Author: Leng Zelin
Due to the existence of the Pareto principle, the emerging players in the top often attract too much attention, squeezing the living space of the players in the middle, which makes it inevitable for these companies to frequently make adjustments. Regardless of whether their goals are realistic or not, the desire to make a name for themselves is strong.
“Confident in becoming a top player”, “steadfastly staying in the first tier”, “exceeding Tesla in three years”, these are the bold statements made by three mid-tier new car powers (WM Motor, NIO & LI) this year.
In general, going public is often the watershed moment. Among this group of new forces, NIO completed its IPO in the US in 2018, while Li Xiang and XPeng completed their transformations last year.
Now in 2021, Tesla’s market value has exceeded $1 trillion. XPeng and Li Xiang have each returned to Hong Kong, while NIO is also on its way back to China, while the mid-tier forces are still questioning whether they are tech companies.
In January of this year, WM Motor became the first to enter the registration period for the Science and Technology Innovation Board (Sci-Tech Board), however in April, China’s National Social Security Fund claimed that WM Motor had reportedly suspended its IPO application for the Sci-Tech Board. Consequently, WM Motor then entered a long period of silence.
Similarly, Li Auto – another automobile company seeking to be listed on the Sci-Tech Board, its CEO Zhang Yong stated in an interview in July that Li Auto will continue to push forward with its existing plans to go public, whilst also considering seeking more options for listing.
With the rise of new energy vehicles, the top players have broken through the threshold one after another, while the mid-tier forces have seemingly welcomed a new dawn; with Li Xiang having delivered more than 8,000 vehicles, surpassing LI and NIO at one point; meanwhile, Leading Ideal One sold over 10,000 units in June this year, making it one of the top ten bestselling cars in China. WM Motor and other mid-market manufacturers have also displayed a trend of regaining lost territory.
However, low positioning has always been a cloud hanging over the heads of mid-tier new forces. Unlike NIO and LI that are positioned over RMB 300,000, the main models of these companies are priced below RMB 200,000.
From what we have observed, currently the mid-tier forces are actively seeking change – transitioning from B2B to B2C and from the mid-to- high-end markets. Regardless of how beautiful their long-term plans may be, these companies are all a bit lost, knowing that an IPO is not a panacea.
Tough to succeed in the B2B market
Looking back at the development history of the three mid-tier vehicle companies, without exception, their initial focus was on the B2B or mid-to-low-end markets.
WM Motor was one of the earliest new car producers to achieve mass production. In 2018, its first model – the WM EX5 – was formally launched, with a special version priced at RMB 100,000 for the B2B market.
In an interview, WM Motor’s co-founder and senior vice president, Lu Bin, once revealed that the demand from the B2B market was very significant, with the greatest advantage in the B2B realm, was to make more users use their products.
That year – WM set themselves the goal of manufacturing 10,000 vehicles.From the end of September to the end of the year, a total of 3844 units of the EX5 were delivered, with an average monthly delivery volume of over 1000. If the delivery period can last for a whole year, the target of 10,000 units seems easily achievable. However, the penetration rate of new energy vehicles was only about 3% in the entire year of 2018.
The following year, WM Motor launched a “Great Leap Forward” with a delivery target of 100,000 units.
In order to achieve this goal, WM Motor had more actions in the B-side business. At the beginning of the year, it launched the Hainan tourism car rental brand – Kesi・Hainan Yexing and put 1000 WM EX5s into operation.
According to insiders, this business was led by Bin Lu. At that time, Lu spent more time in Hainan than in the company. Even saying that whoever gets Hainan gets the world.
During the same period, WM Motor also tested the “New Retail + Online Car Hailing” mode in Shanghai and landed its taxi business in Wenzhou.
However, when WM Motor welcomed a new OTA upgrade, due to the company’s concern that the 1000 cars in Hainan had not been successful, they sent staff to manually update the software, only to find that most of the cars were “trapped” in the garage.
After September 2019, Lu Bin became the Chief Officer of Travel and was responsible for non-core businesses such as travel. One year later, he left WM Motor for “personal reasons”.
We all know about the bet between Xing Wang and Hui Shen, but in the first year, WM Motor also cooperated with Meituan, hoping to open up the online car hailing market. However, apart from the introduction of “Online Car Hailing Service” by its subsidiary five months later, no further news was heard.
In the whole year of 2019, WM Motor delivered about 17,000 units, ranking second among new car makers, about 4,000 units less than NIO, and only about 17% of its self-set target.
