On the morning of August 12, 2021, at 9:30 am, Ideal Automobile officially went public on the Hong Kong Stock Exchange.
Later, Shen Yanan, co-founder and CEO of Ideal Automobile, accepted a media interview on the topic of this listing at the Ideal Automobile Beijing R&D headquarters.
This summary compiles the complete content of this interview and organizes it into 4 aspects:
- Sales and market layout
- Consideration of listing on the Hong Kong Stock Exchange
- Production and research & development
- Planning and strategy
The following is the content of the interview.
Sales and Market Layout
Question: Ideal Automobile achieved a delivery volume exceeding 8,000 vehicles for the first time in July. What is the reason? When do you expect to exceed 10,000?
Shen Yanan: The main reason for Ideal Automobile’s sales volume exceeding 8,000 vehicles in July is that the product strength of the new Ideal ONE has been well recognized by users, and in fact, our orders have already exceeded 10,000. As expected, we will achieve a delivery of over 10,000 in September. This is our goal, and we are currently very confident.
Question: Ideal Automobile achieved outstanding results in sales and service in the first half of the year. What are the expectations for sales in the second half of the year?
Shen Yanan: We are very confident about the sales in the second half of the year. Before September, Ideal Automobile will strive to exceed 10,000 monthly sales. Recent outbreaks of the epidemic in various parts of the country, including Jiangsu and Wuhan, have had a certain impact on us, so we cannot be overly optimistic. Our orders are very strong, but the final delivery will indeed be affected by the epidemic, and chip supply is also an uncertain factor.
Question: Ideal ONE has achieved very good sales this year. In another one or two months, the total sales of Ideal ONE may exceed 100,000 vehicles. Does this mean that the platform of this model has begun to enter the profit zone?
Shen Yanan: From our financial report, we can also see that we only have one model currently, and we can clearly see the profitability of this model. According to previous estimates, the overall gross profit for this year will reach 19-20\%. Regarding net profit, because we have invested more money in research and development, from the perspective of net profit, we will be in a non-profitable state for a relatively long period of time.
Question: Independent brands have been very active overseas since the beginning of this year. What are Ideal Automobile’s plans for the overseas market?Shen Yanan: Ideanomics has formed a team that is currently very focused on thinking and researching how we can enter the overseas market. Our thinking mode is to seek stability before taking action, not simply going overseas for the sake of it. We will consider how to win recognition in the overseas market and what competitive advantages we need to establish. Please be patient while we work on this.
Question: Although Ideanomics only has one car model, its store sales efficiency is still very high. Now, there is also discussion on whether electric or new energy vehicles can only be sold in mall or supermarket stores, and what factors will be considered for site selection. What do you think of future trends?
Shen Yanan: Indeed, the efficiency of Ideanomics’ single stores is relatively high. In June, a single store sold 80 cars and in July, it sold 79 cars, which is higher than the industry average. In terms of the marketing channel model, having stores in supermarkets is actually more competitive in terms of overall costs than advertising, as supermarkets already have their own traffic, which can help generate leads.
On the one hand, we will increase the coverage of stores in supermarkets, and on the other hand, when our brand influence further expands and we do not need the traffic of supermarkets, we may also consider central stores. But I think this is still a long-term development process.
Question: Ideanomics mentioned product planning and pricing of 15-50 million yuan in February of this year, but it has been adjusted to 20-50 million yuan in the Hong Kong stock prospectus. What is the reason for the adjustment?
Shen Yanan: Ideanomics has further clarified the positioning of its products, which is to manufacture cars for families and serve more family users. The price range has been adjusted to 20-50 million yuan, mainly because we see that this is a rapidly growing market. When we planned Idean ONE in 2016, the market sales volume in this range was about 3 million units per year, and it should exceed 5 million units this year. It is expected that this market will exceed 8 million units per year by 2025.
In the background of the passenger car market almost not growing or growing at a moderate pace, this market has grown relatively quickly, so we would rather focus on this price range. In addition, this price range is also in line with our luxurious intelligent electric vehicle’s high-end positioning, so we will set the price at 20-50 million yuan.
Question: In February of this year, Ideanomics mentioned its strategic goal of achieving a 20% market share by 2025. Is there a detailed implementation plan for this goal, such as reaching a certain market share by the end of next year? How will production capacity be guaranteed?Shen Yanan: An ideal plan for a 20% market share is very detailed. We knew what we wanted to accomplish before we let everyone know. We have several preparations to achieve a 20% market share. The first aspect is our research and development. We will launch the second generation EREV platform, X platform, in 2022. We will have two pure electric platforms, Whale platform and Shark platform, which will begin launching products in 2023. Therefore, we have guaranteed products.
