By 2025, become China’s number one intelligent electric vehicle company;
By 2030, become the world’s number one intelligent electric vehicle company——
On February 22nd, the internal letter of Ideal Automobile was made public, “Ideal” is ambitious, and the industry is shocked.
If having ambitious goals also requires capital, Ideal Automobile’s quarterly report and 2020 financial report released on February 25th demonstrate their daring and ability:
A total of 32,624 Ideal ONE were delivered throughout the year, making it the best-selling new energy SUV in 2020;
Net profit for the fourth quarter was 107.5 million yuan;
Revenue for the entire year of 2020 was 9.46 billion yuan, with a gross profit of 1.549 billion yuan;
As of the end of 2020, cash reserves reached 29.87 billion yuan…
As Ideal’s founder, chairman and CEO Li Xiang said in the internal letter, after more than five years of establishment, Ideal Automobile has the “basic survival and self-generating ability,” and is therefore able to launch challenges towards higher goals.
In the competition of intelligent vehicles, all participants need to iterate and continuously improve themselves, just like constantly upgrading and defeating monsters, in order to maintain eligibility for playing the game.
“After successfully completing the first stage of the strategic cycle, Ideal Automobile has entered the second stage of the strategic cycle this year. We will continue to move toward our mission and create a ‘mobile home, happy home’,” said Li Xiang.
At the age of forty, Li Xiang has 22 years of “entrepreneurial” and “business” experience. His outstanding point is strategic ability. Strategy stems from foresight. The battle for intelligent vehicles has just begun, but the endgame that Li Xiang has described is already quite clear. Seeing is believing. The person who describes the endpoint most clearly is most likely to reach the endpoint.
Beautiful 2020
The third quarter report of 2020 has already shown that Ideal Automobile’s operating efficiency is extremely high, but the fourth quarter and 2020 financial report are still stunning.
First, the cars sold well.
2020 was the first year that Ideal Automobile delivered vehicles in substantial quantities. Its only vehicle, the Ideal ONE, climbed steadily in sales volume throughout the year, with a particularly large increase in the fourth quarter, achieving nearly 14,500 deliveries, a 67% increase over the third quarter.
The sales volume of 14,500 far exceeded expectations. Li Xiang predicted during the release of the third quarter report that the delivery volume in the fourth quarter of 2020 could reach 11,000 to 12,000 vehicles.The fourth quarter revenue also increased by 65.2% compared to the previous quarter, reaching RMB4.15 billion. Throughout the year, Ideal delivered 32,600 vehicles and achieved revenue of RMB9.46 billion.
Furthermore, Ideal Auto still maintains a very strong cost control capability.
In terms of the largest sales cost, Ideal Auto spent RMB3.42 billion in the fourth quarter, an increase of 70.1% compared to the third quarter’s RMB2.01 billion, slightly higher than the revenue growth rate.
The second largest cost is sales administration and general expenses, which were RMB429.3 million in the fourth quarter, a 25.5% increase over the previous quarter. Ideal Auto CFO Li Tie explains, “This is because of the expenses we added in marketing and promotion-related activities, as well as the cost of personnel growth.”
Ideal Auto’s R&D expenses also increased to RMB374.2 million, a growth of 11.9% compared to the previous quarter.
However, the increase in sales, administrative and general expenses, and R&D expenses was offset by the decrease in employee stock option and equity incentive costs.
Therefore, in the case of significant revenue growth and limited cost growth, Ideal Auto maintained a very impressive gross margin of 17.5% in the fourth quarter.
Surprisingly, Ideal Auto achieved a net profit of RMB107.5 million in the fourth quarter. However, due to an operating loss of RMB78.9 million, the profit came from non-operating income. Li Tie revealed at a financial report communication meeting that investment income helped Ideal Auto achieve profitability in the fourth quarter.
Throughout the year, although Ideal Auto still had a net loss, the amount was only RMB151.7 million, and it had a gross profit of RMB1.549 billion, with a gross margin of 16.4%. This is not easy for a new auto manufacturer that has only been producing cars for a year.
Ideal Auto’s healthy financial statements are also reflected in its cash flow. The operating cash flow in the fourth quarter was RMB1.82 billion, nearly double that of the previous quarter. Operating cash flow throughout the year was RMB3.14 billion.
As of December 31, 2020, Ideal Auto had RMB29.87 billion in cash. In addition to the accumulation of positive operating cash flow, this also includes the funds previously raised and the recent increase in fundraising.
