The three US-listed Chinese EV giants - NIO, Li Auto, and XPeng - are the brightest stars in China's auto industry. Chinese investment bank CICC explains why they have achieved the success they have today.
According to CICC's report released today, China's new carmakers have already passed the first stage of financing, and the second stage will come next, in which a large number of carmakers will recognize the importance of the new energy market, establish new brands, split their operations, and participate in the competition.
According to CICC, the spin-off brands of traditional automakers rely on a strong traditional vehicle cash-cow business, have good financial conditions, and do not have a large risk of capital chain breakage. It is expected that these brands will take advantage of their financial advantages in an attempt to make some brand differentiation.
However, from the experience of NIO, Li Auto, and XPeng, success in the new energy vehicle market usually requires the ability to build their own distinctiveness.
In 1999-2000, automobiles were mainly sold as industrial products in China, and customers were more interested in cost performance and practicality.
After 2000, as the per capita income in China increased, the consumer attributes of cars increased and the consumer groups started to diversify. Different types of consumer groups have different preferences and different needs for appearance, performance, and cost performance, which has brought momentum and opportunities for the diversified development of the automotive market.
All of them have their own distinctive labels: Tesla uses technology as the label, NIO uses luxury brand as the label, Li Auto uses large SUV as the label, and XPeng uses automatic driving as the label. Failed automakers, on the other hand, all have the same products and vague target customers.
According to CICC, having a distinctive label is the foundation of success, on top of which it is necessary to solve the problems faced by users and create demand.
There are two main problems with new energy vehicles: 1) high price preference and weak cost performance compared to fuel vehicles; 2) mileage anxiety caused by long charging time and inconvenient charging.
CICC believes that successful companies have solved or mitigated these problems through different means. While solving the problems, successful companies have also created and expanded demand based on their distinctive labels.
NIO: Extreme service rationalizes high prices, battery swap solves convenience problems
CICC believes that NIO does not directly reduce the price to solve the problem of expensive, but to rationalize the "high price" by providing the ultimate service.
NIO provides a comprehensive, ultimate after-sales service experience, including free lifetime roadside assistance, free lifetime warranty, free lifetime road battery swap, free shared space, etc. NIO House and the offline app community work together to amplify the social marketing efforts.
The offline NIO House and online APP community work together to amplify the social marketing effect, enhance brand recognition, build a high-end image, and rationalize the "expensive".
NIO has launched the ES8 (large SUV), ES6 (mid-size SUV), and EC6 (coupe SUV) models, covering a broadening range of categories and trying to extend prices downward.
Its first launch model, the ES8, was priced at RMB 468,000 in 2018, while the ES6, which will be launched in 2019, is priced at about RMB 358,000, a reduction of RMB 100,000 in comparison.
The 2020 EC6 will also be priced between RMB 350,000 and 400,000, increasing the potential customer base with multiple prices and multiple product types.
NIO has launched Baas (Battery as a Service) service in August 2020, which allows consumers to buy the whole car (without battery) and pay a monthly fee to lease the battery later, resulting in a direct drop in the purchase price.
The Baas program will bring the price of the ES6 directly down to RMB 274,000 after subsidies, and CICC believes that the ES6 will squeeze part of the mid-range market share of RMB 200,000-300,000, including the Tesla Model 3 and Audi A4L.
Baas can also make the price of ES8 vehicles drop to RMB 380,000, and CICC believes that ES8 will take over the market of Audi Q7, Mercedes-Benz GLE, Volvo XC90, and other luxury cars with its high price/performance ratio and long-wheelbase advantage.
In addition to the separation of body and battery sales, NIO has also opened a battery swap station to replace fully charged batteries for car owners who need to recharge their batteries, saving them waiting time.
CICC believes that NIO, with its forward-looking battery swap design, over 1,200 patents related to battery swap and leading battery swap station infrastructure layout, is expected to take the lead in establishing a new energy vehicle replenishment business with battery swap as the core, providing a better replenishment experience.
