Author: Leng Zelin

Recently, a Xiaomi car team member told Photon Planet that Hu Zhengnan, former dean of Geely Research Institute, who joined Shunwei Capital earlier, has started participating in some work at Xiaomi and may officially join Xiaomi’s car division in the future.

According to Shunwei Capital’s official website, Hu Zhengnan’s official position is an investment partner. Previously, Xiaomi’s co-founder, Lei Jun, and Yidao Yongche’s founder, Zhou Hang, had also held the same position at Shunwei, but they were more like part-time or advisory positions and did not participate in Shunwei’s daily work. Hu Zhengnan’s appointment as an investment partner is similar in nature to the aforementioned two.

Shunwei Capital intends to differentiate the positions of “investment partner” and “partner.” Currently, partners who work at Shunwei Capital full-time and participate in daily investment work include Cheng Tian, Li Rui, Li Wei, and others.

The aforementioned person believes that Hu Zhengnan did not join Xiaomi directly but joined Shunwei, perhaps due to non-compete reasons. Once he officially joins Xiaomi’s car division, he is expected to be on the same level as Xiaomi’s car division’s only Vice President, Li Xiaoshuang, and report directly to Lei Jun, becoming Lei Jun’s right-hand man.

Xiaomi’s car-making is accelerating, while China’s new energy vehicles are also penetratin[g] throughout the country at an accelerated rate, with a speed that far exceeds the expectations of most participants.

The window of opportunity for new energy sources is shrinking.

In the spring of 1996, at the south entrance to Zhongguancun, Beijing, a billboard caught many people’s attention: “How far are Chinese people from the information superhighway? North, 1,500 meters.”

Although the information highway indicated on the billboard was only 1,500 meters away, in reality, it took more than a decade for Chinese people to truly enter the information highway. However, it may take much less time for them to enter the new energy superhighway.

Recently, He XPeng, the chairman of XPeng Motors, predicted that by 2025, the penetration rate of new energy vehicles would reach 50%. However, just three months ago, He XPeng predicted that the penetration rate in 2025 would be only 35%, with about 60% in first-tier cities.

In just a few months, the new energy track has undergone earth-shattering changes. He XPeng also talked about the new energy transformation with Photon Planet, saying that it is progressing at a speed that even the pioneers in this field cannot imagine.

Even established companies that are on track cannot predict the changes in the industry, let alone new entrants into the market, such as Xiaomi, which announced its entry into the car-making industry earlier this year, and Jingdu-backed start-ups.Actually, not only Xiaomi and Jidu, but also many tech companies have been “going into” the new energy vehicle industry in the past two years. They are mainly attracted by the traffic entry and intelligent prospects on the car side. Compared with companies like WmAuto, they should be classified as the second generation of new forces in the field of car-making. Each company’s field of involvement is different, such as RoboTaxi, IoT, autonomous driving, car system, motor system, etc. Among them, only Baidu and Xiaomi have explicitly announced that they will involve in the entire vehicle business.

Compared with the chaotic period of the first generation of car-making, the new energy track has now formed a situation of warlords cutting each other’s territories. The new forces led by Tesla and the old forces led by BYD have repeatedly set new records for deliveries, while mid-to-high-end traditional car companies such as BBA and VTH (Volkswagen, Toyota, Honda) have also begun to transform.

Nowadays, new energy is penetrating at an unimaginable speed, and the window of opportunity is narrowing. There is not much time left for the second generation of car-making new forces.

In September of this year, two car companies whose monthly delivery exceeded 10,000, NIO and XPeng, joined the new energy race. In October, XPeng continues to maintain its excellent performance, while according to the official statements of NIO and Ideal, their order volume is still continuing to increase, with the main problems lying in production capacity and supply chain.

XPeng’s performance is mainly driven by updates of its car models, while NIO and Ideal may have some disadvantages in terms of price, number of car models, or new model releases in the short term, but this does not affect their leading positions. In terms of capital reserves, brand strength and user numbers, the three companies are still the “benchmark” of car-making new forces. What is more worthy of our attention is actually the mid-level car-making new forces.

In the past few months, some mid-level new forces have continued to increase their deliveries, such as NETA and Leapmotor, which have performed well.

Among them, NETA’s C-end transformation this year is relatively successful, with delivery volume increasing monthly since February. Although it lacks in terms of brand strength and average price, NETA Auto has basically been at the same level in delivery volume as the leading new forces.

At the beginning of this year, NETA Auto shifted from a franchise dealership model to a direct sales+distribution model, planning to create 50 direct sales stores and 150 distribution stores within the year. According to a query on the Photon Planet, NETA Auto mainly sets up direct sales centers in major cities such as provincial capitals and municipalities, while relying on distribution networks to cover other cities.

Because NETA Auto’s several models are positioned to the middle and low-end segments, it attaches more importance to sinking channels.Taking Shanxi province as an example, there are a total of eleven cities in Shanxi, and NETA Automobile has 10 offline stores in the province. Except for a flagship store in the capital city Taiyuan, the rest are dealer stores, which are evenly distributed in each prefecture-level city. This is different from the layout of most automakers, where the capital cities do not hoard too many resources and more resources go to third- and fourth-tier cities.

