Translation

Author: Cold Ze Lin

Editor: Wang Pan

“Welcome to bring your friends and test drive the top SUVs such as Kurin, Mercedes-Benz GLC, Maybach, Range Rover and BMW X7, and see whether L9 deserves the title of the best household SUV under 5 million yuan together,” said Li Xiang, CEO of LI Auto at the new car L9 launch event last night.

In March of this year, during the preheating activities on LI Auto’s official WeChat account, the price range of L9 has always been marked at 450,000 to 500,000 yuan, accompanied by the annotation of “depending on different configurations,” which made many people think that LI raised the price by more than 100,000 yuan and became a bit nervous.

But on the night of the launch event, people still saw Li Xiang, who was still “confident,” and more than 100 flagship configurations, except for the electric pedals and some colors, remained standard across the board.

As for the sales of L9, Li Xiang is not worried at all and said: “The sales of L9 will surely surpass that of LI ONE with no problem.”

Currently, LI ONE’s latest monthly delivery volume is 11,496 vehicles, with a cumulative delivery volume of about 171,000 vehicles.

Li Xiang has always had a unique “product thinking” among the new car makers of the same period, and the marketing strategies of the enterprises he created are also distinctive. While most people are providing various customized demands for luxury and high-end feelings, LI Auto insists on a unified configuration.

In addition to cost considerations, there is also Li Xiang’s accurate positioning of user portraits. At LI’s Q1 2022 conference call, Li Xiang firmly believes that families with children will still be the core users of LI Auto by 2025. For him, the functions related to family and safety must be standard across the board.

From Li Xiang’s perspective, the formation of his unique product concept from LI ONE to L9 is not only influenced by Apple’s products but also by his habit of thinking.

In fact, we noticed that in 2011, the well-known investor Duan Yongping’s description of Apple’s “single product” model could be largely applied to LI Auto’s strategy of making explosive products using a single product.

In Duan Yongping’s view, the advantages of Apple’s single product model include: concentrating manpower and material resources to make products better; the benefits of large-scale production with low material costs and good quality; low channel costs; and even advertising costs that are much lower than those of the same industry. All of these are almost what LI Auto is currently pursuing.

Today, Li Xiang had a face-to-face conversation with companies such as Photonium, in which he explained how he continues Apple’s product concept in the field of new energy vehicles and shared his thoughts on the current new energy market.

The following are some parts of the conversation:

Question: Was user feedback collected immediately after the release of Ideall L9? Can you share the order status on the day of release? Additionally, are there plans for OTA upgrades for Ideall ONE 2021 and Ideall ONE 2020 in the future?

Li Xiang: Ideall ONE will continue to receive upgrades, that’s not a problem. Regarding feedback for L9, most users have not seen the car yet. We have started touring in more than ten cities today, and we still hope to see more comprehensive information and wider samples before we can analyze various results.

Regarding the order status, it is certainly good. The sales of L9 will definitely surpass Ideall ONE, even though it is more than 100,000 RMB more expensive. We won’t report specific numbers. New energy companies are more honest, while traditional manufacturers report figures that are too vague. Let’s look at sales and deliveries instead of orders.

Question: The current Ideall ONE model is a 6-seater mid-size SUV. The newly released Ideall L9 is also a 6-seater. Do the two overlap in terms of positioning? How was the product planning approached?

Li Xiang: From a positioning perspective, users are most concerned about how much they plan to spend on a car, rather than the number of seats. Everyone keeps talking about how a 6-seater performs. In fact, Ideall ONE has been the best-selling 6-seater mid-size SUV for many months, and it is also the best-selling model among all models priced between 300,000 and 500,000 RMB.

Everyone is worried that the sales of Ideall ONE will decline after the release of Ideall L9, but in fact, the sales of Ideall ONE rose again yesterday, because people who intended to buy a car for 300,000-350,000 RMB still bought it. As for people who had a budget of 300,000-350,000 RMB but suddenly want to buy a 500,000 RMB car, there must be some, but they only account for less than 10% of the market, and are not the real mainstream.

The price range above 400,000 RMB is also a very healthy market, especially since many of the technologies we use are very expensive in the early stages, such as the 7.3.4 audio. We need a relatively expensive car to expand the scale, lower costs, and then promote it to cars at different price points, which is a core choice.

