2003: Starting with Foreign Trade

Chapter 917 "It's Time for Some Change"

P.S.: At the beginning of the month, I'm asking for some guaranteed monthly votes, as they will affect the intelligent recommendation system!
"Making money? Haha, I haven't even thought about that. That's for the future."

At Lishe Airport, Tan Jincheng, who had just disembarked from the plane, was stopped by reporters who asked him about the pricing of the ET5.

There's no way around it; given the price, combined with the ET5's performance and materials, there are very few pure electric vehicles that can compete at this price point in China, and it's even starting to impact the market for gasoline-powered cars.

Based on the real-time exchange rate, the starting price of the ET5 is actually around $3.5, which is the same as the Model 3 in the US, which is quite interesting.

I left in March and returned in April.

Despite missing this year's Two Sessions, Tan Jincheng did not miss out on the trending topics. In addition to the ET5 and ES3 that caused quite a stir in Europe, Tan Jincheng also visited BMW headquarters and confirmed the plan to build a battery factory in Germany.

Accompanied by Kluge and relevant German government officials, Jinshidai's first ultra-large-scale battery factory in Europe and even the world was decided to be located in Arnstadt, Thuringia.

This charming little town in central Germany has close ties with China, and the investments from Jinshidai have made Europeans both love and hate it.

Back in 2016, a Chinese company's acquisition of a German robotics factory sparked massive protests, and the port of Arnstadt was also under Chinese control.

Geely's "forced" acquisition of nearly 10% of Daimler's shares, making it Daimler's largest shareholder, has made Germans and Europeans uneasy.

At this time, it should have been a cause for celebration that a battery factory, invested and built solely by a Chinese company without acquiring any German companies, was supplying batteries to numerous European companies, including BMW and Volvo.

Europeans have mixed feelings about the rapidly rising Chinese companies, but this is not a problem for the people of this small town.

They had no such worries at all. The construction of a battery factory with an investment of more than 20 billion US dollars from a Chinese company officially started, much to the delight of the locals in Arnstatt.

The German female leader shared the same view; she supported Tan Jincheng's investment in Arnstadt, and some of her supporters also believed that China's progress had not swallowed up a large number of businesses in Europe.

On the contrary, China's investment in factories here can only be described as creating more jobs and bringing more advanced technologies.

However, regardless of the circumstances, compared to Geely's acquisition of Daimler shares and becoming its largest shareholder, Tan Jincheng's investment is something even the most cynical person can't really criticize.

The factories that Jinshidai has established in Europe can certainly be used as a typical case for promotion.

A single battery factory and related industries can create more than 2000 jobs in Germany, which is undoubtedly a shot in the arm for Germany's current sluggish economy. In addition, Chinese companies investing in Germany can only benefit Germany and not harm it. The accelerated economic exchange between the two countries can achieve technological complementarity and talent complementarity.

The German leader is clearly aware of these things. In recent years, there has been a lot of exchange between the two countries. For example, the cooperation between Weilai and BMW has become quite deep, mainly because the two have similar cooperation concepts.

Weilai's cooperation is open, and so is BMW's. BMW has done the most thorough localization in China, which is different from Tesla's betting approach. BMW has taken the initiative to localize its production.

To be honest, Brilliance Auto has really been disappointing over the years. It has been relying on BMW's coattails and lying down. Despite being given so many high-quality resources, it has failed to develop a single independent brand.

BMW's open attitude and strong support for Brilliance Auto are understandable given BMW's desire to increase its stake in BMW Brilliance.

The domestic market is also paying special attention to Jinshidai's investment and factory construction. While large-scale overseas expansion by domestic companies has been a long-standing trend, the fact that a large technology company is going global under the current circumstances is something that deserves a lot of attention.

What's the current situation? On March 22, the old man officially signed a tariff plan worth approximately $60 billion. On the same day, Best Buy announced the formal termination of its cooperation with the company.

The Ministry of Commerce responded swiftly on the 23rd, taking countermeasures, a timing that can be interpreted as the beginning of the dispute between the two companies.

On the 23rd, the Shanghai Composite Index was affected by this news and dropped more than 3%, closing at 3152.76 points. In the remaining trading days of March, the stock market performed poorly. The index, which had been held for more than half a month, finally collapsed due to the relationship between the two companies.

值得一提的是，特斯拉股价在3月27日也创造近期单日最大跌幅，并且在4月2日创造了自2017年三月份以来的新低。

It has little to do with the deterioration of bilateral relations. The main reason is that the Model 3 is experiencing production hell and will not be able to achieve the target of 5000 units per week until Q3, which will limit the annual delivery volume once again.

