The “Data Intelligence Bureau” column is jointly launched by Garage 42 and SoCar Product Strategy Consulting, and is updated monthly. This column is specially written by Hu Jiahe, co-founder of SoCar, and edited by Garage 42.
In May, the overall market risk of the Chinese car market has narrowed to -8.7% year-on-year, with a total sales volume of nearly 1.5 million vehicles.
Last month’s data showed only minor and insignificant changes, and there were no particularly interesting topics to discuss.
However, there were three “ten-thousand units” worth noting among the new forces in the previous month:
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Model 3’s monthly sales exceeded ten thousand units for the second time in three months – I believe it has entered the “new normal”;
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The Ideal ONE completed ten thousand deliveries after 195 days despite the dual restrictions of the epidemic and February, and became another new energy vehicle model with ten thousand deliveries, following NIO ES8, ES6, WmAuto EX5, and XPeng G3;
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NIO ES6 set a new record for monthly deliveries, with total deliveries exceeding twenty thousand. Its May sales also approached ten thousand units, in spite of the difficult environment caused by the epidemic this year.
As a data observation column that looks forward to the “attack of new energy on fuel cars” from the front row, I can’t help but ask the question in the headline: “Ten thousand units reached, how far away are the N ten thousand units?”
After all, ten thousand units is not much in the world of fuel cars in the Chinese market. Operating head new energy vehicles are selling more and more, and the overall structure of the new energy market is changing imperceptibly. The situation of bad money driving out good money is disappearing gradually as the subsidy policy becomes more rational.
However, the overall market share of non-operating new energy vehicles is only 3.25% from this January to last month, which is only 0.17% higher than that of 2019 (including pure electric, plug-in hybrid, and extended-range electric vehicles, but not including oil-electric hybrids represented by Toyota). The share of oil-electric hybrids has increased from 1.55% to 1.94%.
Against this backdrop, Model 3 took on 0.55% of the total market’s sales in the first five months of this year, which accounted for one-sixth of all new energy vehicles.
The traditional market is not easy to crack.
Last year, there were a total of 7 models that exceeded ten thousand monthly sales for all 12 months in 2019, and they were all familiar and popular models. On average, there were 48 models with monthly sales above ten thousand in 2019, covering various mainstream segments of the market.
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For friends who often look at sales, the table above should indicate which models are which.
Model 3 is highly likely to be added to this list in 2020, but it is still far behind these “dream cars.”
Since there is nothing particularly interesting this time, let’s broaden our horizontal and vertical perspective and take a look at how far Tesla, NIO, Ideal are from their next milestones.
Tesla’s new baseline in China
Let’s start with Tesla.
As predicted last month, Model 3 continued to sell over 10,000 units in May, and both the China Passenger Car Association and insurance statistics reported over 11,000 units. Also in line with expectations, all Model 3 insurance registrations in May were the standard range upgrade version that was lowered to the subsidy range at the beginning of the month.
The difference between March and May, when we first exceeded 10,000 units, is that people are no longer astonished.
By last month, the total amount of Chinese Model 3 insurance registrations in 2020 ranked 56th out of more than 800 models available for purchase in China. If we exclude January, when production capacity was ramping up, and February, affected by the “epidemic” and Chinese New Year, the cumulative total insurance registrations of Model 3 from March to May ranked 40th.
Why pay attention to this seemingly pointless ranking?
Firstly,** exploration of new energy in small circles is no longer meaningful.**
The main point is that change has already happened elsewhere in the world.
For example, in 2019, among all the over 2,000 car models worldwide, Model 3 total sales ranked 60th, and in the troubled year of 2020, this ranking has risen to 22nd in the first five months.
LangYi is a Chinese proprietary model, so the brand is labeled SAIC Volkswagen.
For another example, it may be due to the epidemic, but among all cars sold in the UK in May, Model 3 was the best-selling car.
It can be seen that Tesla’s new energy vehicles have already started a rising trend of being superior to traditional cars on a global scale.
However, the situation in China is somewhat different.
Beginning with resource allocationThe dense population distribution in the eastern urban clusters of our country makes it difficult for us to have the convenience of a small house with a parking spot and a self-controlled charging pile like many other countries.
For the vast majority of urban users in China, the issue of charging convenience, including the number of piles and the speed of charging, will not be solved in the short or even medium term, which will greatly limit the wide deployment of pure electric vehicles in China, even for Tesla.
Another issue is competition.