In terms of product positioning, everyone keeps saying that Ideall is positioned for home users, but I don’t think they have the basic theoretical support and logical judgment. We have studied this matter a long time ago. I don’t believe anyone can exceed my research when I was at Autohome.Above 200,000 purchasers, up to 89% are household users. However, if we constantly market “high-end” to the market, no one will listen to us. Even our team will not know how to develop the product and blindly add features in order to appear “high-end.” Instead, if we focus on targeting the household user, we already cover 89% of the purchasers. We have locked down the above 200,000 purchasers, and we just need to tackle one segment at a time.

At this point, everyone on the team knows what they need to do. They know whether the features align with the needs of the household. I think this is something everyone has missed.

When you talk about high-end, the team will focus on adding features to the product. However, if you talk about household, the team will focus on building the product around the needs of the household, considering every penny and every technological component. I think this is a matter of positioning.

Question: The ideal configuration of L9 is excellent, with a great price. How did you manage to achieve such cost control?

Li Xiang: Anyone who develops a product will study Apple, hoping to make a product as good as theirs. However, I rarely see companies truly understand what Apple is doing.

I think people can search for many interviews with Steve Jobs and read books like “Jonathan Ive: Designer of the iPod” “Becoming Steve Jobs” and “Steve Jobs,” which provide insight into Apple’s thinking.

People always think Apple’s products are a bit expensive. For example, in 2010, the iPhone 4 was sold for 4,999 RMB, while the N97 was sold for 8,999 RMB, but the N97 is much rougher than the iPhone 4. Only Vertu could match the iPhone 4’s delicate features, but it cost from 30,000 to 100,000 RMB.

Today, people who use MacBook Air may have a similar feeling. MacBook Air sells for 7,000 to 8,000 RMB, but if it is used for work, it basically can achieve the same experience as a PC notebook priced at 15,000 to 20,000 RMB. Even more, the workmanship is better, and the battery life has doubled.

However, usually people buy a notebook for only 5,000 to 6,000 RMB. In the past, when the iPhone 4 came out, I may have only spent 2,000 to 3,000 RMB on a smartphone. But what Apple does is that they enable people to reach a level they never had access to in terms of product experience and details. This is Apple’s core philosophy.

And in order to achieve this, there must be many technical and experiential innovations. Users must be willing to accept them. Otherwise, just like many packaged phones in China or the expensive phone models advertised in airplane magazines, it will become unsustainable.Apple has two cores, the first is how to turn extremely luxurious things into something that everyone can afford, and the second is to make very unique innovations in terms of experience and technology. I think this is the core of everything Apple does, allowing you to spend a little more money to gain the ability that used to cost several times more and was unattainable.

Our understanding of Apple is like this, and we will continue to do it in this way. For example, after we built our own car, the cost of the components in the car can be calculated very well. For example, our audio system 7.3.4 uses the highest industry standard for each speaker, with 2160 watts of power. A set of audio systems like this, not to mention 7.3.4, would cost about six to seventy thousand yuan for luxury car brand’s 5.1 audio system in the past, and if you tried it, the effect is really not as good as this.

The reason why the effect is good naturally is related to our use of 7.3.4 instead of 5.1. In fact, there is no essential difference in the material cost, but where is the difference? The difference is that those expensive audio systems you see, which cost six or seventy thousand yuan for options, only have a few hundred sets of options in the Chinese market each year, and it appears on different cars, each car has to match different R&D costs.

It is not necessarily because of its black pricing, but because of its business model. Why? Because every set of audio systems has to share a lot of R&D costs, even up to tens of thousands of yuan, so it formed such a model. But we turned this into the standard configuration of each car, meaning that if I sell 150,000 L9s in a year, the shared cost of each car may be only 100-200 yuan, so we can proceed with the standard configuration more smoothly.

In fact, similar concepts are the same. For example, let me give another example, the price of the Ideal ONE corresponds to the starting price of the Audi Q7 (Note: European and American market), but the Audi Q7 has four-cylinder gasoline/diesel, six-cylinder gasoline/diesel, eight-cylinder gasoline/diesel, and hybrid models. Its seats have a five-seater version and a seven-seater version, and the five-seater version also has various different configurations.

