The business revelation of Ideal Auto

The automotive industry is one of the most competitive industries, and it is also one of the most lucrative industries. Major automakers are stepping up their efforts to research equipment and upgrade performance. Among them, Ideal Auto experienced a decline in reputation last year, but after a series of reform measures, its reputation gradually reversed. What enlightenment does it bring us? The author of this article analyzes this and hopes it will be helpful to you.

With the electrification and intelligent transformation of the automotive industry, sales have increased rapidly since 2021. In 2022, sales of new energy vehicles increased by 2 times, and the market share reached 25%.

The automotive industry is one of the most competitive industries, and it is also the most lucrative industry. Brands such as Tesla, traditional car companies, new forces such as NIO, Xiaopeng and Li Auto have all been working at full capacity this year and have started the 2023 elimination round with all their might. The industry structure is becoming clearer and clearer as to who will win in the end.

If you want to learn about management and business, the best way is to look at cases, and the automotive industry is the best learning case. It is not easy for car companies to stand out from the crowd. What exactly do they rely on to survive? With this kind of thinking, we can learn from their business ideas and apply them to our own investment and operations.

1. Overview of China's New Energy Vehicles

Among the new Chinese car brands, the most familiar ones are Weilai, Ideal, and Xiaopeng (abbreviated as Wei, Xiaoli). These three companies were established around 2015. Now, eight years have passed, and some are happy while others are sad. Let's talk about it with data.

Focusing on NIO, Xpeng and Li Auto, in April 2023, NIO sold 6,658 vehicles, Xpeng sold 7,079 vehicles, and Li Auto sold 25,681 vehicles. Ideal's sales were almost twice the total of NIO and Xpeng.

The absolute value of sales data cannot explain the whole problem. The key is to see that Ideal has increased by 516% year-on-year and 23.3% month-on-month, which means that Ideal has increased five times compared with last year, far exceeding any other car company.

Ideal's market value has reached US$30.6 billion, NIO's is US$13.67 billion, and Xpeng's is US$8.4 billion (data as of May 13, 2023). Its market value is also US$8 billion more than the latter's total, and it has quietly begun to turn losses into profits.

NIO's sales have fallen off a cliff, with sluggish growth and severe losses. The recent launch of ES6 has triggered complaints from old ES7 owners. ES6 is 80,000 yuan cheaper than ES7. The product gap makes ES7 owners feel that it is not worth 80,000 yuan, which inevitably causes dissatisfaction among owners who have just ordered ES7. Li Bin also sincerely told users that he hopes users will give it more time.

Xiaopeng was once the sales champion in 2021, but this year the sales of its new car G9 were dismal. According to Ideal's sales, many users who had ordered G9 would rather not pay the deposit and turn to buy Ideal. Xiaopeng's gross profit in 2022 was 9.4%, which is very unfavorable for Xiaopeng.

The purpose of listing these data is to illustrate that Ideal's current achievements have far surpassed those of NIO and Xpeng. How does Ideal achieve these results and what is its business logic?

2. The business implications of Ideal Auto

1. Solve industry pain points

Entering an industry requires understanding the development trends of the industry. In a downward industry, the harder you work, the closer you are to failure.

When Ideal Auto started its business, it gave in-depth consideration to the issues in the electric vehicle industry.

To put it simply: the first is that electric cars are expensive, and the second is the charging problem.

Batteries account for 50% of the cost of electric vehicles, which makes them more expensive than fuel-powered vehicles.

1) How Tesla solves industry problems

Has Tesla solved these problems? Yes, it has. Elon Musk has used the first principles to reduce battery costs through self-development, and has also simplified the product, including an integrated die-cast body and minimalist product design. Tesla is also gradually solving the charging problem by building its own charging station network.

Finally, we can see that after Tesla has scaled up its products, it can sell cheaply and make money, thus having a cost-leading advantage. BYD also has this advantage.

If other brands enter the competition of mid- and low-end models, they will have almost no chance, because Tesla and BYD have pricing power. This is also why most of the newly established new energy vehicle companies are positioned in the mid- and high-end.

What are the key factors that affect market value? The core principle is whether the company is solving industry problems.

2) How Ideal solves industry problems

As for how Ideal solves the above two problems, it introduces range-extended technology. Range-extended technology is a technology that can use oil or electricity. Different from hybrid, when using oil as the power source, the engine is connected to the motor, and the motor is the only power source to provide power.

The hybrid system still uses the engine to drive the gearbox and transmits the power to the drive shaft for drive. Compared with the extended-range system, it is more complex in structure and also changes the pure electric architecture.

