204,000 vehicles.
This is probably the final number after the production of the Li One stopped in October this year.
As Li’s first delivery model, Li One perfectly showcases Li Xiang’s outstanding product definition ability. In two and a half years, it took the lead in breaking through 100,000 vehicles among China’s new forces in car-making and became the first China-made brand with a selling price of over 3 million yuan. It produced over 200,000 vehicles.
It can be said that Li One is one of the few representative models that are “popular on the market as soon as they are launched” in China.
However, with the launch of the next-generation model, Li Xiang L8, Li One will soon become one of the few products that reach the peak and stop being manufactured.
In the automotive industry, car companies often don’t give up on classic products easily. Instead, they continuously use their market appeal to launch iterative models and continue to deepen their market share. The cumulative total of more than 35 million Volkswagen Golfs is one example.
Cui Dongshu, secretary-general of the China Passenger Car Association, believes that the discontinuation of the Li One is not a waste of past accumulation but due to the consideration of standardizing product sequences. Under the previous naming rules, Li’s product naming rules were not easy to sort, but after changing to the combination of L followed by numbers, the product naming rules became more systematic.
However, behind Li’s “Russian doll” product rhythm is Li Xiang’s last move in the late-stage extended-range market, which is also a helpless move of “abandoning a vehicle to keep the general in charge”.
How to view Li’s “Russian doll” behavior?
“One more thing,” this is the classic easter egg at Apple’s press conference in the Jobs era.
As long as Jobs said “One more thing” at the press conference, it meant that a revolutionary product was about to appear.
With Li Xiang’s “One more thing” at the Li Xiang L8 launch event, Li Xiang L7 and Li Xiang L8 were released together. L6 will be launched in the first quarter of 2023, forming a SUV sub-segment market that covers the $20,000-$50,000 price range with Li Xiang L9.
Li Xiang has publicly stated that he plans to release a popular product every 1 million yuan in the price range of 200,000 to 500,000 yuan.
A Li version of the “Russian doll” product system unfolds from here.
From a product perspective, the essence of the “Russian doll” is: experience is replicable.The similar operation is not uncommon in the automotive industry, and Volkswagen, BMW, Audi and other automakers also have similar product nature: highly similar appearance, functions and configurations. The most typical examples are the three models of Volkswagen Lavida, Bora and Sagitar.
On the one hand, this operation improves the sharing and even reuse ratio of raw materials and components, and then lowers costs through large-scale procurement, thereby improving gross profit margins.
On the other hand, a replicable product case at the beginning of product development can reduce research and development costs for the next generation of products.
It is reported that after Ideanomics L9, Ideanomics L8 has saved more than 80% of the research and development time.
Ideanomics believes that the design layout of L9 is optimal in sensors, drive motors, thermal management, and wind resistance, and L8, L7, L6 and L9 are all products of the same platform. In order to enable all users to enjoy the same technology, only in different positions, the body size, configuration and price will be slightly different, like adding and subtracting on a model product.
The implication is that consumers with higher car purchase budgets can choose larger products, while those with lower budgets can choose smaller products, which fully complies with the “where there is demand, there is a market” law.
From “single blockbuster” to “blockbuster combination”, Li Xiang’s strategy is to “cover all” the incremental space of the target group.
Behind this, it is inseparable from the ideal product thinking.
Taking Apple as its benchmark, Li Xiang has repeatedly emphasized that he hopes to make products at the level of Apple’s blockbuster iPhone.
According to FunTalk, Li Xiang always compares some of the pixels of Ideal’s products with Apple’s internally, including simple aesthetics. He even asked all company employees to read “Crazy Simplicity” and some employees to write reading notes.
In addition, Li Xiang also compared Apple’s and Dell’s official websites: Dell’s website pages are cumbersome, while Apple’s are simple and intuitive. Therefore, Apple can do a better job.
Secondly, the definition of the product within Ideanomics adopted the “Robert’s Rules of Order,” which is to let everyone put forward ideas and then discuss what products are most concerned about, what needs to be solved, and what can bring the most value to consumers.
