Chery’s New Energy Dilemma: Overdependence on Mini Electric Cars
Chery’s new energy strategy is following the same path as their traditional fuel vehicles — struggling to upgrade products and struggling to enhance brand value. However, the difficulty is not something to fear, but rather a pessimistic attitude of resignation. One famous Chinese saying goes: “Nothing is impossible as long as you are willing to give up” – this is precisely the kind of mindset to avoid.
Recently, Chery released production and sales data showing that their new energy passenger car sales were up 153.4% YoY, with a total of 54,848 units sold from January to September 2020. While growth is good, the details by model type show a problem.
Chery has 6 new energy passenger car models in their lineup: the Micro Pure Electric Vehicle Little Ant, the Mid-sized Pure Electric SUV Big Ant, the small Pure Electric SUV Tiggo e and Tiggo 3xe, and the Compact Pure Electric Arrizo e and Arrizo 5e.
Data from the China Association of Automobile Manufacturers show that Little Ant recorded sales of 50,124 units from January to September 2020, a YoY increase of 150.9%. In other words, Little Ant accounts for more than 90% of the total sales among these six models, while the other five models account for less than 10%.
It is evident that Chery’s new energy passenger cars are stuck in a dilemma, dependent on the Micro Pure Electric vehicle’s high-volume sales, while struggling to break out of the lower-end market. Next month, Chery will launch another mini-pure electric car, the “QQ ice cream,” which is expected to compete with the Wuling Hongguang Mini EV. Regardless of the challenges ahead, Chery will not give up on the micro-car market opportunity.
However, does Chery’s new energy strategy have a future in the micro-car market? As the first domestic brand to try high-end branding and the first in China to develop new energy vehicles, Chery has taken advantage of many market opportunities in the past. Yet, today, they remain entrenched in the low-end market, and it is somewhat sad to see.
How Long Can the Craze for Micro Electric Cars Continue?
The second wave of Micro Pure Electric Cars led by the Wuling Hongguang Mini EV continues, and market consumption potential is continuously released.
According to the China Association of Automobile Manufacturers’ September new energy vehicle sales rankings, the Wuling Hongguang Mini EV still ranks first with sales of 35,169 units. Other micro pure electric cars in the top 15 sales in September include the Benben E-Star, Chery Little Ant, Kowei CLEVER, and LeiDing Mango. The sales of these micro pure electric cars account for 34.5% of the total sales among the top 15 new energy cars sold in September.
However, compared with the total sales of micro (including small) pure electric cars accounting for 47% of the top 15 new energy car models sold from January to September 2020, the market share of mini-pure electric cars is showing a declining trend.Where has the share of mini electric vehicles gone? According to the sales data of new energy vehicles from January to September released by the China Passenger Car Association, in the midsize and large-size car categories, other than Tesla Model 3 with a steady growth of 39.8% year over year, Model Y, XPeng P7, Idean ONE and others have shown significant growth. Especially, the sales volume of BYD Han EV has achieved an impressive YoY growth of 709.0%, ranking at the fourth place of new energy vehicle sales from January to September.
In addition, the hot sales of compact new energy vehicles represented by BYD Qin and Song series have become an existence that cannot be ignored in the top 15 ranked list. The sales volume of BYD Song DM in September even reached a YoY growth of 1832.0%.
Perhaps this is the truth behind the shrinking market share of mini electric vehicles. On the one hand, Hongguang MINI EV has occupied half of the market by its own strength and its position seems unshakable, leaving limited market space for other brands. On the other hand, compact new energy vehicles represented by BYD have rapidly penetrated and expanded their market share while midsize and large-size new energy vehicles have remained stable.
Furthermore, the development of mini electric vehicles will face several constraints. Firstly, though the mini electric vehicle market seems prosperous and has attracted numerous companies to enter, including those transformed from low-speed electric vehicles, the market has become overcrowded, and the competition among car companies will become more intense. Secondly, policy factors are uncertain, such as the tightening of green plate issuance policy in Shanghai and the priority family lottery policy in Beijing, which would be unfavorable for the sales of mini electric vehicles in these first-tier cities, and there may be more policies that would hinder the sales of mini electric vehicles in the future. Thirdly, with the increasing penetration rate of new energy vehicles in China, new energy vehicles are gradually becoming the first family car, and the advantages of mini electric vehicles, including small-sized cars, will significantly decrease. Currently, this trend has been proven by the stable sales of midsize and large-size new energy vehicles and the significant increase in sales of compact new energy vehicles.
In this case, if Chery still remains trapped in the mini car market and has no time to take care of other vehicle types, what impact would it have on the development of Chery’s new energy business? Which is more important, immediate benefits or long-term planning? No one but Chery itself should think about this question.
What does mini electric vehicles bring to car companies?
As the world goes round and round for profit and hustle and bustle is all for profit. Even if the starting price of Hongguang MINI EV is set at RMB 28,800, and only earns RMB 89 per car, there are still huge benefits hidden in this market.
These benefits are related to the dual credit policy that we are familiar with in the automotive industry.The essence of the “dual credit” policy is to encourage car companies to reduce the production and sales of fuel vehicles and promote the development of new energy vehicles through credit transactions. Therefore, the more fuel vehicles traditional car companies sell and the larger their displacement, the higher the negative credits they will have. Car companies need to use the positive credits they have earned from producing and selling new energy vehicles to offset the negative credits. If they are not enough to offset, they need to purchase positive credits from others. In this way, car companies that produce and sell new energy vehicles can use their positive credits to realize them through transactions.