On the other hand, the ORA Cat C11 was officially launched in October and gradually delivered in late October. According to official ORA data, the total order volume for that month reached 12,835 units, of which 4,248 were for the C11. ORA is also gradually transitioning from microcars to household sedans and SUVs.

Since the emergence of new automakers, they have received much attention from all parties. However, most people overlook the bigger players in the new energy market, the traditional automakers. Multiple industry insiders have told Photon Planet that although traditional automakers are slow to turn around, when they do, there will be huge changes in the existing structure of the new energy market. Traditional automakers are still in the “trial phase,” while new players have always been ahead of traditional players from the beginning.

Currently, most Chinese traditional automakers adopt the method of establishing independent subsidiaries led by internal executives to build cars in an internet-oriented way. For example, LanTu CEO Lu Fang and JiKe CEO An Conghui were both former Dongfeng and Geely executives. SAIC Roewe has also started independent operations. Building cars through independent brand models not only helps old brands explore new avenues but also avoids limitations of the existing organizational structure.

Currently, LanTu Free and JiKe 001 have already started delivery. Among them, LanTu Free, which started delivery in August, has already exceeded a thousand deliveries, and JiKe 001, who inherited the Lynk & Co gene, has also attracted attention in the market.

Aside from independent brands, BBA, VTH, and other automakers also have their own new energy planning paths, such as the Mercedes-Benz EQ series, the BMW i series, and the Audi e-tron.

In October of this year, the Volkswagen ID series delivery volume had already reached 12,736 units, surpassing the top three domestic new automakers in a great leap forward-style growth, proving that traditional automakers’ transformation cannot be underestimated.

In 2021, we can say that it was a year of new energy outbreak. According to data from the China Association of Automobile Manufacturers, the national penetration rate of new energy vehicles has risen from 1% to around 20% in just 9 months, compared to nearly four years to go from 1% to 5%, and from 5% to 20%. The reasons for the explosive growth are, on the one hand, continuous improvement and upgrades of new energy vehicles, and on the other hand, increasing consumer awareness.We can see that for the first generation of new energy vehicle companies, basically all of them have completed the first batch of production. Enterprises that run fast have completed the iteration of products and the launch of subsequent models, while companies that are not capable of mass production, such as Foton and Byton, have already fallen before dawn.

After the survival of the fittest, the new energy track can be considered to have passed the period of primitive accumulation and has begun to enter a stage of rapid development.

Second-generation new energy vehicle companies such as Xiaomi and JiDu have also begun to embark on car making, with a target for mass production around 2024. According to public information, the first mass-produced models of Xiaomi and JiDu are likely to be SUVs.

Lei Jun’s Weibo poll shows that sedans are slightly favored over SUVs by a small margin, but he has previously mentioned that Xiaomi had already decided on its first mass-produced model, but later hesitated.

An insider at Xiaomi told Guanzhixingqiu that the price range for Xiaomi’s first car is roughly comparable to the XPeng P7, i.e. in the range of CNY 200,000 to 300,000.

On the other hand, JiDu CEO Xia Yiping recently released a picture of the SIMU Car, which is also a medium-to-large SUV.

Combined with previously released information on the first mass-produced cars from new car makers, SUVs are beloved by most carmakers. In addition to technical reasons, such as battery placement and spatial structure, this is also related to the continuous growth of the SUV market in recent years. Independent Chinese brands such as Great Wall and Geely have also enjoyed the growth dividends of SUVs.

Therefore, SUVs may not be dazzling, but they are the safest first products.

According to Guanzhixingqiu’s statistics on 32 models from 13 car companies, 20 of them are SUVs, accounting for a high proportion of 62.5%. This is particularly concentrated in new car makers such as WM, Nio, and Li Auto, all of whose product lineups are mainly SUVs, although they have relatively many models.

Do we actually need so many SUVs?

According to China Passenger Car Association data, from January to September this year, the retail sales of sedans were higher than those of SUVs in the new energy vehicle segment. Of course, the background here is that the two types of vehicles are not yet in a balanced state of supply and demand. Does this imply that there is still more room for development in the sedan market?

In fact, before 2018, SUVs grew rapidly, and many car companies developed their product planning based on the market conditions of that year. Almost all of the first batch of mass-produced new energy vehicle companies began development before 2018. Developing a car requires four aspects: product planning and basic infrastructure development, product development, product verification, and product manufacturing. The development period is about 4-5 years, therefore, there is often a certain lag between supply and demand.## The Challenges faced by Xiaomi and Baidu

Being the first to enter the market for crab-eating, one can buffer and adjust their steps, while the latter may need to precisely pinpoint user needs to stay ahead. This also means that even if Xiaomi and Jidu do not select SUVs, but choose another vehicle model, they still face uncertainty.