“When I hold a product meeting, the most important thing I do is deciding what not to do and cutting out some useless things.” This is Li Xiang’s attitude towards product definitions.
In Li Xiang’s eyes, users, technology, and products have different weights.If technology is a choice made after cost consideration, then user operation is more about the product itself. The ideal product feature is that it wants to maintain a clear supply-demand relationship with the user, which means that when you have the need to buy a car, I can provide the appropriate product.
Li Xiang believes that the product is the moat of business, and technology is the moat of the product. The product leads technology and also leads business.
After the fierce pursuit in the first half, major new forces have entered a new round of product updates and replacements. The competition between car companies has also become “group army confrontation” between product matrices.
For global decision-makers of new energy vehicles, they need to make a clear and definite judgment – that the intelligent electric vehicle industry has crossed the “early cultivation stage” and entered a “rapid popularization period”.
For the ideal, the ability to define the product is the core competitiveness.
For this reason, through this “ideal” nested product system, we can also glimpse Li Xiang’s ambition:
First, with the discontinuation of the IDEAL ONE, IDEAL L8 and L7 have entered the game, Ideal has successfully defined a clear product planning route, which is the most important part of the second half of the car battle strategy.
Second, in the automotive industry where economies of scale exist, the Ideal streamlined SKU means bringing less cost scale, and also means that a single model has higher sales profits, which represents that Ideal can touch the break-even point earlier.
Will Ideal be panic-stricken by policy tightening and production capacity limitations?
Among global car companies, Li Xiang believes that Toyota makes the best products, followed by Tesla.
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Toyota dares to give up performance advantages and cancels functions that consumers consider practical but 95% of people think are irrelevant;
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Although there are many shortcomings of Tesla, it also has many product innovations, dares to cut traditional demands, and attempts to change users with new technologies.
Therefore, Li Xiang believes that good products depend on completeness and maturity. For example, in order to achieve a cost-effective family car, Li Xiang chose the extended range technology route.
Ideal, which has been committed to manufacturing extended-range electric vehicles since its establishment, still has not taken the pure electric vehicle route.
It is well known that extended-range electric vehicles can maintain power through refueling in addition to charging, so their range is longer than that of pure electric vehicles. They also meet Li Xiang’s proposed “use electricity in the city and use oil for long-distance” driving scenes.Although controversial, it is undeniable that after BMW and General Motors, Ideal was the first car manufacturer to successfully implement the range-extender technology in electric cars.
According to Zhang Xiao, the Chief Product Strategy Officer of Ideal Auto, the technology of range-extender itself is not the problem, but the wrong usage scenario is the reason for product failure, which led to many other car manufacturers, such as AITO WENJIE, Voyah, and Changan Shenlan, joining the race.
However, with some cities in China tightening policies on range-extended electric cars, this type of vehicle may become a “sunset industry”.
For example, in Beijing, range-extended electric cars still need to use the license plates of fossil-fueled cars due to certain restrictions. In Shanghai, starting from January 1st, 2023, there will no longer be license plate quotas for new energy vehicles, including plug-in hybrid and range-extended hybrid vehicles.
Therefore, Ideal’s L9 model, which has begun deliveries, and the L8 and L7 models which were recently launched but have not yet been delivered, will officially become “blue plate cars” (conventional vehicles) starting from next year.
For those who have ordered Ideal L9/L8 but have not completed the registration and license plate application process by the end of this year, even if they have already obtained the green license plates through the lottery system, they will not be able to continue with the registration process. They will have to acquire license plates through auctions, and will be subject to certain limitations and fees, such as restrictions on driving during certain days and paying vehicle purchase tax and boat use tax.
According to the latest results from Shanghai license plate auctions, the average price of a license plate has exceeded 90,000 yuan. This means that the cost of owning a range-extended electric car will increase by at least 90,000 yuan. In addition, the second-hand value of range-extended hybrid vehicles will also be affected.
