Power System Co., Ltd. (http://pdf.dfcfw.com/pdf/H2_AN202412311641493928_1.pdf)