WM Motor’s ideas were correct. The B-side market could indeed expand brand awareness. Simply put, it can earn money while attracting traffic, unlike XPeng Motors, which still had to spend a lot of money on promotion. However, they failed to realize that brand, channel, and product were not important in the B-side market. This is like a student who usually cheats on tests. When it comes to the college entrance examination, he can only watch the hard-working students get high scores. The rise and fall of BAIC New Energy just proves this point.
The following story is as we all know it. The EX5 was continuously restyled and sold for three years, followed by the EX6 and W6, which had weak successors and dismal sales.
Another brand that bet on the B-side market was NETA. NETA CEO Zhang Yong had been in charge of channel and marketing sales for BAIC Foton, Chery, and BAIC New Energy vehicles successively. Zhang Yong had a soft spot for the B-side market thanks to BAIC’s brilliant achievements.After joining Nio Auto, Zhang Yong continued to implement his B-side tactics and recruited some old colleagues such as former Deputy General Manager of BAIC New Energy Design Center, Chang Bing, and former Assistant General Manager of BAIC New Energy Marketing Company and General Manager of East China Region, Jiang Feng, who also joined Nio in the same year.
Nio’s first mass-produced car, the N01, was delivered around the same time as the WmAuto EX5.
Price is often a major factor affecting B-side sales, and the base version of N01 is about 30,000 yuan cheaper than WmAuto EX5 Travel Cooperation Edition.
According to Huang Zhaogen, the Vice President of Hezhong New Energy and President of the Marketing Company at that time, Nio N01 had received more than 50,000 pre-orders before it was even launched, including time-sharing leasing companies such as Didi Chuxing, Yidu Yongche, and Xiaolingou, as well as one hundred city partners. Business orders accounted for about 40% and private orders accounted for about 60%.
In addition, Nio is also working hard to develop the government market, such as cooperating with the Tongxiang Municipal Government to use Nio N01 as a official vehicle. As of the end of 2020, Nio Auto had been added to the procurement list of 22 government agencies.
Nio Auto sold 1206 vehicles in 2018, 11,212 vehicles in 2019, and 15,091 vehicles in 2020
With a total sales volume of over 20,000 vehicles over the past three years, Nio’s claimed 50,000 pre-orders have still not been fulfilled as of 2020. We do not know whether these orders were left to the dealers or simply disappeared.
Both WmAuto and Nio have a background in traditional car companies and were among the first players to obtain the qualification and build their own factories. However, looking back at the history of development, the cost control achieved by building their own factories was only to make them more active in the B-side market, and did not give them any advantages in the C-side market.
It’s Hard to Make Money from the People
“Making cars for the people” and “making intelligent cars for about 100,000 yuan” were the slogans of Zhou Hongyi, CEO of 360 Group, at a smart car strategy media communication meeting five months ago. It seems that Lao Zhou took “the people miss Zhou Hongyi” seriously, but when it comes to people digging into their pockets, it’s another matter.
In the C-side market, due to the overall low pricing, Nio proposed its own marketing strategy in 2018- the “Yunhai Plan”, which aims to fully penetrate the channels into various counties and townships through a light asset model. Zhang Yong called this model the “third way” saying that “we don’t build our own channels or rely solely on the 4S stores and e-commerce platforms. We take our own path.”
Nio Auto has branded itself with the label of “small town market”, but it may be difficult to remove in the future. Meanwhile, in the same year, NIO opened their second NIO House in the tallest building in China – the Shanghai Center. The offline expansion cost was high and the progress was slow, but looking back, NIO’s model has become a moat.
It was not until 2020 that Nio Auto opened its first flagship store in Shanghai and drove the cars into the Fifth Ring Road.# NETA Auto Rises in 2021
NETA Auto has made remarkable progress this year, with continuously increasing deliveries. In fact, in October, NETA surpassed NIO and Li Auto, ranking second in China’s new energy vehicle market with 8,107 deliveries. NETA’s cumulative sales have also reached 70,000 units, clearing off its debt from three years ago.
However, Zhang Yong, the CEO of NETA Auto, has expressed that a brief period of success is meaningless. Moreover, NETA’s target customers are more mainstream. According to this logic, NETA would need to triple its sales to achieve true success when compared to Li Auto. In other words, the company’s low-end products still lack the brand power and profit margins of mid-to-high-end products.
Looking at the sales figures for January to October of this year, NETA V, which was launched in November of last year, accounts for 75% of the company’s total sales, with a total of 37,339 units sold. However, the sales performance of NETA U and U Pro, the company’s second mass-produced vehicles launched this year, has been lackluster, as they cannot shake off the image of being low-end products.
NETA V is the company’s third mass-produced vehicle and is a small-sized pure electric SUV priced below RMB 100,000, with a gross margin of only about 5%.
