Translated English Markdown Text:
This article is reproduced from Taihe Capital’s “Taihe Cooks Wine” column and has been authorized for reposting.
“At that time, it was popular to finance by ‘describing your business model in one sentence’,” Li Xiang said. “If there is still such a thing now, I think we shouldn’t bother talking,” Yang Haoyong chuckled.
Thirteen years ago, Yang Haoyong and Li Xiang met through a high-intensity introduction. 2005 was a phenomenal year in Chinese internet history – Baidu went public, Alibaba acquired Yahoo China, Tencent acquired Zhang Xiaolong’s Foxmail, and Renren, Qunar, and 58.com were all born that year. Vertical websites emerged like bamboo shoots after a spring rain, and Yang Haoyong and Li Xiang both founded Ganji.com and Autohome respectively in that year, becoming the second-generation star entrepreneurs in China’s internet industry.
Thirteen years later, Yang Haoyong has become the CEO of Chehaoduo, which owns the brands Guazi and Maodou new car, while Li Xiang is the founder of car and home, a new force in automobile manufacturing. In March this year, Chehaoduo and Chejia announced new rounds of financing, raising $818 million and RMB 3 billion, respectively.
More importantly, they have also grown closer: in Chejia’s latest financing round, Yang Haoyong’s Chehaoduo and Shanhing Capital participated in the investment. The two have different roles in the automobile industry, yet they have similar expectations for the industry’s development. From the same historical starting point, they once again have a strange intersection in today’s world.
Once young innovators have become mature entrepreneurs today. Taihe Capital also had the privilege of participating in their growth and ventures – the B and C rounds, totaling more than $1.4 billion, of Chehaoduo and the latest RMB 3 billion financing round of Chejia were all advised exclusively by Taihe. Taihe believes that two entrepreneurs with entrepreneurial persistence working together have ample room for imagination. As a result, we invited them to be the first guests in the “Taihe Cooks Wine” dialogue series and to discuss business and human nature with Taihe Capital founding partner Guo Ruyi.
To our surprise, we have managed to facilitate a highly successful long conversation. The original plan was only for a meal, but they talked for five hours straight.
Over the past thirteen years, the secrets of the entrepreneurial pain evolution they have borne and the changing times have been condensed into the five hours of conversation and laughter.
Now, we share these secrets with you.
Values: Those who manipulate data will be eliminated
Guo Ruyi: I discovered that both of you have something in common today. When reporting financing amounts, nothing is fictitious; it is either a whole number or a decimal point.
Li Xiang:
Yes, many companies add extra zeros or report RMB as USD. Why is that? It’s not necessary.
Yang Haoyong:
It’s not necessary. The era when “people think you’re cool if you report more than others” has long gone.
Li Xiang:
I have another feeling, that data authenticity is so important. Once we choose to exaggerate, lie or report false numbers, it will have adverse effects. If someone falsifies data in a data-driven company, the entire data will be destroyed. From founders to employees, no one knows what the actual data is, like a bottle of mineral water cannot be consumed once it’s contaminated by a single dirty drop.
Guo Ruyi:
But many practitioners are accustomed to these small tricks.
Li Xiang:
I felt this deep when I was in Autohome. At that time, in the automotive industry, I can say that many websites were falsifying data to boost traffic to sell advertisements to make it more attractive to car manufacturers. In 2007 and 2008, the industry was frenzied with false data. Autohome persisted in not falsifying data. Finally, the manufacturers realized that the sales of 4S stores served as the main result metrics, and falsified data became useless, and everyone was exposed.
Yang Haoyong:
We have a habit that many startups may not dare to do – we share all of the company’s financial indicators with colleagues who are VP level and above every month, and all VPs can see how much money we earn, lose, spend, whether we have any efficiency improvement, how much money we have in our accounts. We view it together.
Li Xiang:
Our company is the same. Our VPs and senior directors look at our financial statements every month, how much cash flow we have, how personnel changes are, everything is very transparent. Many traditional corporate employees come to Chehaoduo and find it difficult to understand us, saying how transparent we are. Our data, vehicle design, and all colleagues can see it 100%. What if it leaks? Actually, what I’m most worried about is you don’t know.
Yang Haoyong:
Yes. When it comes to choices involving company strategy, how do you communicate with your colleagues?