Regarding capacity assurance, we are also striving to solve more capacity issues while complying with national policy conditions. Our Beijing factory, as planned, will mass-produce our pure electric vehicle models in 2023.
From the point of view of the supply chain, achieving a 20% market share of 1.6 million units requires a very high demand for supply capability at every level of the entire supply chain, especially for our innovative parts, core and intelligent electric related parts. We are also working with partners to layout and tackle this issue.
Question: From a consumer perspective, in which region does Ideal Car have the most users?
Shen Yanan: Our sales distribution is consistent with the distribution of luxury car brands throughout the country. The places where we sell well are also relatively economically developed areas, without focusing solely on particular regions. We sell well in North China, East China, and South China.
Question: In cities like Zibo, Shandong Province, with populations of 3 to 4 million, Ideal Motors only entered this year. To what extent will Ideal Motors’ end-market layout sink domestically?
Shen Yanan: Regarding market sinking, since Ideal ONE is an EREV, our sales distribution is very evenly distributed nationwide. Our sales distribution is not concentrated only in first-tier and super-first-tier cities, but is completely consistent with the distribution of luxury car brands in various cities throughout the country. For us, it’s relatively simple. We look at the distribution of all 200-500k RMB passenger cars’ sales nationwide today and allocate stores according to this distribution.
Consideration for Hong Kong stocks listing
Question: After this round of fundraising, are there any new plans?
Shen Yanan: This round of fundraising is mainly for the next generation of Ideal vehicles’ research and development capital. Our research and development will concentrate on three aspects: the first is electric drive technology, including next-generation EREV technology under development, as well as 400 kW high-speed charging technology; the second is autonomous driving technology, Ideal Car has always attached great importance to autonomous driving. The 2021 Ideal ONE has also achieved full stack self-developed L2 + ADAS capabilities and will soon achieve NOA capabilities; the third is intelligent cockpit. We hope to bring more innovative cockpit intelligent solutions to our customers.#### Question: Will Ideal Auto accelerate the expansion of offline stores after the new round of financing?
Shen Yanan: Yes, after the financing, there are many areas where we need to increase investment. In terms of channels, we have already increased our investment. By the end of this year, we will have more than 200 direct sales centers. (As of August 11th, there were 110 Ideal stores nationwide.)
Question: The final issuance price of this round is relatively low, what factors led to this?
Shen Yanan: Actually, we don’t pay much attention to short-term stock prices within the company. We are more concerned with whether we can effectively open up efficient and convenient financing channels, stock up enough ammunition, and enable us to compete effectively in the next stage. The game of smart electric vehicles has just begun. In the initial stage, everyone will play to their strengths. In terms of Ideal Auto, we have three basic areas of expertise and two core competencies.
The three basic areas are: first, we choose to compete in the entire passenger car market, not just the new energy vehicles with 2.5 million units this year, but also the 18 million users who choose fossil-fuel vehicles. We need to ask whether we can produce better smart electric vehicles and convert more of the 18 million users into new energy vehicle users. This is our primary challenge. Second, we focus on making cars for families and focus on luxury smart electric vehicles in the price range of RMB 200,000 to 500,000. Third, we will spend a lot of effort on intelligent autopilot and autopilot-compatible smart cabins, designing the entire car as an intelligent space.
The two core competencies are: first, our product capabilities. The hot sales of the Ideal ONE show that a car with just one configuration has attracted a large number of users, proving that our ability to define products is quite outstanding. Second, our organizational capabilities, continuous iteration, system construction, organizational culture, and organizational efficiency internally. We believe this is our core competency.
Question: Why did Ideal Auto choose to go public in Hong Kong at this point in time, and what factors were considered? What is the proportion of pure electric business and extended range business?
Shen Yanan: Since we went public in the US stock market on July 30 last year, Ideal Auto has initiated a plan to list on the Hong Kong stock exchange. The main reasons for choosing Hong Kong are threefold. First, Hong Kong is an international capital market with diversified investors and a well-developed market depth. Second, we hope to attract more Asia-Pacific investors, especially local Chinese investors, to invest in our company. Third, a dual listing on both Hong Kong and US stock markets can resist some uncertainties.Regarding pure electric and extended range, we adopt a dual-wheel drive route. As you can see, the sales volume of the entire new energy vehicles has exceeded 1 million units in the first half of the year, and it is expected to reach about 2.5 million units for the whole year, with a very fast growth rate. In fact, consumers have already accepted smart electric vehicles, but the biggest bottleneck for purchasing is still the problem of charging and energy supplement.
Regarding charging and energy supplement, on the one hand, we are developing 400 kW high-speed charging, and on the other hand, we will continue to invest in extended range. These two solutions target different user groups. Users with good charging conditions can choose our pure electric products in the future, while users with poor charging conditions or mileage anxiety can choose extended range products. These two products are equally emphasized.