Compared with Li Auto, NETA’s 5% gross margin and monthly delivery volume of 8,000 units are not enough to place itself in the top tier of Chinese EV manufacturers.
In an industry where every automaker is producing SUV models, one automaker stands out from the others.
In 2019, Leapmotor launched its first mass-produced vehicle, the S01, a four-seater pure electric sports car priced at RMB 100,000, with a sales target of 10,000 units. Although the price was affordable, the model was not what the mainstream customer needed, and it was even compared to a “large toy” by netizens.
In the first few months after its launch, the S01 sold only a few hundred units. It was not until the second year that Leapmotor restarted its campaign with the T03, an A00-class electric car model. With the T03, Leapmotor achieved its goal of delivering 10,000 units in 2020.
However, competition in the low-end market has always been fierce. Two months after the T03 was launched, the MINI EV hit the market. Although the sales of T03 continued to increase month by month, it paled in comparison with the MINI EV.
According to SAIC Motor’s half-yearly report for 2021, SAIC-GM-Wuling sold a total of 884,000 units, with MINI EV accounting for around 150,000 units, but net profit was only RMB 410 million. Calculating, the net profit per vehicle was only RMB 463.8.
This phenomenon is a reflection of all low-priced, high-volume automakers.Although MINI EV has low or even negative profits, its cumulative sales volume of about 450,000 units in the 17 months since its launch is a huge gain for traditional car companies in terms of points and prestige, but it is difficult for new automakers to bear. In addition, the short-term impact of chip shortage is further depressing profits of mainstream car companies.
All three car companies have stated that the shortage of chips has affected deliveries to varying degrees.
Therefore, if the sales volume cannot be increased, the only solution is to increase the unit gross profit. Since low- to mid-range car models were previously price-limited, mainstream automakers were not actively pursuing intelligence, but this year they are making efforts in this area.
The upcoming NETA S may be priced around 200,000 yuan, equipped with Huawei’s MDC computing platform, and use 2 lidars, 5 millimeter-wave radars, 12 ultrasonic radars, 13 cameras and other perception hardware, which can achieve L4 level automated driving in some scenarios.
Leapmotor has recently turned to mid-to-high-end markets and launched the C11, which is a big step up compared to the T03 with a price below 100,000 yuan. The entire vehicle has also made significant improvements in hardware facilities, equipped with 10 cameras, 12 ultrasonic radars, 5 millimeter-wave radars, and two self-developed intelligent chips Lingxin 01.
Similarly, after the EX5, WM Motor’s EX6 and W6 have both reached the 200,000 yuan level. The recently launched M7 pure electric sedan is equipped with 3 solid-state lidars and 4 Orin-X chips. Although the price has not been announced, it is at least above the 200,000 yuan level.
Looking at this, it seems “hard”, but upon closer inspection, there is still a lot of room for improvement.
Lack of core competitiveness
What is the fundamental aspect of moving upward? It lies in core competitiveness. What is core competitiveness? He XPeng may answer intelligence, Li Bin may answer service, and Li Xiang may answer product strength.
Some industry insiders analyze that a large part of the market value of WM Motor, Qoros Auto and XPeng Motors is supported by automated driving and intelligence. However, mainstream automakers are either limited by pricing or limited by strategy, and are somewhat lacking in intelligence and automated driving.
In 2019, WM Motor once set up an automated driving research and development team overseas, recruited personnel and rented space, and planned to expand its business. However, as the capital winter arrived, Shen Hui believed that “surviving” was the premise, and the technology sector became the first “abandoned child”. Industry insiders revealed to Guangzhi Xingqiu that since WM Motor did not originally do automatic driving, the impact was not great whether or not it was done, so it simply stopped doing it.
The cost of not doing it is a low “technology content”. In the future, the consequences of today’s decisions will be felt; WM Motor will have to swallow the bitter pill of the “science and technology innovation board”.In the same year, NIO and XPeng were also “overwintering”. Li Bin made an imaginative analogy to He XPeng. NIO was already staying in the ICU, while XPeng was waiting in line at the door. Therefore, He XPeng cut many teams for “overwintering,” but only retained the autonomous driving team. He said, “I believe you can definitely run out”, even if He XPeng himself was not sure.
Afterward, WM Motor and Baidu, each pursuing their own goals, have teamed up to develop a 200,000 yuan-level autonomous vehicle. Similarly, NETA Automobile has also collaborated with 360, Huawei, and Ningde Times this year, providing either funds or technology.