Li Xiang:
Transparency. This is the most important principle. For example, our small car project, many people outside are saying that it’s a life-and-death situation for many traditional companies. But in fact, the reason for our small car project was originally to enter the travel scene. Today, we have a deep cooperation with Didi, and we have the opportunity to advance the time of entering the travel scene by 3-4 years. Therefore, we firmly embrace this choice. And we value communication within the company and consistency in understanding between top and bottom. We hold separate communication meetings with dozens of departments to explain this issue, how the whole process is like, and the reasons behind it to let everyone know.
Guo Ruyi:
This is driven by values, which may sound abstract, but in the end, you will find that values are crucial in driving the company.# Translation
Li Xiang: If there is a problem, it is definitely caused by the people above, not those down below. When I first started my website business, I followed others in creating false things and it made me suffer. Later, I swore that I would never do that again. If anyone falsified data, I would fire them. If we don’t report actual numbers, the things I believe in will collapse.
Yang Haoyong: Yes, someone once said to us, “Everyone shares the same vision, and everyone works together in harmony.” Having a shared vision and working towards the same goal means that we can understand each other’s needs and not just work independently. We need to keep reminding everyone about our mission, values, and goals, and you’ll find that it gets better and better. This takes time and effort.
Guo Ruyi: As CEO and captain, you need to believe it yourself and others must see it, otherwise, people will be confused.
Li Xiang: You are absolutely correct. You need to keep telling everyone, and actually do it. When I invest or conduct due diligence, I look at the company’s middle and lower levels’ understanding of the company. If it’s consistent, then it’s good. Our commercial plans for Chehaoduo are the same for employees, management, and investors. No changes are made.
Yang Haoyong: Many investors have surveyed us and initially guessed that our two-year-old company with so many employees must have a lot of management problems. However, the unanimous feeling is that when we reach the front line, the employees really believe what we say.
Li Xiang: Colleagues have different abilities, but the general principles and overall direction are the same. Depending on systems and processes, you can form a qualified company. However, values and mission are what make a company outstanding.
Yang Haoyong: Values are shown during critical moments. Last year, our business didn’t go as smoothly as we had hoped, and for two or three quarters after funding, we didn’t perform satisfactorily. But we were frank, transparent, and analyzed everything with the team and board of directors. In the end, our funding was successful and many old investors were willing to reinvest because they saw the growth of our team.
Guo Ruyi: If the team is charging forward and then suddenly brakes or turns, it can be very painful for the team, causing some differences. How do you solve this problem?# Yang Haoyong:
To give an example, we made some changes in management and incentive mechanisms in the second quarter of last year, trying to solve the problems we saw in the business model. In June last year, we gathered all the directors from around the country, hundreds of people, and I was on stage explaining why we needed to make these changes. While I was talking, there was no interaction from the audience.
After the meeting, I felt that something was wrong. When I talked about it before, everyone was excited, but why were they like that when I talked about these things now?
Li Xiang:
Had you already decided to open offline stores at that time?
Yang Haoyong:
No, we wanted to make some improvements in the previous model to solve the existing problems. This was a very difficult task, and we were very determined to do it. We made changes to some sales powers and incentive mechanisms.
Guo Ruyi:
So the biggest challenge at that time was that there were no direct sales stores offline?
Yang Haoyong:
No, we found that in the previous online matching model, some cars were taken away by individual dealers disguised as personal cars.
Li Xiang:
We also encountered this at Autohome. The best sources of cars were taken by dealers.
Yang Haoyong:
Then we thought, what value did we demonstrate? We made a C-end platform, claiming that there were no middlemen, and that sellers could earn more money and buyers could spend less…
Guo Ruyi:
And then dealers had the opportunity to blend in.
Yang Haoyong:
Exactly. I am very efficient, and dealers said, okay, you help me quickly get the sources of cars.
Li Xiang:
So we have to get the best cars out and give them directly to C-end.
Yang Haoyong:
We tried various methods to adjust the dispatch mechanism and so on. What the sales team used to decide, now the power is transferred to the headquarters, and there are various forms of suppression and strict management. On the one hand, performance is required, on the other hand, they are required to have positive values, and dealers cannot take cars on the platform. But this made the front line very painful, and at that time, they believed that the company needed quick results more than ever, so at the mobilization meeting, no one would respond to you.