For instance, the new energy specialized license plate in Shanghai is a one-time-use license. Once it is transferred, sold, or scrapped, the green license plate will automatically be scrapped as well. This essentially means that range-extended electric cars cannot re-acquire green license plates, which further leads to a significant depreciation of the second-hand values of range-extended hybrid vehicles.
This will undoubtedly eliminate the purchasing advantages of range-extended electric vehicles over conventional vehicles, and it is also a significant issue for Ideal Auto.
According to data from the China Association of Automobile Manufacturers, in 2021, Shanghai is the city where Ideal Auto sold the most cars, with a total sales volume of 6291 units. Hangzhou is the second, with 6190 units sold. Between January and August, Hangzhou, Chengdu, and Shenzhen ranked first, second, and third in terms of sales volume, respectively, while Shanghai ranked sixth with a sales volume of 3120 units.
Although the market share has declined significantly, Shanghai is still an essential sales support for Ideal Auto, and Li Xiang (Ideal’s founder) is making the final push.
It is reported that Ideal’s internal policy is to prioritize accelerating deliveries in Shanghai.
Other car manufacturers, such as Voyah, BYD, and AITO WENJIE, have also adjusted their sales policies and delivery schedules to cope with the situation. For example, Voyah has quickly adjusted its production plan and transferred 2000 hybrid Voyah Frees and Voyah Dreammakers to Shanghai.With the adjustment of the delivery rhythm of the IDEAL product line, questions about IDEAL’s production capacity planning have been raised.
Currently, IDEAL has two publicly disclosed production bases in Changzhou and Beijing.
The annual planned production capacity of the existing Changzhou factory is 100,000 vehicles. The factory is undergoing Phase II capacity expansion and its annual production capacity is expected to increase to 200,000 vehicles.
The Beijing factory is still upgrading and renovating, with an annual planned production capacity of 100,000 vehicles, and is expected to be put into operation in 2023.
In addition, in January of this year, IDEAL invested 430 million yuan to acquire 1.1334 million square meters of second-class industrial land in Chongqing, which is considered by the outside world as IDEAL’s plan to establish a third factory in Chongqing. However, the factory is not expected to be put into operation until after 2024.
Based on the current production capacity, IDEAL is already producing vehicles in an “overloaded” state.
Data shows that IDEAL delivered 869,270 vehicles from January to September this year. Based on IDEAL’s current annual production capacity of 100,000 vehicles, its capacity utilization rate has exceeded 100%.
Therefore, based on the policy tightening of the adoption of extended-range electric vehicles in some cities and IDEAL’s current production capacity predicament, it is not difficult to understand the cessation of production and delisting of IDEAL ONE and the fast-paced promotion of the L series.
However, the current challenge is, based solely on the seemingly clear product lineup of the L series, how much chance does IDEAL have of winning?
Can IDEAL handle the million-level market scale?
In the first half hour of the IDEAL L8 conference, Li Xiang spent a lot of time talking about the technological capabilities IDEAL has reserved from stages 1 to 10, including autonomous R&D capabilities, supply chain capabilities, and intelligent manufacturing capabilities.
Afterwards, Li Xiang started thinking about what a company with a hundred-billion-yuan revenue scale from stages 1 to 10 should do:
“Enterprises should not only consider what they are good at in the past, but also the necessity of comprehensive capabilities in all aspects, and based on this foundation, make their long board longer.”
“Make the long board longer” means that Li Xiang always wants to retain the label of “dad cars”. The sales data of IDEAL L9 exceeding 10,000 in September of this year also proves the purchasing power of this user group.
From the perspective of the passenger vehicle market, domestic SUV is not the fastest growing sector in the first half of the year, but it is the only niche market with dual growth in consumption capability and consumption level.
Specifically, the growth rate of high-end SUVs (3.3%) is equivalent to that of high-end sedans (4.0%), and the growth rate of mid-range SUVs (7.5%) is higher than that of mid-range sedans (3.7%). These two sets of data indicate that the difference in demand between sedans and SUVs is small among high-end consumers, but mid-range consumers show a clear preference for SUVs over sedans.