After 3-4 years, Xiaomi and Jidu will face a broader and more complex market. Once the huge increase market for new energy vehicles is monopolized by existing vehicle manufacturers, the cars made by Xiaomi and Baidu can only participate in even more intense competition in the current market. Their awkwardness will be no less than that of Hammer Technology, 360, Gree and other companies that entered the mobile phone market three or four years after Xiaomi.

Will Lei Jun and Robin Li follow the same path as Luo Yonghao, Zhou Hongyi, and Dong Mingzhu did when they made phones?

In addition to the rapid development of the entire market, which leads one to question Xiaomi and Baidu’s entry timing, there are also significant limitations to the two companies themselves, the biggest issue being that they are not “hard” enough.

In 2013, sensing the future trend, Baidu separated its research and development team for autonomous driving from its deep learning laboratory and launched the “Baidu Autonomous Driving Car Development Plan” the following year. Then, the autonomous driving department and the Apollo project emerged one after another. Baidu delved into the autonomous driving field, but has remained at the software level. Although there has been investment and cooperation, no vehicle manufacturer has been willing to actually implement the entire suite of Baidu’s autonomous driving technology.

Apple once approached top car manufacturers such as BMW and Daimler for OEM, all of whom refused. Daimler cited the reason as, “We don’t want to become Apple’s Foxconn, while at the same time nurturing our potential rivals.”

The reason that vehicle manufacturers are unwilling to cooperate with tech companies is still fear of their strength.

Similarly, XPeng and Li Auto also approached Baidu for investment, but were rejected because they were required to use Apollo’s autonomous driving technology, which was not implemented.

Therefore, even if Robin Li repeatedly claims that Baidu does not make cars, he eventually had to partner with Geely to establish a joint venture company at the beginning of this year. In the Jidu brand, Baidu holds 55% of the shares, and Geely holds 45%. The name “Jidu” also originated from “integrating Baidu’s AI capabilities”. Jidu CEO Xia Yiping also revealed in an interview that Baidu will play a leading role in Jidu Automotive.

Geely’s manufacturing experience indeed provides significant support to Jidu, allowing its software team to cooperate with Baidu’s Apollo team in developing intelligent cabins and intelligent driving functions based on the SIMU Car when it was established for only 207 days. On the other hand, Xiaomi’s car division has just been established.

For example, in terms of the chassis, Jidu has a ready-made SEA Haohan pure electric architecture, which reduces research and development time and also has certain guarantees. However, for Geely, this architecture is more like a wild card.Previously, Geely had revealed that this architecture would be applied to 7 brands in the future, including Lynk & Co, Geely, Geometry, Polestar, Smart, and others, and that there are already more than 16 models in the pipeline. These models include not only Geely’s own brands, but also external ones, indicating that Geely intends to share this architecture with other car companies.

Polestar is a joint venture between Geely and Volvo, while the Smart brand is jointly owned by Mercedes and Geely. With numerous partnership companies and Geely-owned brands such as Lynk & Co and Geometry, it is difficult to determine how much attention Geely is paying to Jidu Auto.

On the other hand, Baidu’s goal is not limited to Jidu Auto but is more similar to Huawei’s, as it aims to become a tier-one supplier in the new energy field as a car manufacturer identity.

Huawei does not manufacture cars to avoid competing with car companies, but it has accumulated technological expertise in communication technology, power electronics, autonomous driving, and other fields, and has found many partner companies to participate deeply in the manufacturing process.

From this perspective, Jidu Auto’s existence seems somewhat awkward. Baidu needs Jidu Auto to show its muscles, but cannot let other car companies feel guarded against Jidu Auto, which could hinder their cooperation with Apollo.

Although Xiaomi is somewhat “hard,” the company’s automotive experience is still lacking.

In early September, 17 people appeared in the group photo of Xiaomi’s automotive company, but only one person, Li Tianyuan, had a certain automotive industry background as a former exterior designer for BMW’s i/M department. The others are all “outsiders” to automotive manufacturing. Even with Hu Zhengnan joining later, the proportion of automotive personnel in the entire company is still too low.

Of course, Xiaomi has the unique advantages of Lei Jun, a huge R&D team, brand effects, and sufficient funds, but if the window of opportunity is missed, their difficulties in breaking through will increase geometrically.

However, if we only consider the present, the Xiaomi automotive project does indeed have a positive effect on Xiaomi’s offline channel construction.

According to a Xiaomi offline dealer on Guanzhixingqiu, opening a Xiaomi store yields only about 11% gross profit, and after deducting labor and rent costs, there is no profit. However, they are still willing to give it a try because they see that Xiaomi’s car is coming soon, and even though selling phones doesn’t make money, selling cars may be profitable in a few years.

In conclusion, the new energy landscape is far from settled, and even though every company likes to crown itself the “leader in a certain field,” they may still become a “short-lived and glorious king” in the future, so there are still opportunities for all companies hoping to get a piece of the pie.

Jidu Auto and Xiaomi also have opportunities, but with the industry’s accelerating pace, they have little time left.

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.