Li Xiang:
Yes, and the things you firmly believe in may not necessarily bring benefits quickly. Often, the easier things are, the worse they are, and the better things need to be persisted for a period of time before they bring benefits. In this process, values play a very important role.
Guo Ruyi:
Sometimes easy things and right things really conflict.Translation:
Yang Haoyong: Yes, the executive team has this kind of understanding, because if you don’t serve consumers, you will not go far in the end. Guazi’s business model determines that it must stand with users to have space for after-market, finance, and other businesses. In the end, we spent three to four months making adjustments, even slowing down performance growth, and removing car dealers from the platform through technology. All adjustments revolved around users. The whole team saw our determination to serve consumers and improve their experience. Everyone believed it. Later, our revenue also did very well, and we recently hit a new high. Values played a big role here. What do you truly believe in? At that time, I felt that our team was quite lofty.
Li Xiang: Later, did you just do the good cars directly to C? Did you put the good cars in the stores?
Yang Haoyong: You need to return to the essence of used car transactions. Sellers want better prices and certainty, while buyers want a good experience. We began to compete with car dealers. I dared to offer a price if you dared to, theoretically, my efficiency is higher than that of car dealers, and my (for sellers) bid can get higher and higher. This is consistent with the interests of consumers, and my competitiveness will become stronger and stronger. Therefore, a lot of things we need to do afterward correspond to this, so we have to make changes. This day has come, and we need to ensure the source of cars and set up stores.
Li Xiang: Perhaps in a few years, you will think that fortunately, this day has come.
Yang Haoyong: Yes, if it came late, your pressure would be even greater. If you follow the original model, and expand to become the largest in the world, you will collapse very quickly because you will lose your reputation.
Li Xiang: When consumer interests conflict with business interests, consumer interests must be prioritized. Because business interests often produce short-term benefits.
Yang Haoyong: Of course. What are we doing with used cars? What do you want with such large sales? Do you want to IPO and cash out or do you want short-term gains? You need to think clearly about what you want. For us, we want to restructure the used car industry.
Li Xiang: So, the growth of entrepreneurs really comes from solving bigger challenges and difficulties. Our biggest problem is that we have no way out, and we must move forward. With the original method, you cannot continue. You need to upgrade.
My mentality is relatively good, with two parts. Firstly, I never regret the choices I have made. Some people ask if I regret selling my shares in Autohome at that time. I don’t regret it at all. Because the choice I made at that time was determined by my ability and resources. I firmly believed that I made the best choice at that time.
On the other hand, I don’t get stuck when facing various problems and difficulties. When a big problem comes up, I think, “Great, it finally came up.” If a company never encounters any problems, that would be troublesome. We rely on solving unforeseen problems to truly develop our team.
Yang Haoyong: Speaking of growth, let me insert a comment here. I recently spoke with an old employee from Autohome, and we talked about Li Xiang. The employee praised him highly, saying, “I used to think he was very clever, but now I think he is very wise.” Solving big problems is like learning to swim. Once you choke on water and remember the motion, you won’t make the same mistake again. This is the quickest way to learn.
Guo Ruyi: This is very important. We often say that we don’t wish for problems, but we can’t be afraid of them either. Initially, we don’t seek out problems. But when they arise, everyone becomes excited about solving them. This is a positive attitude.
Yang Haoyong: I am also challenging my comfort zone. Recently, I suddenly started doing some very heavy offline work, involving assets such as warehousing and logistics that require large amounts of funding. To be honest, I am not very familiar with this field. But I realized that when your business model develops to this stage, you must do this. There is no other choice. The problems just come.
Li Xiang: I completely understand this. First of all, as a bottom line, no mistake can ever make us fail. If we do fail, there must be a problem with our strategic direction. A qualified entrepreneur or CEO should make the team see what we have gained from our growth, which is essential. If we focus only on losses, it will lead to tremendous anxiety. But if we focus on our gains and growth, we cannot avoid encountering problems unless we do nothing.
Yang Haoyong: It’s like using swim floats to learn to swim. Can you learn it if you don’t choke on water?
Li Xiang: Hoping for an entrepreneur who never makes a mistake is just nonsense.
Management: Treat employees as users and study the rules of the system.
Yang Haoyong: Li Xiang, how many employees do you have now?