This series technical structure was very controversial at the time, and many experts raised objections. Just like Tesla back then, no one was optimistic about pure electric technology. The core belief was that the energy conversion efficiency of extended-range oil-to-electricity was too low.

Nowadays, as Ideal's reputation is getting better and better, people are increasingly accepting the extended-range technology, and Ideal is the preferred brand for extended-range technology. Through extended-range technology, Ideal can be driven with just a small battery, using electricity for short distances and oil for long distances, giving users more freedom of choice. Smaller batteries naturally reduce costs, and the charging problem is also solved.

Why does Ideal One, which sells for 330,000 yuan, still have a gross profit of 20% and still maintain a sense of luxury? The key lies in the recognition of industry pain points and the courage to innovate and solve problems with new technologies.

Ideal has chosen a difficult but correct path.

2. Clear product positioning

When creating an ideal brand, you need to answer the questions of who you are and what services you provide to whom.

The ideal positioning is the combination of car and home to meet the travel needs of Chinese families. As the founder, Li Xiang has a strong ability to understand needs, and the core positioning group is China's dads and moms.

In China, the custom of taking care of children requires the help of parents, so a car with a large space is needed. Unlike traditional cars, if children and the elderly enter the third row, the seats must be folded, which is very unreasonable.

With three rows of seats, it was unreasonable that a baby stroller could not be placed in the trunk. At that time, either the luxury brands sold the cars at a very high price, or they did not meet the demand.

After Ideal One sold out, it successfully completed the stage from 0 to 1. So what should be done from 1 to 10?

Ideal continued to build on its previous advantages in understanding user needs and launched three SUVs to meet the needs of Chinese families. Products at different price points meet the needs of Chinese families. Ideal did not make sedans, pure electric models, or charging piles, but continued to build on its original advantages. After the sales of the L series increased steadily, Ideal launched charging piles and began to develop pure electric models.

When starting a business, you should think clearly about the product positioning on the first day and grasp the rhythm at different stages, instead of waiting until the car is built and then thinking about who the users will be.

Verify product needs from 0-1, find seed users, improve product and service capabilities, and ignite word of mouth.

What you need to be especially careful about from 1 to 10 is to continue your original advantages, avoid doing things that lack continuity, and then scale them up.

3. Scale

From stages 1 to 10, we need to consider how to make a profit. Ideal has taken two actions.

The first action releases L9, L8, and L7.

These three products are exactly the same from the appearance to the interior. Why do they adopt the Russian nesting doll method? Has Ideal started to become less careful in making products?

Not at all. Ideal is truly one of the best learning companies in the automotive industry, and its approach is to learn from Tesla.

Tesla only produces two models in China, Model 3 and Y. The Y is slightly higher than the 3, but the other aspects are almost the same. The core reason for this is to reduce costs. The 3 and Y can share most of the parts, and most of the parts procurement, process, and manufacturing can be reused, which has scale advantages in material procurement costs, production costs, and personnel costs.

At first, people laughed at the ugliness of Tesla Model Y, but now it has become one of the best-selling electric SUVs and is making a lot of money, thanks to Tesla's ability to control costs.

Ideal is the player who is best at copying others' homework. Its L9, L8, and L7 are all exactly the same. This series of products has the effect of promoting each other and reducing costs.

Compared with NIO, which has multiple product lines but does not have sales and scale advantages, it will lead to higher and higher costs. It’s okay, NIO is positioned for high-end people and harvests rich people. Even the high price will make users feel that "this brand is quite high-end".

The second is the discontinuation of Ideal One.

As a popular car with sales of 200,000 units, how could it be discontinued just like that? At that time, a large number of rights protection groups gathered in various cities. The reason was that a new model was about to be released, and the news of the discontinuation of Ideal One was completely unknown when the order was placed. Even the sales consultant was not aware of it at the time.

Why stop production?

Because Ideal One and the upcoming L8 have similar product positioning and prices, if both products are retained, it means retaining the Ideal One production line, and the two products will compete with each other, dispersing market share and having no significant effect on the overall revenue level. The more core reason is that Ideal's costs have increased. Retaining the One production line will reduce the factory's ability to mass-produce the L series, while increasing the costs of accessories, personnel management, etc.

Ideal has chosen a difficult but correct path. From August to the end of last year, Ideal was the company most criticized by users. This decision was too difficult, and the core factors that prompted the implementation of this decision were long-termism and cost control.

Author: Product Dongchali, WeChat public account: Product Dongchali