Data from the China Passenger Car Association (CPCA) shows that the average sales price (cumulative) of SUVs in the first half of the year reached RMB 195,000, an increase of RMB 0.4 thousand compared to the same period last year, and the cumulative price index was 109.4, an increase of 2.5 points from the same period in 2019, indicating a slight increase in consumption level.
It can be seen that the strong demand from the mid/high-end SUV market is an important reason for promoting the dual growth of consumption capability and consumption level of SUVs.
From a product perspective, due to the increasing influence of electrification and intelligence on the automotive industry, the “golden age” of SUVs is also coming to an end.
Although there has been little change in the ranking of the entire SUV market sales list – the autonomous brands “Big Three” composed of Haval, Changan, and Geely still firmly occupy the top three positions of the SUV sales ranking, even Honda, Toyota, Volkswagen and other brands’ SUVs are also frequenters of the list.
But as the terminal sales of head SUV products such as Haval H6, Boyue, CR-V, and Tiguan have declined for years, the head effect of “golden cars” in the market is decreasing.
SUV is a niche field with a market size exceeding one million vehicles. If any new force can successfully capture the market share of a certain model mentioned above, it will undoubtedly achieve exponential growth. This is also the “basic disk” that the Ideal L series is striving to obtain.
On the other hand, taking the Ideal ONE as an example, in the ranking of luxury brand used car replacement, the ownership rate of Ideal ONE is as high as 30%, of which Mercedes-Benz, Audi, and BMW account for 7.6%, 7.7%, and 6.7% respectively.
Faced with the upgrade of consumption demand and the transformation of consumer groups, many products that have long held the top spots in the rankings and deeply rooted in people’s hearts are becoming increasingly powerless in the increasingly diversified market demand. This is an opportunity for the Ideal L series.
The China Association of Automobile Manufacturers (CAAM) predicts that the demand for family cars in 2021 has reached 5.71 million units, and with the demand upgrade brought by the relaxation of the third-child policy, this part of the market is expected to continue to rise.According to data from iResearch, more than 75% of families with babies have a monthly income of over 15,000 yuan in 2021, and more than 70% of families with two children have an annual income of over 200,000 yuan.
This part represents the consumer group of family cars, indicating the demand space and consumption level, which occupy a certain market share. However, the current market presents a mismatch in the choices between supply and demand.
Firstly, the range of choices for family cars is limited. Analysis from iResearch shows that over 70% of families think that many vehicles cannot achieve balanced product power in terms of space (number of seats, cabin space, and cargo space), safety (driving assistance functions), and riding experience (comfort and intelligent cabin).
Secondly, some hexagonal products that can solve demands well in all aspects have a high price.
Based on this observation, in theory, the ideal L-Series combination strategy covering 200,000 to 500,000 yuan could solve the supply-demand mismatch, even having the possibility of creating a “big hit combination” from top to bottom.
In the ideal context, there is a term known as “segmented monopoly”.
Li Xiang believes that monopoly is the key core rather than the cutthroat competition, so start-up companies need to find a segmented market, monopolize it, and then expand.
Taking iDeal ONE as an example, the large SUV in the third row of seats may just be a smaller segmented market, with only eight to nine thousand monthly sales for the popular Toyota Highlander at the same price point, and only six to seven thousand for the following Touareg. For iDeal, a blue ocean market with the most stable customer source, if they can “identify”, “consume”, and “expand”, iDeal ONE can sell better than SUVs of the same type at the same price.
As iDeal ONE steps down from its success, now iDeal L9, L8, L7, L6, etc., each model enters the market with confidence in monopolizing.
This is the ambition and potential of the iDeal L-Series.
Next, it remains to be seen whether iDeal can accumulate a certain market scale and successfully transition to the pure electric era in the context of policy tightening and limited production capacity.
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.