In 2020, WM Motor and Baidu unveiled the first mass-produced vehicle boasting AVP self-parking technology, which is touted as the world’s fastest and quickest brand to achieve mass production of L4 autonomous driving technology: the WM W6. Although not self-researched, it does not prevent them from advertising.
In fact, this vehicle only supports L4 level autonomous driving in specific scenarios, such as short-distance memory parking within 100 meters and some routine assisted driving functions, and not even NGP, NOP, and other closed-circuit leading auxiliary driving functions like NIO’s Xiao Li.
In the contract signed with Baidu, there is no possibility for WM Motor to self-research autonomous driving technology. If they want to continue upgrading, they will need to rely on Baidu. Similarly, NIO and XPeng rejected Baidu’s investment because of this issue.
As it turns out, Baidu is not a “pure boy.” When WM Motor was heavily promoting their vehicle, Baidu turned around and joined hands with Geely to establish Jidu Automobile.
It should be noted that the relationship between the two companies was not friendly after Shen Hui left Geely, and they were involved in legal disputes. Some industry insiders have told Photon Planet that Baidu’s behavior put WM Motor in an awkward position.
Apart from this, the marketing and service sectors of these companies are not entirely satisfactory.
When the Model 3 was localized, WM Motor’s official Weibo account @Tesla, stating “made in China does not equal made in China.” Later, when Tesla entered Tmall, WM Motor sent a message of relief, saying that they will be neighbors from now on. Similarly, NETA also showed some shortcomings in a celebrity event this year.
For new automakers, visibility is really important. It’s like some workplace culture, no matter how you work, the PPT must be beautifully done.
During the Shanghai Auto Show this year, Zhang Yong, the CEO of NETA, frankly expressed to the media, “Our biggest shortcoming is brand building and upgrading. Brand building will be a key task for us in the future.”
Interestingly, if NETA and WM Motor’s marketing strategies are often excessive, then Leapmotor is on the other end of the spectrum. Before C11, most consumers did not know this brand, let alone its self-developed chips, three-electric systems, and platforms.Zero Run established its operations department and made it a first-level department in 2020. At the same time, Wu Baojun, the former chairman of Zhongcheng Insurance, was appointed as the co-founder and CEO of Zero Run, responsible for overall corporate operations. Wu has many years of experience in automobile marketing and sales.
However, the transformation path of waist-making new car forces is still a long way to go, as the automobile industry is judged on multiple dimensions such as marketing, service, technology, and product strength.
Conclusion
There may not be a clear number for how much money it takes to stand firm in the new energy market, but the amount of capital available for waist-making forces to raise may not be much.
Observing the trends in recent years, with the situation becoming increasingly clear, the bets of various companies have been largely placed. Several internet companies have entered the field through smart and automatic driving, while Xiaomi has chosen to build its own cars, and Huawei is striving to become a Tier1. There are not many companies like 360 that are lagging behind.
According to data from Qichacha, NETA had a public financing of about 13 billion yuan, WM Motor about 26 billion yuan, and Zero Run about 11 billion yuan, and the “grain and grass” available to the three companies are not many.
If car companies want to continue to raise funds, listing is the best choice to exit from the previous investment. However, the failure of WM Motor’s listing on the Science and Technology Innovation Board has poured cold water on waist-making car companies, and recent IPOs on the US stock market have not been ideal either. Even if Hong Kong stocks have low valuations and poor liquidity, there are no other options. There have been many rumors pointing to this direction regarding these three companies recently.
However, even if waist-making forces are listed, there are still many problems that need to be solved. According to insiders, although WM Motor is not doing well now, Shen Hui has bought a villa privately, and listing is just a statement to investors.
Listing certainly is not the end point for waist-making forces, but just a ticket to a new race.
Certainly, car companies entering at different times face different market situations. Choosing to build cars based on their own resources and capabilities looks like the best choice. However, looking at it from hindsight, waist-making forces are confused. They cannot win the traditional car companies in the mass market, and their brand power cannot stand in the mid-to-high-end market, and they are also prone to contradictions in their strategies.
Like a new energy car owner expressed to us, if I buy a car for stability, why not choose a new energy car from a traditional car company.
Even though companies like WM Motor and NETA have solid backgrounds of car company executives, it is still difficult to control the manufacturing process better than traditional car companies. In the short term, intelligence is still a “good medicine” for waist-making new car forces to break through, but it is indeed a “bitter medicine”.
Today, with traditional car companies, internet companies, and waist-making new car forces pushing out mid-to-high-end brands, waist-making forces will inevitably gain no advantage by following the trend, and may as well continue to fight deeply below the 200,000 RMB level, and become the next BYD.
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.