Li Xiang: Over 1,000, and by the end of the year, there will be over 2,000. In 2020, there will definitely be over 10,000 employees. People always have two concerns about people from internet companies. One is whether internet companies can manage so many people. However, it turned out that the well-managed companies were all internet companies, and there were no problems with managing so many people. The second concern is whether the internet can handle the supply chain. Look at Amazon’s Kindle and Echo, and look at Xiaomi’s products. They perform just as well or better than those of other companies.
Guo Ruyi: Traditional companies struggle with managing a large number of employees. Problems arise frequently. However, it seems that you rarely hear about internet companies with tens of thousands or even hundreds of thousands of employees having any incidents like suicides. There has never been one. What’s the reason behind this?# Yang Haoyong:
Yesterday I was discussing this topic with Zhuang Chenchao. People in the Internet industry have a characteristic of summarizing methodology. Why? Because everyone wants it to be replicable. For example, managing cross-city management in large enterprises is a problem, and everyone is constantly researching how excellent teams do it.
You will find that companies like Alibaba have formed their own methodology, and their corporate culture, organizational structure, and even the granularity of what to do every hour of the day are standardized. Then, these people will be assessed and a very systematic thing will be formed, and it can be copied and used everywhere.
Li Xiang:
When Internet companies manage people, it’s a bit like a game or an operating system. Everyone can get good incentives, and the number of people that can be accommodated is therefore higher.
Yang Haoyong:
Yes, you will study what the rules of these systems are.
Li Xiang:
In addition to thinking about creating good products for users, I actually also consider how to create a good product to serve employees. Many traditional companies do not have this awareness. Traditional companies will say, I have processes and systems, but this is a process system based on human governance. Today, any Internet company has a process system from the very beginning, because it has data and systems, and all processes are fully recorded. However, this system is not based on human governance, but rather data and software-driven.
Guo Ruyi:
Traditional companies tend to regard people as tools to be used, and those SOPs are ways to manage tools, but they cannot stimulate vitality. The pursuit of methodology in the Internet also allows everyone to have flexibility in certain point operations and unleashes their potential.
Li Xiang:
Treat them as humans, or users.
Guo Ruyi:
Yes, treat employees as users.
Li Xiang:
Everyone is very easy to attribute success to pie falling from the sky. Sometimes it is not. Maybe really good products are behind good management systems.
Guo Ruyi:
Haoyong, your team has many people from Alibaba, right, and has some of Alibaba’s genes.
Yang Haoyong:
We also recruited many people from traditional industries. Let me share my feelings. They (traditional industries) are super unaccustomed to such a pace. When I talk about the company’s overall goals and phased goals, they are firstly not believing and think it is impossible. Secondly, I found that their strengths are doing things very systemically, 12345 step-by-step. But some of the Internet people we found were full of momentum, even if the company’s goal is to triple in a month, they think they can do it and just push forward. But people in traditional industries just think it’s very difficult. It takes half a year to a year to ignite these people. I don’t know how you feel, Li Xiang.# Li Xiang: Finding the feeling for people in traditional industries took me two years. Cars are the most stable of all traditional industries. We have recruited many people with ten or twenty years of work experience, and it is their first time to change jobs coming to us. We put them together who might hardly work under one roof in the past, including those who work on car research and manufacturing, intelligent smartphones, deep learning and autonomous driving, and retail.
How to make them aware that we are in one world, what this world is like, is very difficult, otherwise they will each do their own thing in their own world.
Guo Ruyi: How do you reconcile these conflicts?
Li Xiang: One is methodology. Establishing a system based on methodology. This system has both soft and hard components. The soft components include values, while the hard components include sharing and authorization systems for the entire dataset.
What we do in cars is a bunch of large projects put together. Huge factories are built. Research and development are large projects requiring 36 months, and retail is also a large project. It is not about my effort to do what I can do, but all things need to be put together in the end. This process and progress have strong controllability and this control is self-controlled by the entire team.
In the end, I will let everyone understand that we live in a world 2.0, and the intelligence of cars will determine our life and death, which is our foundation. In the future, we will also go to the era of unmanned driving service in world 3.0. They need to know where we are, where we need to go, and in which direction we should go.
