2003: Starting with Foreign Trade

Chapter 788 A $40 billion order!
P.S.: Still asking for some votes!
"Hi, Tan, long time no see!"

At Beijing Capital International Airport, Factory Manager Ma warmly embraced Tan Jincheng and then shook hands with each of the people who came to pick him up.

"Hey Elon, long time no see. How have you been?"

Not long after, Tan Jincheng met this guy once again when he went to the United States last year. Compared to the first time they met, Elon looked much better. The release of the Maodou S was well received in North America.

Most importantly, he has controlled the cost and no longer has to worry about losing money on every car sold. Speaking of which, his sports car is quite popular in China, but the cost is simply too high, so he dares not mass-produce it.

The domestic profits were eaten up by Weilai. If the supply were really liberalized, Weilai's marketing capabilities could sell thousands of cars over the next few years.

"Hey, things are going really well lately. I have some good news for Tan: our Tesla should officially turn a profit in the second quarter."

In the first quarter, the Elephant S performed strongly in the North American market, selling a total of 4750 units and becoming the best-selling luxury car (over $70,000) in North America in the first quarter.

This is reflected in the stock price of Tesla, which was lukewarm throughout last year with a rise of only 18%. However, in the first quarter of this year, the stock price rose by 12%, and it is currently closing at around $37, showing signs of recovery.

"Hmm? That's great. Congratulations Elon, and congratulations to myself too."

Tan Jincheng was somewhat surprised. He hadn't expected that the first thing Director Ma would say upon meeting him was this. He wondered what he was thinking.

Tesla's current market capitalization is $42.37 billion. However, after several private placements, Tan Jincheng's shareholding has been diluted from 9.57% at the beginning of his investment to 7.78%, but he is still the second largest shareholder.

The corresponding market value is $3.3 million. It didn't make much money, but it still has a profit of over 50%. In addition, since there is a profit expectation in the second quarter, the stock price will definitely rise significantly.

Tesla, which has been established for ten years, has yet to turn a profit.

"Did you find all these people to support me?"

Factory Director Ma, who is not yet the richest man in China, does not believe that he will have such a high profile in China.

Maodou S has performed strongly in the North American market, but it only officially went on sale in the first quarter of this year. The news has not yet reached China. The fact that so many reporters are at the airport is either because of Tan, or because Tan invited them to support him.

"Haha, don't underestimate your fame here. Your visit to Guojia has attracted a lot of media attention."

This statement is somewhat exaggerated, but it is indeed true. Ever since Musk announced his visit to China, it has attracted the attention of many domestic media outlets, and his colleagues in the automotive industry are also very interested in the purpose of his trip.

While the average person may not know much about Elon Musk, that doesn't mean he's not famous in China. Many Chinese entrepreneurs actually admire him.

Although he is also a capitalist, and ruthless when necessary, he is different from most American capitalists in that he is more straightforward, which may be related to his early experiences.

Not affiliated with YOU Tai Capital, nor born in the US, he was swindled and kicked out by capital in his early entrepreneurial ventures. The lucrative business PayPal was actually sold off under duress.

Having learned to program in his teens, his decision to start a new business building rockets and cars may have stemmed from his ideals, but it's more likely that he was misled by capital or excluded from that industry.

"Really? That would be my honor."

"Yes, the Maodou S is very successful and popular here. We heard that Tesla will open a store here, and car enthusiasts are very much looking forward to it."

"The ES6 from Weilai is also amazing. Fortunately, it is positioned differently from the Maodou S. Otherwise, I would not dare to enter the Chinese market at this time."

The Maodou S is positioned as a sedan, while the ES6 is positioned as an SUV. There are some differences between the two. However, in terms of price, it does not have an advantage. There are four versions, priced from 64.11 yuan to 97.93 yuan.

Most importantly, as a fully imported model, the Maodou S does not enjoy the preferential policies for purchasing new energy vehicles; the price is what it is.

If the first batch of ES6 owners could be considered to be from a lower-income group, then the pricing of the Maodou S is absolutely impossible. It must be for the highest-income group among the highest-income groups. Spending seven or eight hundred thousand, or even a million or more, to buy an electric car, who doesn't have several cars at home?

It wouldn't be an exaggeration to call it an ultra-luxury version of an electric toy. It has to be said that Tesla's pricing strategy is really successful. There are tariffs involved, but by positioning the brand as high-end from the beginning, even if they launch lower-priced models in the future, it won't lose its prestige.

Just like Apple released an SE version.

Unfortunately, this brand marketing approach is not suitable for domestic brands. Even a decade or more later, domestic brands will find it difficult to launch high-end models, let alone in the current consumer environment where foreign brands are still the primary focus.