Question: Ideal Auto has adopted a dual-listing approach, which can bring us closer to domestic investors. In addition, does Ideal Auto have plans to return to the A-share market in the future?
Shen Yanan: Ideal Auto plans to expand its capital channels in the US, Hong Kong, and A-shares, so we do not rule out the possibility of returning to the A-share market.
Production and Research and Development
Question: Is Ideal Auto considering building a factory in Beijing, because it is mentioned in the prospectus that we have signed a framework agreement with a local Shunyi factory, which will produce pure electric vehicles?
Shen Yanan: Regarding the construction of a factory in Beijing, Ideal Auto plans to increase production capacity in Beijing and to prepare for the production of pure electric vehicles.
Question: Ideal Auto has launched new models earlier than planned and has been more proactive in upgrading models. What market variables have led to these changes?
Shen Yanan: With the development of the smart electric vehicle industry, the update and iteration speed of products is getting faster and faster. Ideal Auto is more focused on providing more and better functions to everyone through OTA upgrades and software, which is our focus.
Question: This financing is mainly used for technology development. What is the ratio of R&D personnel to the overall team? At what point will the peak of the R&D team slow down?
Shen Yanan: Ideal Auto’s R&D team has nearly 2,000 people. In the foreseeable future, we will continue to recruit more R&D talents. The race track of the smart electric vehicle industry is very long, and the demand for talents is very, very large. Therefore, it is unlikely that there will be any slowdown in the recruitment of outstanding talents.
Question: Chip supply continues to affect the automotive industry. What plans has Ideal Auto made to maintain stable chip supply? Has the proportion of domestic chips in the car been increased?
(No specific answer provided)Shen Yanan: In fact, Li Auto has been troubled by chip supply in the past few months. In June, our orders had exceeded 10,000, but our delivery volume has not yet exceeded 10,000 due to the chip shortage. In solving the chip problem, we can be more flexible in certifying some alternative solutions, which is our advantage. In addition, we need to actively obtain more industry resources.
Question: Li Auto mentioned that it will also develop pure electric dual-wheel drive in this listing, and charging facilities are important for the development of pure electric. Will the funds we raise, including future development, invest heavily in charging facilities?
Shen Yanan: Li Auto is developing 400 kW fast charging technology. When we launch pure electric models in 2023, infrastructure configuration is essential. When fundraising, a portion of the funds will also be planned to be used for laying out charging infrastructure.
From our perspective, the future three-layer charging network architecture will serve users. The first layer is household charging piles; the second layer is our current public charging piles, and the next step is to develop small DC public charging piles, which are not so demanding in terms of electric capacity requirements, but can make it more convenient for consumers to supplement energy in their daily life. The third layer is our 400 kW high-speed fast charging solution, which can quickly replenish energy for users on high-speed or in some densely populated areas.
Question: Previously, Bain Consulting predicted that by 2030, autonomous driving would account for 30% of the market share, but they now revised the number to 4% to 9% by 2030. As a complete vehicle enterprise, is it worth investing a lot of money in autonomous driving technology?
Shen Yanan: Regarding autonomous driving, our view on it is completely different. Li Auto believes that after 2025, or in the near future, autonomous driving will become a basic operating system of a car.
That is to say, if a car does not have L4-level autonomous driving, it is like a smartphone without a camera today. We believe it is a basic function. Under this basic function, we are constantly investing in the research and development of smart cabins. When the car is in autonomous driving mode, the occupants in the car change from drivers to passengers. Through the functions of the intelligent cabin, everyone can experience more functions and convenience during the travel.
Question: Why did Li Auto choose to use Horizon’s chips?Shen Yanan: Regarding the selection of Horizon, Ideal and Horizon’s cooperation went smoothly. We switched from Mobileye to Horizon’s solution in a relatively short time. Mobileye’s solution was also good in the past, but because it is a closed system, it is like a black box. The part of our R&D that can participate is relatively small, and some core capabilities in autonomous driving cannot be accumulated. Therefore, we chose a more open platform, like Horizon.
As I just said, our cooperation with Horizon has achieved full stack self-research, which is very beneficial for our next development. Regarding the selection of chips, we did not have to choose Chinese companies. As you may know, the first batch of models using Nvidia Orin platform will be launched globally in 2022.
Overall, we will still focus on the core software of autonomous driving, the overall hardware architecture, and the sensor management. We will grasp the core technology in our own hands and achieve full stack self-research. As for which chip companies to cooperate with, it actually depends on the technology. First, the technical time must match the launch time of our cars. Next, we look at the ability of technical support and the competitive cost.
Question: Will the next L4 autonomous driving model of Ideal Car be equipped with LiDAR? Which supplier will Ideal Car cooperate with for LiDAR?