Yang Haoyong: Because competition is becoming increasingly fierce, employees are also a special asset to the company. We have many who come from traditional industries, such as 4S stores. After they came, I talked with them and they said, “Before, I was in the 4S store, it was quite good working from nine to five, but it was not very meaningful. After I came here, I found that I am working very hard, every day until 9 or 10 o’clock in the evening, and I barely took a few days off in a year, but I am really happy. I don’t think I can go back.”
Guo Ruyi: Li Xiang said this before. You can’t go back, hahaha.
Li Xiang: Either you are eliminated in three months, or you say that you cannot go back anymore, becoming more efficient than before.
Guo Ruyi: So, traditional enterprises are not the problem, it is the system.
Li Xiang: Our business started from the industrial age. We, the true practitioners of the Internet, have already regarded the Internet and data as productivity rather than as a medium. As productivity changes, business models and organizational structures will also change. Further down, after AI, there will be even greater changes. We need to figure out how to build a system so that these capable people can work well here. Different people in different positions can all improve on it, and then our hardware and system should also follow the iterative upgrade of the system.
Guo Ruyi: To some extent, it means that the enterprise has been platformized.# Industry: Imagine the Transportation Network Made Up of Driverless Ride-Sharing Cars
Yang Haoyong: You mentioned your strategy earlier, how did your partnership with Didi come about?
Li Xiang: In our overall plan, we believe that transportation is crucial for long-term development. Smart cars determine our life and death, while transportation determines our future. In the future, transportation will become a transaction based on kilometers and mileage. However, there will be different roles, and we must root ourselves deeply in our own roles. We cannot replace the entire role of Didi.
Yang Haoyong: Such as the accumulation of data.
Li Xiang: But we have our own roles, how to make a good car, how to be like an asset management company, and manage the entire asset well. This is the ability we can develop well, and we cannot wait until that day to do it, but start doing it from today.
We initially entered the ride-hailing field and wanted to take three steps: first with small, ultra-cheap cars, then with affordable passenger cars, and finally with ride-sharing cars.
Yang Haoyong: This is also what I want to ask, how did you think about the decision to cooperate with Didi, and how did you grasp the timing and rhythm?
Li Xiang: Originally, we tried to enter the transportation market through SEV small cars, spending 1-2 billion to carpet the transportation business, and as the profit of luxury SUVs in retail increased, we replaced low-speed vehicles with high-speed ones, finally leading to our ride-sharing car products. However, Didi’s cooperation with us has accelerated our plan to enter the transportation field by four to five years.
Yang Haoyong: How do you define the ride-sharing car industry of the future?
Li Xiang: In the field of transportation, people are still improving efficiency, but the reality of transportation in China is that cars are not cheaper than in the United States, but the money collected per kilometer is actually cheaper than in the United States. Road maintenance fees, highway tolls, fuel costs, parking fees, license plate restrictions, etc. are all troublesome, and whoever can reduce the cost per kilometer of transportation can create value in the transportation field.
If you see the future trend, you will understand the present. Electric vehicles reduce the cost per kilometer, carpooling and ride-sharing can reduce the cost, and driverless cars can further reduce the cost. Therefore, ride-sharing cars will become an absolute mainstream means of transportation outside of private driving and public transportation.
This is also why the hourly rental model is troublesome. As long as carpooling is available, hourly rental has no cost advantage.# Yang Haoyong: Currently speaking, car sharing doesn’t seem that optimistic. The entire market won’t be that big.
Li Xiang: Initially I thought that there would be car sharing, ride hailing, and other transportation businesses coexisting in the market. But now, with the decreasing cost of electrification, ride sharing, and autonomous driving, these three trends will directly cut off the growth path of car sharing.
Guo Ruyi: the economic model of ride sharing is similar to small class education in online education?
Li Xiang: Yes, I can even imagine a more terrifying scenario where autonomous ride-hailing cars can also ride-share with multiple passengers. In terms of transit, there will be two modes: high-speed railway and airplanes for intercity travel, and within cities, ride-hailing cars with autonomous driving can replace everything, even public buses won’t be necessary.
Product: The Ultimate Productivity Driven by Data
Yang Haoyong: Speaking of that, what’s your opinion on the recent competition between Porsche and Tesla? From the designs of Porsche’s car models I’ve seen, I realized traditional car makers still have great design capabilities. From the user’s perspective, can they possibly become competitors of Tesla? What do you think?