In December 2020, Ideal Auto increased its ADS by 54.05 million shares, raising a total of USD1.53 billion.Excellent Financial Performance Lays a Solid Foundation for Ideal Automobile’s Ambitious Goals, While Channel Expansion in 2021 marks Another Step Forward.
There are several ways to launch an offensive, and expanding sales channels is one of them.
“Our goal for this year is to reach a total of 200 stores and cover 100 cities by the end of the year. As you can see, this is an ambitious plan,” said Shen Yanan, the CEO of Ideal Automobile, during a financial communication meeting.
As of January 31st, Ideal Automobile had only 60 retail centers, which means that the number of stores will more than double this year.
“Undoubtedly, the expansion of sales networks will bring about an increase in sales and brand enhancement,” said Shen Yanan.
Ideal Automobile had a good start in sales in 2021.
In January, Ideal Automobile delivered 5,379 Ideal ONEs, more than three times the number in January 2020.
However, in December 2020, Ideal Automobile already exceeded 6,000 units in monthly sales. Has the growth of Ideal Automobile’s sales peaked?
The management team has a completely different expectation, believing that the growth of Ideal Automobile’s sales will continue in 2021.
In the first quarter, Ideal Automobile is expected to deliver between 10,500 and 11,500 vehicles, with a total revenue between CNY 2.94 billion and CNY 3.22 billion, which represents almost triple growth compared to the same period last year.
Shen Yanan replied to an investment institution’s question, saying, “Ideal Automobile will soon achieve a monthly sales volume of 10,000 units.”
In terms of branding, Ideal Automobile has also received considerable praise. According to the data released by Ideal Automobile, as of January 2021, in the user satisfaction survey of delivered vehicles, 97.1% of users expressed their satisfaction with the vehicle and were willing to recommend Ideal ONE to their friends.
Ideal Automobile’s channel expansion in 2021 will also prepare the company for the launch of multiple new models after 2022, said Shen Yanan.
The latest new model will be a full-size high-end SUV to be launched in 2022. This will be an extended-range electric vehicle based on a new architecture. For this purpose, Ideal Automobile is planning the technical transformation of its Changzhou plant.
After that, Ideal Automobile will speed up the launch of new models.Li Xiang announced at the financial report communication meeting that “starting from 2022, Ideal Auto will release at least two new products per year and deliver them to the market, and deliver a pure electric series product in 2023. At the same time, product coverage will be more extensive. Today, we only covered the price range of 300,000 to 350,000 yuan, and we will very effectively cover the price range of 150,000 to 500,000 yuan next.”
Doubled R&D investment
The second attack is on the more critical R&D front. Most of the savings that Ideal Auto has accumulated before will be used for R&D investment.
Li Tie revealed that in 2021, Ideal Auto’s R&D expenses will increase to at least 3 billion yuan, nearly three times the R&D investment in 2020. “With increasing investment in autonomous driving and new models, it is expected that R&D expenses will reach 6 billion yuan (1 billion US dollars) per year in the next three years. More than half of the expected costs will be used for autonomous driving-related R&D work.”
In February 2021, Ideal Auto announced the establishment of a new R&D center in Shanghai, focusing on high-voltage platforms and ultra-fast charging technology, autonomous driving technology and next-generation intelligent cockpit technology, operating systems, and computing platforms.
The significant change here is that Ideal Auto begins to “walk on two legs”, developing extended-range electric vehicles and high-voltage pure electric vehicles at the same time.
In an internal memo, Li Xiang described: “1. A platform for extended-range electric vehicles (charging treasure) that values users with urban pure electric and long-distance power generation; 2. A high-voltage pure electric platform (supercharger) that can charge 300-500 kilometers of range in 10 minutes.”
The two routes have different paths but converge towards the common goal of creating a convenient electric vehicle energy supply solution to help electric vehicles replace fuel vehicles.
Li Xiang revealed more information about the high-voltage pure electric platform at the financial report communication meeting.
Ideal Auto’s high-voltage pure electric platform has four levels of core technology.
The first is the battery charging rate, which must reach 4C and above to ensure battery life, stability, and safety. “In this regard, although we will use supplier products, we will also invest heavily in research and development and work with suppliers to develop it,” said Li Xiang.
Secondly, use silicon carbide for the electric drive system. Third is the thermal management system. Finally, it is necessary to achieve a charging network of 500A and 400KW. Li Xiang revealed that “Ideal Auto will independently develop charging equipment, and ultimately achieve an 80% charging experience for users in 10-15 minutes. Moreover, ‘we will also invest in building a large number of charging facilities ourselves.”