Shen Yanan: The next generation of models will come equipped with LiDAR for autonomous driving, and we are currently cooperating with Hesai and DJI.
Planning and Strategy
Question: Recently, the Ministry of Industry and Information Technology has issued a favorable policy for electric cars. Will Ideal Car have a new layout for SEV models?
Shen Yanan: We previously worked on SEVs, but now we are returning to our own strategy. Our focus is still on family cars between 200,000 and 500,000 yuan. Therefore, although low-speed electric cars have clear policies, we still focus on our current business and will not continue to invest in SEVs.
Question: How does Ideal Car balance long-term and short-term interests? How do you balance R&D investment and profit generation?
Shen Yanan: Ideal Car has always focused on long-term interests because intelligent electric vehicles are a long-term race, so we must consider this with a long-term plan. We mainly look at two aspects internally. One is from the perspective of business management, the main point is the level of gross profit, because if you have enough gross profit level, it means that your business is very healthy, and it can support continuous development investment by itself.This is the first focus. Secondly, from the perspective of operational safety, we are also very concerned about the changes in operational cash flow itself, whether it is through financing or improving operational efficiency, to make our operational cash flow flow in a positive direction. At present, our operational cash flow has been positive since the second quarter of last year.
Question: The industry generally believes that software revenue from electric vehicles will become a relatively large cake in the future, and the Ideal car currently has standard auxiliary driving. Will it consider becoming optional in the future?
Shen Yanan: Regarding software revenue, Ideal car does not want to obtain software revenue through optional modules based on the requirements of the capital market. We still think more from the perspective of user experience. For example, we always say that automatic driving is standard because we make cars for families, and automatic driving is related to safety.
Ideal car believes that automatic driving should be standard, not the so-called subscription model. From the perspective of technological development, there are also very significant benefits to the standardization. We don’t want carefully developed features to have a low usage rate because users need to pay for them. From the perspective of development, we believe that the more people who use driving assistance systems, the more helpful it is to enhance the user experience. Therefore, we think it should be standard.
Question: Ideal car’s first pure electric vehicle will not be launched until 2023. In the next two years, including some competitors, their electric vehicles have already gained some market appeal. How can the Ideal car ensure the competitiveness of its first pure electric vehicle when it is launched in 2023?
Shen Yanan: From the perspective of competitiveness, Ideal car’s view of the market is that we are not simply competing in the pure electric vehicle market. We focus more on the entire passenger car market. Whether it is an extended-range or pure electric vehicle, we are more about replacing fuel vehicles, which is our starting point.
What is the bottleneck to replace fuel vehicles? Now, everyone recognizes that whether it is an extended-range or pure electric vehicle, they are leading in terms of driving and riding experience and intelligence. The reason why there are not more consumers choosing new energy vehicles is still due to the charging experience issue. Therefore, our focus on pure electric in 2023 is how to basically solve the user’s charging experience issues. The reason why we are doing 400 KW high-speed charging is to make our users’ energy-supplementing experience basically equivalent to fuel vehicles, as convenient and fast as refueling.
Question: Regarding the SUV and MPV models on the pure electric platform, which price range is expected to be arranged?Shen Yanan: From the perspective of pure electric platform, Ideanomics will gradually launch its Ideal electric vehicles from 2023 onwards. We are not overly concerned about the form of the vehicle, but more about building cars for families. Our price range is between 200,000 to 500,000 RMB. On this basis, we will consider what type of vehicle form is most suitable for family travel scenarios and strive to better meet customer requirements.
Question: Will Ideanomics prepare for the layout of fast charging stations before the launch of its electric vehicle products, and is it a proactive measure or a gradual rollout after the release of products?
Shen Yanan: Regarding the deployment of charging stations, Ideanomics believes in the importance of proactive measures. Later this year, you may see some of our actions taken in regards to this matter. By the second half of 2023, when we launch our pure electric vehicles, we will have a certain degree of charging stations deployed before the release of these vehicles.
Question: What about range-extended electric vehicles? There are some rumors that the government may no longer support issuing free license plates for range-extended vehicles. Is Ideanomics prepared for any changes in government policies?
Shen Yanan: As of now, we can see that as we effectively launch range-extended vehicles, more and more companies in the industry are introducing similar products. In the long run, we believe that range-extended and plug-in hybrid vehicles will be a very good alternative to traditional fuel vehicles. We also believe that the government should continue to support the development of this technology, so we are not too worried about license plate issues.
The policy changes you mentioned mainly focus on Shanghai, which has a clear policy that starting from 2023, there will no longer be support for license plate issuance for plug-in hybrid and range-extended vehicles. But of course, we are already planning for this and preparing to respond to these changes. Apart from Shanghai, the current national policy support for range-extended vehicles is relatively stable.
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.