Li Xiang: I think it’s pretty simple. There’s no problem for traditional car makers to make electric cars. Electric cars are essentially replacing the engine and gearbox with a motor and battery. It’s just like how traditional mobile phone manufacturers can make phones. But when it comes to developing an intelligent system, cloud services, and software, that’s a huge challenge.
Guo Ruyi: So you mean the car itself, like Porsche, has years of design experience, brand recognition, and consumer awareness, which gives them momentum. But in the future scenario, they won’t have advantages in interacting with and experiencing customers, right?
Li Xiang: They aren’t aware of that. For example, when we talk about hardware intelligence, cars are actually the least intelligent. Many cars have screens, but those screens aren’t really practical. Even the navigation data could be from two years ago. I think the biggest challenge here is, what does intelligence mean to hardware? Why could Nokia standby for one or two weeks, but smartphones can only last one day and yet everyone still chooses them?
Guo Ruyi: This is still a business problem in the industrial era we talked about earlier. Traditional car makers are the pride of the industrial era, but the entire product system is still industrialized.
Li Xiang: It’s about digitalization, digitalization drives information, drives finance, drives transactions, and drives hardware. From 1995 until today, some industries have been driven, while some haven’t. For example, retail has been driven and thus there’s new retail, but the car industry is the slowest. This is because the leaders of the automotive industry are Japan and Germany, which also have very poor performances in the internet and intelligence fields. They don’t have any usage scenarios for digitization.What makes a qualified intelligent enterprise and smart hardware must firstly grasp three very important things. 1. Mastering users; 2. Mastering data. In fact, many manufacturers do not even know who their cars are sold to, let alone the data that users are using on these cars. 3. Mastering experience and transaction. So, how can you bring digitalization into applications without these things? You don’t even have the basics.
Guo Ruyi: Before, there was also a view that traditional car sales are the end point, and the whole set of teams and management behind it is designed for this end point.
Li Xiang: Cars are a kind of smart hardware. And smart hardware benefits from the data in front of it and can continue to grow. The iPhone continues to iterate with iOS, and Tesla also iterates continuously. Although traditional car manufacturers launched Level 2 autonomous driving in 2013-2014, it was only a combination of some functions. Even now, it cannot be used with ease, and you have to pay tens of thousands of additional fees (ADAS) to buy a car. After it comes out, it will never be updated again. However, companies like Xiaomi, Apple, and Tesla believe that smart hardware is a service that has vitality and can be continuously iterated. When Autopilot was first released, Tesla could only drive straight, but after several generations of iteration, it has already reached the level of an experienced driver in assisted driving. And users didn’t even spend an extra penny.
Guo Ruyi: The endpoint of the car has changed now.
Li Xiang: Yes. Understandable for its hardware vitality and its life-changing software, all your decisions will be completely different. You won’t produce a bunch of Nokia models. True personalization does not come from hardware, but from a thousand faces and applications. If you think that selling more services after the sale is important, then your R&D personnel will have 20%, 30%, or even 50% of people working on things after selling the hardware. It’s not like Nokia or today’s traditional car manufacturers where 95% of people end their work right after the car is developed.
This is like an intelligent connected car with a QQ added to it, but after three years of driving, it is still running the same version of QQ as three years ago, without updates because it has no cloud services, no account, and no data system, including personnel. If you think the person in charge of this is important, it is within your board of directors, high-level, not just a director.
Yang Haoyong: Can you give us a sneak peek of your car? Because I saw that the SUV has some high-end features. What are some things that can make users feel different?# Li Xiang:
From a broad perspective, we are a brand new terminal for users, parallel to mobile phones. For example, we make users feel like they have a new car every 8 months. This has been planned during the R&D process, and in the next few years, new features will be added every 8 months. In addition, we synchronize navigation data with your phone and never abandon it. For instance, if your friend sends an address to your phone, you don’t need to transfer it to the car; it will be synced automatically when you get in the car, whether you use a Gaode account or not.
Yang Haoyong:
In fact, this is how it should be in Internet cognition.
Li Xiang:
It should be done in this way. In the past, nobody did it like this. We are the first to bring car applications back to cars and form an intimate relationship with mobile phones. For example, if you watch iQiyi or Youku videos on your phone at home, they will be automatically synced to the car and can be continued to watch on the car, though this is just a simple beginning.