As two high-voltage pure electric platforms, Ideal Auto also plans to introduce the Whale and Shark platforms respectively.
Li Xiang explained, “The concept of ‘whale’ is to give users more space, while ‘shark’ is to give users better performance.”
Apart from the electric platform, the development of autonomous driving, intelligent cockpit, operating system, and computing platform is also very important.
CTO of Ideals Automobile Wang Kai revealed, “In 2021, we will prepare to build a new, scalable, and upgradable system architecture. This system architecture covers the next generation of advanced driver assistance systems, computer systems, and our own car operating system.” This set of system architecture will be released by Ideals Automobile in 2022.
In terms of the autonomous driving team, Ideals Automobile currently has more than 300 engineers. Wang Kai said that this team will expand to over 600 people by the end of this year. And the number of employees in the Shanghai R&D center will reach 2,000.
Reverse Thinking from the Endgame of Smart Cars
Ideals Automobile’s two new directions of research and development, high-voltage electric vehicle platform and autonomous driving, and Ideals Automobile’s new target setting originates from Li Xiang’s thinking about the endgame of smart electric vehicles.
In an internal letter, Li Xiang described the endgame of smart cars in 2030.
First of all, Li Xiang believes that new energy vehicles will grow very rapidly in 2030. “We estimate that the global sales of new energy vehicles will exceed the forecasts of most institutions, and it is expected that new passenger vehicle sales will account for 60% of the total in 2030, and the proportion will be even higher in China. New energy vehicles are bound to grow at an ultrahigh speed in the next ten years.”
Secondly, at the technical level, there are two characteristics of smart electric vehicles in 2030.
The first is that the L4 level autonomous driving will become standard. “Autonomous driving will develop at the speed of Moore’s Law in the next decade, and both the vehicle computing power and sensor resolution will be hundreds of times better in 2030. Chips with thousands of TOPS (computing power units), tens of billions of pixels of cameras, and high-resolution solid-state lidar will become standard for autonomous driving.”
The second is that high-power fast charging will become widespread, and it will be a necessary condition for the acceleration of electric vehicle popularity to achieve a super fast charge of 300-500 km in 10 minutes.
Thirdly, with the condition of autonomous driving, some people still hope to have their exclusive private spaces while others will only use autonomous driving for transportation.
Fourthly, the endgame of smart electric vehicle competition is data and chip competition. Referring to the market share of China’s smart phone brands in 2020, the top five brands captured 96.5% of the market. “In 2030, the market competition and share of smart electric vehicles will be very similar. Only companies that capture more than 25% of the global market share will have the opportunity to become head players in the global smart electric vehicle industry.”Starting from the original intention of “car and home” of Ideal Automobile, and looking back from the ultimate goal of intelligent electric vehicles, Ideal Automobile’s path is clear: to develop an autonomous driving and fast energy replenishment exclusive travel space.
However, seemingly huge vision, from the perspective of the ultimate goal of intelligent electric vehicles, is only a survival condition – if not a leading company, one will be eliminated.
When asked by investment institutions about Baidu, Apple, and Xiaomi’s entry into the auto industry, Li Xiang is not worried.
Li Xiang said that for any new technology company to enter the smart car field, it would take about four years to make a relatively good product.
And four years later, Li Xiang believes that Ideal Automobile will have sales of hundreds of thousands of vehicles every year; it may already have a very large user base and brand accumulation; there will be thousands of service outlets to provide users with comprehensive services; it has its own factories and supply chain to provide a very good foundation for breaking through one million vehicles; and there will be very rich products, with a complete coverage of price range from 150,000 to 500,000 yuan, and the products and technology will become very mature.
“We greatly admire and also welcome these technology companies entering this industry. But time is more favorable to us and a few new forces. When new technology companies are burying their heads from stage 0 to 1, Ideal Automobile has entered the stage of high-speed growth from 1 to 10.” Li Xiang said.
Compared to defeating Baidu and Xiaomi, it may be harder to believe that Ideal Automobile, which sells more than 30,000 cars a year, can become China’s number one in 2025 and the world’s number one in 2030.
In the 2018 internal letter of Ideal Automobile, Li Xiang mentioned the past:
“In 2009, Autohome’s revenue was only tens of millions. I proposed to use ten years to increase revenue to 5 billion yuan and the market value surpassing the first vertical website, SouFun, and the first portal website, Sina. At that time, many people didn’t believe it, but the goal would attract everyone like a lighthouse. Later, we achieved the goal in six years.”
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.