Although it’s almost impossible for cars to be monopolized by one company, new energy and new car companies have sprung up worldwide like mushrooms after the rain since the advent of Tesla, but there are almost no highlights. China can be said to be the only region where new energy and new car companies take root and grow. A group of Internet people who are more familiar with Chinese user habits are growing from the dividends brought by Tesla, even the response of domestic traditional enterprises to the trend of vehicle networking and autonomous driving has to be as agile as foreign brands.
In addition, giant money printing presses such as Volkswagen, which regard China as one of their main markets, have decided to invest heavily in the field of smart electric vehicles and have recently made big moves… China can be said to be the region where Tesla faces the strongest competition.
The third issue is social and user-related.
This is more deep-seated. The people of developed countries have a strong emotional attachment to their own national car brands. For example, large pickups in the United States are produced by General Motors and Ford, and it goes without saying in Germany, Japan, and South Korea. Even in the sales data in the UK, the local Vauxhall ranks below Model 3.
As China’s national strength continues to rise, users will urgently need excellent products from China’s own brands, which is a congenital defect of Tesla in China and an advantage for Tesla’s local competitors.
Apart from environmental constraints, there are also issues with the product itself.
Since Model 3 is a pure electric vehicle, I won’t discuss this aspect. Its size and price correspond to the luxury mid-size cars such as the 3 series, C-Class, and A4L. The leaders in this level are BBA, and their average monthly sales are around ten thousand units. In other words, the demand is only for this much, even if this level of the market expands (that is, the number of wealthy people increases), the visible increase will not be great.
Some people may say: then why not lower the price…? There is no need for this because price elasticity is only positive in a narrow range. Moreover, the Model Y hasn’t arrived yet, and there is still a lot of room for Model 3 in the high-price range.Because the upcoming Model Y in China falls into the same size and price range as Model 3, and the product differentiation from Model 3 is not enough from a user’s perspective, it is jokingly referred to as Model 3 Plus/Pro/Max. It is not easy to support a large price difference with Model 3, and it is difficult to significantly increase Tesla’s market share in China, which may cause Model 3 to gradually approach the price elasticity boundary.
In the United States, following the Cybertruck’s concept, Tesla entered the world’s largest pick-up truck market with this product and once again carried out disruptive innovation. In addition, the pick-up truck’s base camp is in its homeland of the United States. Cybertruck will be explosive in the US market. Of course, I didn’t consider the current situation in the United States.
In countries outside the United States, compact cars are king. For example, the godly cars we saw in China are almost all compact. I think it is almost inevitable for Tesla to take action related to the compact level in China based on its logic, so we will wait and see.
Therefore, after a thorough analysis, Tesla’s “ten thousand vehicles” have arrived, but there is no reason to achieve the miraculous “N ten thousand vehicles” in China. Before infrastructure upgrades and new product actions occur, this “ten thousand vehicles” will maintain a “new normal.”
Of course, there may be a rapid release of long-endurance historical orders in June and a process of consuming low-priced and stock-preserved vehicles, which may increase to 15,000 or even more in the short term.
Model 3 has been discussing monthly sales exceeding ten thousand, while China’s new car forces are still discussing the total quantity changes from ten thousand to one hundred thousand. Except for Tesla being the first, among the top ten insurance amounts in May, two new forces, NIO and Li Auto, were left, while in April, the G3 was still ninth. Already very impressive. NIO and Xpeng only have two models, while Li Auto only has the first model. Also, at the time these companies started, Tesla’s fourth car, Model 3, is likely to have already frozen many designs. Data-wise, except for Model 3, NIO, Li Auto, and Xpeng can be called decent in terms of new energy vehicles in the world this year. They can’t even match a tiny fraction compared to Tesla. So why did Wang Xing make the judgment that “the first in electric vehicles is probably in China rather than the United States” last month?The reasons for the changes in the automotive industry can be attributed to two main factors. Firstly, the advancement of science and technology has made the automobile industry a highly technical industry. Secondly, the arrival of a comprehensive intelligent society, which is the result of various demands from all parties.
Key scientific and technological advancements have always been the most critical means of shaping the threshold and moat of an automobile brand. Excellent technology enhances product value, reduces production costs, and ensures enterprise profits. Without technological reserves, one needs to spend a high price to procure them. Many automotive technologies have reached the stage where it takes “100 times the investment for a 0.01 times improvement.” Over the past thirty years, the automotive industry’s rapid development has relied on this technological advancement.