Guo Ruyi:
What you just said, including smart features and user experience optimization, are all after-sales services. But at the moment of sale, what attracts users are still some things that are a bit hard, such as car design and interior.
Li Xiang:
Currently, our intelligent services may account for less than 10% of a user’s decision-making, but they will make up 90% of the word-of-mouth promotion later.
Guo Ruyi:
As a new brand, how do you ensure that the hardware is good enough?
Li Xiang:
Yes, consumers won’t sympathize with us or give us extra chances because we are a new company. There’s no such chance. So we can only work our hearts out and iterate, and there’s nothing to negotiate, no retreat.
For our team, this is a process of more than two years of honing. Our products are benchmarked against BMW and Volvo, but I can’t achieve the same level as BMW and Volvo from the beginning. They’ve accumulated for decades. I keep telling the team that we need to iterate. It could be that BMW designed a link in this cycle, then we have to design four links at the same time in this cycle, and every link has to be improved based on the previous one. We need to accomplish the 10 or 20 years of experience of our competitors in three or four years.
Yang Haoyong:
So can we expect a car with the same quality as Mercedes-Benz or BMW, but at a very attractive price?
Li Xiang:
Yes. We only have one chance. It costs ten billion US dollars to make a car. If it doesn’t sell well after spending that money, and you say you want to spend another three or four years and another ten billion US dollars, then it’s over. The suppliers won’t play with you, nor will the customers.I told the people down there that this car must be your first choice when buying a car. If we succeed in the first step, we’ll have the second car, the third car. If not, all of you will go home. For us, it means wasting all these years.
Guo Ruyi: Can everyone believe it?
Li Xiang: The fact is here. In the past, we may have said that we need to make our cars as high-quality as Mercedes-Benz and BMW, we need to use the best mold factories in Japan. But you will find that the Japanese mold factory will tell you that they don’t have time to do it. Other people may say, “well, let’s just find one in China.” But we don’t do that. We even try our best to conquer the best mold factory in Japan. We demand to find the best supply chain in every aspect. We communicate with mainstream suppliers like Bosch, Valeo, CATL, and Fuyao repeatedly, let them know what we are doing, and let them see our process capability. The more transparent communication you have with them, the more willing they become to cooperate with you.
Guo Ruyi: How do you solve the problem of price? Actually, your new car has no scale effect. From the perspective of procurement, the price is more expensive than traditional cars in bulk purchase.
Yang Haoyong: So logically these two are contradictory. We need high quality, but we also need low prices.
Li Xiang: Concerning price, we have two opportunities. The first comes from macro opportunities, to put it simply, taxes. I’m making domestic new energy vehicles, and the price of imported cars doubles after taxes. This is a window of national policy. The second opportunity is the commercial model. The traditional car companies demand too much profit. A one-million-yuan SUV, with the China region and dealer included, has nearly 300,000 yuan of profit. It’s normal to see discounts of 200,000 to 300,000 yuan for a one-million-yuan car. The layered distribution also increases their terminal sales costs.
Guo Ruyi: You are talking about changes in the entire commercial chain, reducing many intermediate links. In the end, it’s all about efficiency, like Tesla and Apple, they started to build their own direct sales system and flagship stores.
Li Xiang: Cars are low-frequency and high-cost transactions, and the entire direct sales system needs to be established. But if we ensure sales, we will certainly need a network like Haoyong’s to expand sales within the premise of ensuring efficiency.
Yang Haoyong: We are also looking at it. Firstly, from the positioning of Maodou New Car Network, you need to create something that other manufacturers cannot achieve for a period of time. In the next three to five years, we may need to sink into hundreds of cities. You can hardly imagine that a car factory will have an offline experience store in a city like Zunyi. Secondly, you can provide consumers with a comprehensive solution, financial products, risk control, and so on, which may be needed when consumers buy cars.#Li Xiang: We are a data-driven enterprise. For example, dealing with after-sales in small cities is also a headache, but these are the users that we should serve and understand. Our approach is to do it ourselves and then work with platforms like MaoDou. Xiaomi has its own direct sales system, just as it has Tmall and JD.com stores.
High-frequency and large-value transactions have moved to offline, and today we find that data-driven has nothing to do with online or offline. Data-driven methods can also be applied to improve productivity and efficiency for offline scenarios.