It's already quite an achievement that Tan Jincheng has managed to get consumers to accept the Weilai ES6 priced at over 30 yuan, even with discounts and subsidies.

Based on the pure electric version of the ES6, the maximum subsidy is 27.8 yuan, which means that you only need to spend 25 yuan to own an ES6. In addition, some preferential policies from Weilai Company can make it as low as 6 yuan to own an ES6.

This price is acceptable for some middle- and high-income individuals.

The main reason why Weilai dares to do this is in the supply chain. For every new energy electric vehicle sold, Weilai Group can get subsidies from the policy for the two biggest pieces of profit: the whole vehicle and the battery.

The reason for the generous configuration is that, since no matter how high the profit margin is, it's impossible to make money through mass production, so it's better to take advantage of the subsidies at the beginning to build a good reputation.

"Let's go to the hotel. I've already made arrangements for you here. There might be reporters who want to interview you, and my secretary has already collected them. It's up to you whether you want to accept their interviews."

That's the benefit of having a partner. When Tan Jincheng went to Texas, Tesla helped him resolve any inconveniences he might encounter in the US, and even hired several bodyguards for him. So when Factory Manager Ma came to China, Wei Lai also had to help him resolve all his work and life matters.

The CEO of a rising star in the American new energy vehicle industry is visiting China for the first time. Professional automotive media and many state media outlets want to interview him. In addition, leaders from certain departments also want to talk to Director Ma. Foreign investment in China has been a recent initiative.

Tesla is not a large company now, even smaller than WooLong Motors. In its recently released 2012 annual report, Tesla's revenue was only $4.13 million, but the forecast for the first quarter of this year has already reached over $5 million.

The company's revenue in just one quarter exceeded the total revenue for the entire previous year, demonstrating its rapid growth. This is a new energy vehicle company with great potential.

According to Wall Street's financial forecasts, Tesla's revenue in the first quarter of 2013 should reach around $5.5 million, a growth rate that is not normally seen in a car manufacturer.

This situation only indicates that the car company has moved from its initial stage to a normal operating state, and their cars are now selling normally.

"Thank you for troubling your colleagues. I'll treat them to dinner later. Let's go back to the hotel first; I have something to discuss with you."

Besides planning the opening of his first store in China, his main purpose in coming to China was to talk to Tan Jincheng about the electric vehicle industry chain and to understand the procurement issues of Chinese auto parts companies.

Based on his disassembly of the ES6, it's clear that besides parts from world-renowned automakers like Bosch, many of the components are manufactured by Chinese companies, indicating a high degree of localization in the ES6.

This is also why he was able to keep costs down; if possible, Tesla would also like to try it.

Of course, his main goal was to sign a battery purchase contract with Wei, which should be the primary purpose of his trip.

In terms of production capacity, Weilai's Xuanwu Battery cannot compare with Panasonic and LG, but in terms of technical standards, it has already met Tesla's usage standards. The fact that the first car did not control costs well has caused Musk considerable psychological trauma.

He is now particularly concerned about cost control at Maodou S, and the fact that the company was able to achieve profitability in the second quarter is largely due to his excellent cost control at Maodou S.

But this is not enough.

"Oh, Xuanwu is a mythical beast in China. It is not afraid of water or fire and is very long-lived. Naming a car battery after it is a very good idea. Tesla is interested in purchasing batteries from us, so of course we would be very happy to do so."

"As you know, Weilai is a very comprehensive group company. In addition to the complete vehicle business, we also have some achievements in the parts supply chain."

Back at the hotel, Director Ma didn't even bother to eat; he just wanted to talk to Tan Jincheng about the battery supply. Tan Jincheng had Zeng Jixiang arrange a welcome banquet to be sent over.

Time difference? It doesn't exist.

As for the others, they didn't have that much energy, and after a quick meal, they were taken to rest.

Musk's urgency is not without reason. Although they currently have LG as a battery supplier, they actually only have Panasonic. The first Tesla model used 7623 18650 batteries, which were supplied by Panasonic.

This car has 85 kWh of built-in power, arranged in a 77x11x9 configuration. Simply put, it's a series of small batteries bundled together to form a car battery, but the actual technical requirements are not that simple.

In the 2011 offer, Tesla accepted approximately 200 million batteries, which, according to industry standards, could produce about 25,000 vehicles. The entire contract period was about a year and a half.

That means the contract period will end around the end of this year. Since it's a single-choice question, the price isn't exactly cheap, but it's not expensive either.

Panasonic's thinking was simple: as the sole supplier, no one else could provide such a large production capacity. At the time, Musk didn't have many good options, or even any alternatives, so he had no choice but to accept it.