In 2020, Hong Guang MINI EV sold 127,700 units, producing at least one positive credit for each unit sold. Therefore, SAIC-GM-Wuling could produce 127,700 new energy positive credits through the sale of Hong Guang MINI EV in 2020.
How much money can be realized from these credits? In May 2021, the Ministry of Industry and Information Technology released the “Annual Report on the Implementation of Parallel Management of Average Fuel Consumption of Passenger Vehicle Enterprises and New Energy Vehicle Credits (2021),” which showed that 138 passenger vehicle companies in China had a negative credit of 6.66 million for fuel consumption in 2020, and a positive credit of 3.28 million for new energy. There was still a gap of 3.38 million points for “dual credit.” As a result, the price of credit transactions increased from the initial 300 to 500 yuan/credit to 2,500 to 3,000 yuan/credit, an increase of up to nine times. If calculated at a price of 3,000 yuan/credit, Hong Guang MINI EV could make a net profit of 380 million yuan through credit sales in 2020.
Micro pure electric vehicle models are small and have low configurations, do not require high technical thresholds or high R&D costs, and only need to package their appearance and be cute to market.
Whoever said Chery’s “science and engineering boys” don’t understand marketing? Chery knows how to make money. When the country gave strong subsidies to promote the development of the new energy vehicle industry, Chery took advantage of the trend of sharing and made a fortune in the shared leasing market. In March 2017, the official guidance price of Chery’s newly launched micro pure electric vehicle, Little Ant eQ1, ranged from 155,900 to 205,900 yuan. The government’s subsidy for this Little Ant ranged from 69,800 to 119,800 yuan. When the market for Little Ant was taken away by Benben E-Star and Kolev CLEVER, Chery launched the QQ ice cream, whose starting price was reportedly as low as 28,800 yuan, to compete with Hong Guang MINI EV head-on.On the day when the eQ1 made by Chery was launched, Chery first delivered 4,000 eQ1 purchasing orders, which were signed in 2016, to Gofun, and then signed the first batch of 10,000 eQ1 purchase agreements with Gofun for 2017.
According to incomplete statistics, in 2017, Chery sold more than 50,000 eQ1s to mainstream rental operators such as GoFun and EVCard. This does not include other operators’ purchases and deliveries.
As the leader in China’s new energy vehicle development, Chery has played an undeniable leading role. However, in this process, Chery first earned money and secondly took the advantage of the new energy vehicle development. If Chery could turn these advantages into a positive driving force for proactive product upgrades and brand development, it would not be so far behind its peers who used to run together in the new energy vehicle race.
Breaking Out of the Microelectric Comfort Zone Is the Only Way Out
Currently, Chery’s operations in new energy vehicles give people the feeling that wherever it is comfortable to lie down and wherever there is money to be made, that’s where it goes.
It is understandable that Chery wants to maintain its market share of micro pure electric vehicles, and to earn more points by promoting the eQ1 and launching the QQ ice cream. However, don’t forget about the mid-size pure electric SUV, Tiggo 3xe, compact pure electric sedan, Arrizo 5e, and other models.
The total sales volume of these five models from January to September this year was only 4,724 units, with less than 100 units sold per month for Tiggo 3xe. This is a far cry from Chery’s expected market performance for Tiggo 3xe.
At the launch conference of Tiggo 8, Chery expressed its sincerity to consumers, such as giving Tiggo 8 the prefix “a heavyweight masterpiece that brings together the essence of Chery’s new energy technology,” emphasizing that Tiggo 8 is based on the @LIFE all-aluminum pure electric platform, and has two major advantages of “green” and “intelligence.” These advantages are embodied in lightweight body, safe and reliable battery, rear-wheel drive, kinematic energy recovery, L2 level driving assistance functions, etc.
In terms of intelligent network connection and other configurations, Tiggo 8 also takes them into consideration. Not to mention the price, the starting price of 149,800 yuan is much lower than that of competitors in the same class such as Aion LX, WmAuto EX6, and BYD Tang EV, and even the top price has not reached the price level of the entry-level models of competing brands. It seems that Chery always lacks confidence when pricing its mid- to high-end products.But even with such obvious cost performance advantages, the Chery Ant still failed to win over consumers. In the end, it’s because the competition is too strong. Compared with its competitors, the Ant doesn’t have any outstanding advantages in terms of appearance, configuration, battery life, smart vehicle systems, or driving assistance. On the contrary, the name “Ant” inherited from the smaller Chery model has only deepened consumers’ low-end expectations for its new energy vehicles, lowering the brand’s score.
In recent years, there has been a huge shift in domestic automobile consumption, with obvious upgrades in consumer demand, especially for electric vehicles. People are willing to pay for the high added value that comes with high-end and smart EVs. Consumers aren’t afraid to spend money; they’re only afraid of not being able to buy satisfactory products.
Many automakers have recognized this, and thus a large number of new forces have entered the high-end market for new energy vehicles. Domestic heavyweights, such as First Auto Works’ Hongqi and Dongfeng’s Voyah, are charging forward, while independent domestic brands such as Geely and Great Wall Motors are actively deploying and advancing.
Product upgrades and brand promotion are challenges that all automakers who want to go further must face. In addition, action is always harder than intentions, and time and opportunities are fleeting. A little relaxation or being even slightly slower than others can lead to missed opportunities and lost progress.
How much time is left for Chery’s new energy brand to make a comeback? Perhaps not much time is left for pondering this question, so quickly jump out of the niche market of small electric vehicles.
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.