As the ownership of the battery belongs to the company, both new and old customers will be equipped with similar batteries, and when the battery is renewed, all customers will be able to enjoy the new battery technology.
Compared to gasoline vehicles, new energy vehicles are replaced more frequently, mainly due to the rapid innovation of battery technology.
Taking BYD e5, Yuan EV, and F3 as examples, it took 4 months and 5 months respectively for sales of new energy vehicles e5 and Yuan EV to drop from peak to 50%, while it took 10 months for sales of gasoline vehicles F3 to drop from peak to 50%.
Under the model of separating body and battery sales, CICC believes that it is possible to retain the original model and constantly replace it with a new battery, resolving the conflict between the frequent battery replacement needs and the relatively flat replacement needs of the model. Manufacturers will also save development expenses by not having to launch new models frequently to match battery replacements.
Li Auto: Solving convenience problem with extended-range technology
Li ONE is mainly aimed at families with two children, which is a relatively small and expensive product category.
The Li Auto is priced competitively with competing products such as Mercedes-Benz and Touang, and is equipped with a 1.2T engine as a generator to solve range problems.
Li Auto offers two types of SUVs, 6-seat, and 7-seat, to meet the needs of traveling with children. Currently in China, vehicles with seven or more seats must be inspected every two years, while new vehicles with less than seven seats are exempt for six years.
Li Auto reduces costs by reducing battery consumption, as the Li ONE is equipped with a 40.5kWh lithium-ion battery.
Li Auto adopts the "online + direct sales" model, and outsources the maintenance process to reduce sales costs.
Compared with other new car makers, Li Auto's profitability has exceeded that of NIO despite its small sales volume, and its expense ratio is already lower than that of NIO in the first quarter of this year and Tesla in the first quarter of 2014, showing excellent expense management ability.
The extended-range hybrid technology is an inevitable product of Li Auto's goal of "high-cost performance, large space and long-range".
CICC compared the BOM costs of pure electric and extended-range electric vehicles. The BOM cost of a pure electric car is 45% higher than that of a traditional gasoline car, including the high cost of the battery, motor, electronic control, and lightweight body.
The BOM cost of an extended-range hybrid is only 10% higher than that of a conventional gasoline vehicle: it reduces battery capacity and eliminates the need for large-scale adoption of aluminum structural components.
The extended-range hybrid is the best choice for large SUVs that are looking for the best price/performance ratio but still have a good range.
XPeng : Cost-effective automatic driving
XPeng focuses on cost-effective intelligent driving, and has set up its own intelligent driving construction team by recruiting talents from Tesla, Qualcomm, Samsung, Alibaba, and other companies.
XPeng has R&D teams in both the United States and China, with more than 300 team members.
The XPeng P7, which will be available in 2020, is equipped with the powerful XPILOT 3.0 driver assistance system and XsmartOS 2.0 in-vehicle intelligence system.
At the 1024 XPeng Smart Day, the company demonstrated XPILOT 3.0's NGP high-speed autopilot, parking memory parking and other new functions, and the company's level of autopilot is in the lead of domestic brands.
Tesla keeps cutting prices to bring pressure on P7 pricing. The current price of XPeng P7 is RMB 229,900 to RMB 366,900 after subsidies, and the price difference between XPeng P7 and the entry-level China-made Tesla Model 3 is only RMB 20,000 after price reductions.
However, from the profitability point of view, due to XPeng's small sales volume and limited bargaining power in parts and other products, there is a big gap between XPeng's current gross margin and Tesla's gross margin in 2014, when Tesla started to release the volume.
XPeng's gross margin is 4.6% in the third quarter of 2020, while Tesla's gross margin is 27.7% and 23.5% in the third quarter of 2014 and 2020 respectively.
The fast-charging technology is leading in China, but it has not yet reached the ultimate level, and there is still room for improvement in comparison with Tesla.
At present, the maximum power of Tesla's V3 supercharger can reach 250kW, while the maximum power of XPeng's fast charger is 180kW. CICC believes that there is still some room for improvement in fast-charging technology if the company wants to brand itself with technology and compete with Tesla.