In the age of intelligent electric vehicles, the connotation of key technologies has changed. The technological pattern in key domains such as powertrain, electronic and electrical architecture, and automatic driving architecture are still innovative and explorative. Technological companies like NIO and Huawei, which are among the global leaders in the field, were born and raised in China, and are among the earliest to take the on-ramp. Regarding technology, China has not fallen behind in this new era.
However, we cannot use “not falling behind” to describe the comprehensively intelligent society, which is an area in which China is truly leading. We can all feel it living in this society – we have too many life habits that can no longer be turned back; cities and the environment are becoming smarter every day. This trend will gradually cover 100 million, 200 million, and 500 million people at a relatively fast pace. It is challenging for teams without this experience to take on these demands, as the competition is too fierce. The need for such demand to expand is not far from external outputs.
Ideal NIO morale has been boosted over the past three months and has found a symbiotic relationship with Tesla. To maintain this morale, they must do three things: sales, sales, sales.
This brings us to another small change: when looking at the market share of new energy vehicles, even though the Model 3 had an excellent sales performance of 11,000+ units in March and May, its market share has dropped from 25% to 20%; surprisingly, it has become the product with the largest drop in market share between March and May. Who has squeezed it out?
ES6 had the highest profitability and relatively increased its market share by 1.47% compared to others, approaching 5%. The second-highest was ES8, which had just undergone a product facelift, and its market share increased by 1.19%. Ideal ONE’s share in this area increased by 0.33% in May, and its market share has been hovering around 3.5%, almost unaffected.
What about the others?
We can see that many changes have occurred in the territory of joint ventures: such as BMW’s 5 Series PHEV, Passat, Magotan, and Tiguan PHEVs, Honda’s X-RV, X-NV, and the pure electric Lang Yi… In May, their sales data, along with their market share, increased; although the absolute values are still relatively poor.# China’s New Energy Market – What Will It Take for Emerging Brands to Compete with Old Money and Tesla?
Everyone wants a piece of China’s new energy market, and automakers are no exception. Driven either by desire or policy, many brands have recently entered the game, offering their own electric and hybrid cars.
Having sold 10,000 vehicles may seem like a milestone for new brands, but in reality, it is merely the beginning. The key to continued sales growth is to gradually improve and expand product lines. Elon Musk’s famous four-step plan for Tesla, from the Roadster to the SEXY lineup, highlights the importance of product lines.
However, China’s new energy industry leaders, except for Tesla, have not yet sorted out their product lines. For example:
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NIO offers three SUVs ranging from the seven-seater, 500,000 RMB ES8 to the smaller and more powerful ES6, and recently launched the coupe-like SUV EC6 (which is likely cheaper than the ES6).
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XPENG has the compact G3 priced at 150,000 RMB and the mid-size sports sedan P7 at 250-300,000 RMB.
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Li Auto only produces one model, a 328,000 RMB extended-range large SUV, and does not plan to release new models for three years.
Without a clear product line, striving for rapid sales growth is a questionable strategy. Tesla’s success can be attributed to its early-mover and technological advantage, as well as Musk’s well-planned four-step approach.
Expanding a product line adds complexity to managing different products at different stages of their lifecycles. For example, when is it appropriate to replace the Model S and X, and with what kind of design (especially for the interior)? Such issues are carefully watched by observers.
It’s impossible for new brands to have everything sorted out from the very start. Even Musk’s four-step plan was formulated only after Tesla had been in business for three years, and demanding that every step be precisely planned is nitpicking. Before everything is settled, new companies should focus on sales first and invest limited money and time in more valuable directions and products. Keep going and good luck!
We believe that the competition in China’s new energy market will remain fierce, but accumulating tens of thousands of sales is not out of reach for emerging brands, as NIO has achieved nearly 50,000 sales. However, to reach Tesla’s monthly sales of 10,000, emerging brands must develop their own convincing four-step plans.
What Can We Expect in June and the First Half of 2021?
After a quiet May, the market will be closely watching automakers this June. Questions that will be answered include:
- How many vehicles will Tesla sell in China and globally in Q2, especially with the release of new models with longer ranges?
- How much momentum will NIO and Li Auto gain as the economy continues to recover and sales channels become more established?
- Will orders for XPENG’s P7 remain strong after initial sales?- At the end of June, when the XPeng P7 is delivered, what optimizations will the 63 people see in the actual car compared to what they previously tried, and what is the order data like?
- When will the Volkswagen ID.4 from North and South be available to us?
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Market changes always happen in subtle ways, and even though we are spectators, we want to seize the pulse of the market.
Standing in the front row always makes it easier to see a little more.
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.