However, Musk could tolerate having core components controlled by a single supplier in the early stages, but once the Model S showed signs of strong sales, he absolutely could not allow Panasonic to continue. This is also why he targeted LG. Now he has approached Wei Lai, and at the same time, he has his eye on the production capacity of China, which, like the United States, is a major automobile manufacturing country.

Panasonic originally offered Tesla around two dollars per unit, but now, without any increase in raw material costs, they want to raise it to three dollars, or even 3.5 dollars. This is the price of the new contract.

It's important to know that Tesla's new contract order plan is for 20 billion units, meaning Tesla wants to increase its production capacity to more than 25 vehicles in a longer period of time.

Although the increase in battery costs can be absorbed internally, and the deceptive cooperation between the two parties in the past few years was pleasant, his godfather knows best what kind of company Xiao Risheng is.

The whole world knows what kind of companies these days are—clinging to patents and exploiting them to the death, which ultimately led to their loss of the lithium battery market. Panasonic is not the first, nor will it be the last.

Actually, there are cheaper battery cells on the market, such as Samsung. They price their materials at one dollar, but their battery capacity is only half that of Panasonic. If you want to switch to this supplier, you would need to almost double the number of batteries.

It's equivalent to having a dual-battery chassis design before parameters can be designed. SanSang's idea is simple: use a low-price strategy to kill off a large number of market players first.

The other three companies are also taking advantage of Panasonic and other Japanese companies. Starting last year, they began poaching Panasonic's experts with starting salaries of $70 per year, which is almost three times the current market price.

In addition, they started reverse engineering Sumitomo Materials' exclusive dust solution, which is basically stealing their expertise. Anyway, none of them are exactly good people.

In the past two years, everyone has been busy. Since Wei Zi collaborated with BMW and made breakthroughs in lithium battery technology, he has also poached many Japanese experts. One thing must be admitted: in the current market environment, the lithium battery technology concepts of Japanese companies are indeed very advanced.

Most of the companies that actually started working on lithium batteries are Japanese. BYD claims to have started researching these a long time ago, but in terms of complete vehicles, it can be said that they are learning by doing from the Japanese.

Like Samsung, Japanese brands have been exploited by them quite a bit.

"But can Weilai's production capacity meet our needs? Our new order is for 25 electric vehicles."

According to Panasonic's price increase demands, Tesla's battery costs alone have increased from 40 billion to 70 billion, and that's in US dollars!

However, Factory Manager Ma is truly impressive. In 2013, he dared to place an order for batteries to be used in 25 electric vehicles, amounting to several billion US dollars. He really has guts.

Factory Director Ma is not worried about Weilai's battery technology, nor does he doubt whether Xuanwu batteries can be adapted to the Maodou S and Tesla's future models, because the first Xuanwu battery was also developed based on 18650 technology, just with a different name.

In addition, the two companies share patented technologies and many of their design solutions are similar. Director Ma is even considering learning from Google's open-source strategy, making their patents open source, and thus generating buzz for electric vehicles worldwide.

In addition, open source also implies greater ambitions; he wants to control the pricing power of electric vehicles.

Pricing power exists in every industry. In the current smartphone market, Apple controls the pricing of high-end models. Why does Xiaomi keep its price at 1999 yuan? It's simply a battle for pricing power.

Lei Jun's repeated use of "it's awesome!" at the Xiaomi 2 launch event was nothing more than a declaration of sovereignty to his competitors.

"Haha, Elon, you may not know about our battery project. Speaking of Weilai's battery business, it started even earlier than our car business. We have not only reached world-class level in technology, but we can also maximize our production capacity at any time."

"In addition, we have mines all over the world. Panasonic can't compete with us in terms of cost, so we can offer you a cheaper price."

"Well then, I don't know if your schedule allows it, but if it does, I can invite you to visit our battery industrial park in Luzhou, which is also my hometown."

In the years that followed the subprime mortgage crisis and the European debt crisis, Huang Ming traveled all over the world to acquire cheap mineral resources. What seemed like a chaotic plan at the time has now yielded results.

At a price of two US dollars, Panasonic can guarantee a small profit, but Weilai earns far more than Panasonic. Putting aside everything else, just in terms of policy subsidies and labor costs, Panasonic simply cannot compare to Weilai.

If Weilai were to play the same game as Sansang, taking the route of massive losses and pricing its battery cells at one US dollar, it would cause a sensation worldwide, and countless competitors would be wiped out.

However, Tan Jincheng doesn't want to do that for the time being. The domestic battery industry is still very fragile, and if we really do that, our companies will be the first to die.