You can count that the global sales volume of Audi Q7 is currently between 3,000 and 5,000 units, and it is the sales volume of 3,000 to 5,000 units that share so much R&D costs, different seat, different configuration development costs. The Ideal ONE sells more than 100,000 units a year, with more than 10,000 units per month, with only one set of things, and the entire cost is completely different.

So we can boldly use this method to bring these products that were once thought to be unattainable for more than a hundred or two hundred thousand yuan to the price of a luxury mid-size car, allowing everyone to obtain – this is the core concept of Apple that we have carefully studied.Although Apple’s products are a bit expensive, they have a very high cost-performance ratio. This is different from the cost-performance ratio represented by making standardized products very cheap in China in the past many years. These are two different cost-performance ratios, which require different abilities from enterprises. This is one of the ways we chose.

In addition, we also have to consider the users. Whether I was working on Autohome or as a consumer buying dozens of cars, I always encountered various problems, such as a car having many configurations and a bunch of options. But when you are selecting, you always feel like you are bargaining with the manufacturer. If you choose the highest configuration, you feel like you have spent a lot of unnecessary money. If you choose the lowest configuration, you feel regretful.

By doing things our way, the first benefit for consumers is that they can avoid bargaining and calculating with manufacturers. The second benefit for users is that all the money you spend on the car can become an asset, and it is equally valuable when you go to exchange it for another car.

We did not use the strategy of optional installation. For example, pedal options are essential, why? Because some people have long legs and do not need pedals, so installing them would be of no value to them. Therefore, we just made these things optional. However, overall features like screens, HUDs, ventilated seats, massage seats, and air suspension are not optional. Why? Because in the automotive industry, there is an important standard that optional features are basically cleared to zero when it comes to second-hand cars. Therefore, for users, optional features, no matter how much you spend, are not assets but expenses. The car itself is an asset. For example, the Ideal ONE has a very high retention rate, and many people are still getting a 10% retention rate when selling their 2021 models. When I put all these configurations in the car, the whole car and everything in it can still be sold at a 10% discount. In the past, people complained about the poor retention rate of the 2020 Ideal ONE, but this year, if people sell it, it will be even more expensive than the previous two years.

The third benefit is that we have made many features, configurations, and even models that were previously considered unattainable into things that anyone can obtain with a little effort.

These are the core concepts of Ideal Auto regarding products and configurations, which are a true tribute to Apple’s choices.

Question: Regarding the supply chain, you previously mentioned that the range extender is Ideal Auto’s holding company, and self-driving has chosen self-research, and the motor and battery are joint ventures with our company. Is the reason for doing so to ensure the safety of the supply chain or to increase control over the supply chain? What directions will we jointly invest or hold core aspects of the supply chain in the future?

Li Xiang: The two most important aspects are to solve the controllability of technology, which I think is very important and will greatly improve our R&D efficiency. The second is supply— we need to grasp the supply capacity in our own hands.Because we were in an awkward situation when we were making the Ideal ONE, we actually told the suppliers very early on that we could sell 10,000 vehicles a month. Some suppliers placed orders for 3,000 vehicles on their production lines, while others placed orders for 1,000. It wasn’t until we started production that they gradually added factory space. This was one of the problems we encountered. In fact, our target for the future is even larger, including the cars you will see next year and the year after. It is a sales space that exceeds what everyone could imagine in the past. So when we tell very good suppliers that we can achieve this volume, they still don’t believe it and offer us many discounts. In the past, no one could imagine that a large SUV could steadily sell 15,000 vehicles a month because they couldn’t deliver them due to insufficient parts supplied from the supplier’s perspective.

The best way for us to gain trust from others who don’t believe in us is actually through joint ventures, so we don’t need to educate them. Of course, although joint ventures may have some early investment, the cost of each component will be lower, which is the advantage of a joint venture. Therefore, the first advantage of a joint venture is to ensure that the technology is controllable, the second is to ensure the supply, and the third is to gain some cost advantages. I think that traditional automakers also do this, and we don’t need to invent anything new. We just need to learn from the best experiences in the traditional automotive industry and the industrial sector.

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.