Yang Haoyong: I think the opportunity that everyone sees now is that all offline scenarios can be analyzed and transformed using data to improve efficiency significantly.
Guo Ruyi: It’s actually a process, like the move from online to data and then to intelligence. A few years ago, it was hard to imagine the idea of data, as it relied on experience. However, companies with Internet genes have been building these systems from the very beginning.
Li Xiang: When it comes to transactions, Haoyong, I also want to ask a question. Although the US has this, Chinese enterprises are doing it better. What do you think of this?
Guo Ruyi: Guazi took only two years to achieve what CarMax has achieved in 20 years. Chehejia’s car sales volume in five years is what Tesla did in 14 years. This speed is quite remarkable, and there must be macro reasons for it.
Yang Haoyong: Many people say that it is because our team has strong execution power, but I think even if your execution power is strong, it is difficult to achieve this exponential growth. Ultimately, in the automobile industry, unless you enter it, you will not know just how far it lags behind. Compared to foreign markets, China may be even more backward in this field. A new system often appears in the weakest place of the old one. The United States gradually iterated from the industrial era, from small retail to chain retail, and the chains made themselves very efficient until now. CarMax operates in the same way in many places. They use a whole set of management methods and a scaled system to promote brand growth effects. This is all. However, in the Chinese market, the existing system is much more backward than that of the US, which gives us many opportunities to call on capital and use technology to quickly iterate in this industry.
Guo Ruyi: Traditional forces are not so strong.
Yang Haoyong: Yes. We jumped from mom-and-pop stores to new retail with a data-driven business model. After only six months of operation, people already call us CarMax 2.0.# Li Xiang:
This industry has not yet been changed by data-driven methods, and they themselves cannot change it. Therefore, we have seized this opportunity.
Yang Haoyong:
So many investors ask, why CarMax’s car turnover takes more than 20 days, while Guazi only takes about a week to sell. If you want to do the same thing as CarMax, it won’t work. They have been doing it for so long, but why can we surpass them? It is based on data-driven methods.
This year, Guazi will open tens of thousands of square meters of stores in Beijing, with 2,000-3,000 cars parked inside, and the turnover will be around 7-10 days. When we told everyone about this, their first reaction was why and how this could be possible. Data-driven methods have brought about significant changes in the industry, allowing us to leap directly from a mom-and-pop store to data-driven new retail.
Li Xiang:
This is what we, firm beneficiaries of the Internet, firmly believe in: data-driven methods are productivity. Since the turnover rate has lagged by several times, other than productivity, what else can explain this change?
Yang Haoyong:
Imagine how exciting the experience would be. You buy a used car and enter a large area with 2,000-3,000 cars to choose from. How can you compare it? You go to a small store with only 3-5 cars in it, with no space for selection, and even no way to understand the quality.
Li Xiang:
You can directly influence the entire pricing system of the used car industry because of the data.
Yang Haoyong:
Our transaction volume may not be at the stage where we can affect the entire pricing system, but we have created a transparent pricing model, not profiting from price differences, and this mechanism is better than the one where I am suppressing prices on one side and raising them on the other.
Li Xiang:
Increasing productivity also has a very important point, which is transparency, which is the most critical.
An Easter egg
Guo Ruyi:
Come on, each of you reveal an unknown and contrasting trait.
Li Xiang:
I get very carsick! Basically, I cannot take a coach, and I feel like I’m dying. I can hold on for a while in a regular car, depending on the driver’s skills. At home, I always have to drive myself to the airport, and the driver takes the car away. When participating in manufacturer activities, I must be provided with a car. I have no problem driving, but I can’t take the passenger seat. I have been carsick since I was a child. I feel particularly severe in coaches. Seasickness is even worse. My heart cannot take it after half an hour and it feels like being pricked by needles.
Yang Haoyong:
At the beginning of King of Glory, every time when I went up, someone would say, “Sneakily develop, don’t mess around.” This is the strategic guidance that King of Glory gave me. It makes sense. If your own strength is not strong, don’t snatch the spotlight.
Tesla | Toyota | GM | BYD | BMWBMW | Jaguar | Mercedes-Benz | Renault | Nissan |WM Motor | Chehejia | SF Motors | Zhidou | Uber72&Racing | Baidu | Mobileye | Lidar | Autonomous Drivingredirect | car rental | battery life | McKinsey
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.