Furthermore, if Wei Lai can secure this $40 billion order, especially if it's snatched from Panasonic's jaws, then, putting everything else aside, he could easily win over Tan Jincheng in Luzhou alone.

In 2012, Anhui Province's total exports amounted to US$267.5 billion, with Luzhou City accounting for US$113.2 billion. The significance of US$40 billion in exports is self-evident.

Before coming to China, Factory Director Ma had communicated with Tan Jincheng about a plan to purchase batteries from Weilai. However, at that time, Tan Jincheng did not think much of it, assuming that the other party was just buying a small amount as a token gesture to put some pressure on Panasonic.

He never expected that Director Ma would have a plan to change the battery supplier at this time!
We must take him down.

Musk hesitated for a moment and said, "Then how can I guarantee the security of the supply chain?"

There were no problems with the schedule. He wasn't some big boss anymore. Besides, since Tan had said so, he didn't think Tan was lying to him. If production capacity couldn't keep up and supplies couldn't be delivered on time, then he would have to pay a penalty.

He knew a little about the Weilai Group, but his knowledge of the automotive sector was limited to that. He was far more aware of the fact that the Weilai Group owned mines, mainly because Tan Jincheng had kept it very secret, and not many people in China knew about it at the moment.

However, the higher-ups are aware of this, otherwise they wouldn't be so supportive of Wei's arrival.

"It's very simple. We can set up a joint venture with a 50/50 shareholding ratio. This way, we can ensure the security of Tesla's supply chain."

Actually, Mr. Ma is worrying too much about supply chain security. Tesla's global sales forecast for this year is 1.5 vehicles. If the sales forecast doubles every year, it should be enough for them until 2017, or at least until 2016.

However, it is normal to have such concerns. Isn't Tan Jincheng's various arrangements all for the sake of supply chain security?

In his previous life, Ning Wang established joint ventures with major console manufacturers, partly for this reason.

Let alone the current new energy vehicle industry, even the production capacity after the boom is unpredictable. Before a model is launched, no one knows whether it will flop or become a hit. The order volume of batteries is unpredictable.

It's rare to find someone as aggressive as Director Ma, who places a single order with the expectation of using the product for several years.

Establishing a joint venture is the best way to ensure the security of one's suppliers.

Tan Jincheng could not earn a single penny of this $40 billion, or even lose money, but retaining such a major client would be the best outcome for Weilai Automotive's supply chain, especially since it was snatched from a small company.

In any case, as long as Tesla's sales increase, the market value of the Tesla shares he holds will definitely be able to cover these losses.

To paraphrase what gamers jokingly call Pony Ma (the actor who played Ma Huateng), you can make money, but he'll never lose money.

“That’s a good idea, but I can’t decide right now. I have to have a meeting with the board. But I can agree to visit your battery factory. I also want to see what Tan’s hometown is like.”

Musk is clearly interested in the joint venture proposal, and he also wants to experience firsthand the capabilities of the company.

A car manufacturer can be an excellent car brand company, and at the same time, an excellent parts supplier, as is the case with Mitsubishi.

"No problem. If you need anything, you can contact me or my assistant directly, and we will provide you with assistance."

After finishing their conversation, Tan Jincheng got up and left, leaving Musk with time and space. This was truly an unexpected surprise; he thought it was just a small order, but it turned out to be a big one.

He needs to go down and make some preparations. The expansion of the Luzhou battery base is currently underway; of course, the current production capacity is simply not enough to meet Tesla's $40 billion order.

Another issue to address is transportation, which will also incur significant costs. However, this is not a problem, as this order is unlikely to be delivered in the short term anyway. Tesla's last battery order took a year and a half, almost two years, to be delivered.

In addition, like BMW, Tesla can meet any requirements.

Factory Director Ma isn't into automation, but if we cater to his needs, the factory can continue to expand. As long as the money is in place, everything is negotiable.

If Tan Jincheng can secure this $40 billion order, he can build a massive factory like Panasonic's and implement pre-planned automation to build the Xuanwu brand in terms of cost, consistency, energy density, and reliability.

Stepping out of Musk's room, Tan Jincheng was somewhat excited. This was the largest order he had ever received since he founded all his companies, amounting to 247 billion yuan.

This is almost the entire revenue of Weilai last year.

Before even returning to his room, Tan Jincheng called Zeng Jixiang over: "Contact Anhui Province and Luzhou. Musk will be adding a trip to Luzhou at the last minute. We'll let them know the exact time later."

After thinking for a moment, Tan Jincheng added, "If they ask you about the main content of the itinerary, just say that it's not convenient to talk about it now, but it will definitely be a good thing."

(End of this chapter)