The production capacity of the ET5 is much more flexible than that of the Model 3. The ET5 has already posed a certain threat to the Model 3 in Europe, which is the most pressing issue for Tesla to address.

At this crucial juncture, Tan Jincheng's decision to build an independent factory in Germany is a very subtle matter. However, no reporters at the airport asked about it; everyone is shrewd.

"Does Mr. Tan mean that he hasn't considered ET5's recent profitability issue at all, or that he hasn't considered it at all?"

Reporters are now somewhat speechless. Even Tan Jincheng didn't know how to answer. If a car model's sales increase, it will naturally generate profits.

He couldn't be sure about the timeline; it could be a year, or it could never be profitable.

If priced in US dollars, the ET5 and Elephant 3, which both sell for US$3.5 in their respective countries, have significantly different BOM costs.

毛豆3的BOM成本已经机构拆分计算过，基础版差不多在2.8万美刀至3.2万美刀之间，占总体本的80%至90%。

The core costs are naturally the three electric components (battery, motor, and electronic control system), the vehicle body and chassis, as well as various electronic and intelligent hardware. The rest are the costs of labor, transportation, and R&D, etc., which are spread out.

Tesla's gross margin is 18.9%, so the manufacturing cost of each car accounts for about 81% of the selling price. In contrast, the gross profit margin of new energy vehicles is even higher.

With its advantages in battery supply, self-developed motors, the gradual application of chips, and the advantage of domestic labor, Weilai can achieve a gross profit margin of 20% in the overall new energy vehicle market, and even 25% for some models.

Currently, the new energy vehicle companies with the highest gross profit margins worldwide are Wynn and BYD, followed by Tesla. It's not surprising that Tesla can achieve this.

We have our own industrial chain advantages, and the Americans also have their technological advantages. Specifically, regarding the ET5, the gross profit margin is actually similar to that of the ET3.

The reason is simply that the investment in the production line construction and research and development of the new model is very large. Based on the cost structure, the ET5 needs to sell about 33 units to achieve profitability.

It's definitely not possible right now. It would take at least two years for a single model to become profitable. If the market response is poor, the car could still result in significant losses.

In terms of gross profit margin, new energy vehicle companies worldwide are showing a trend of polarization, with leading companies such as BYD, WooLong, and Tesla able to maintain a high level of gross profit.

Meanwhile, companies in the central region, such as BAIC and Geely, have a gross profit margin of around 15%, while small companies generally have a margin of less than 15%, as they mainly rely on subsidies to survive.

After the reduction and change of the distribution method of new energy subsidies, these small businesses are basically doomed. Take Lifan, which Tan Jincheng is keeping an eye on, for example. They had a good year after selling their business.

But after they continued to dabble in the automotive industry in 2017, things didn't go well again. If they continued like this, it would be normal for them to go bankrupt like in their previous life.

As for emerging players, they don't even have a gross profit margin; they're all operating at a negative profit margin. Lacking any supply chain advantages, they rely entirely on capital injections, and this is true all over the world.

In fact, there are also many "new forces" in the United States. Compared with the PPT car manufacturing in China, the new forces companies in the United States are more sophisticated. Take Jia Yueting's Faraday Future (FF) for example, it is considered a new force in the United States.

Compared to the new forces in the US, Jia Yueting is considered one of the more "honest" types.

The new energy vehicle sector in Weilai is also currently operating at a loss. Profits mainly come from gasoline vehicles, power batteries, and parts, which are used to support the new energy vehicle sector.

The main reason is that sales volume is too low and investment is too high. Profitability can only be achieved after sales volume increases to a certain level.

"Could Mr. Tan disclose the current pre-order numbers for the ET5?"

"I'll have to wait until I get back to take a look. I'm not entirely sure about it right now, but the specific data looks good. Thank you all so much for your support."

从正式亮相的3月8日开始算起，到檀锦程今天落地的4月7日，刚刚好一个月时间，这一个月里尉来ES3以及ET5的表现都非常不错。

The sales of the two main models under the original Weilai brand also increased after the price reduction, and the L1 range-extended electric vehicle was also very popular.

However, the gasoline-powered vehicle market was already clearly approaching saturation in the first quarter of this year, and the overall growth of the car market has slowed down.

The gasoline-powered vehicle market has basically entered a state of zero-sum game.

Take the Yuechi series, the main gasoline-powered vehicle under Weilai, for example. The sales in the first quarter were "dismal". The main model, Yuechi A1, only sold 12.8 units in the first quarter (an average of 4.27 units per month), a year-on-year decline of 7.5%.

而悦驰A3以及A9两款车型下滑就更严重了，A3下滑了28%，A9也没好到哪里去。

Besides the increasingly fierce competition, the Geely Boyue, which sold 7.2 units in the first quarter, and the Baojun 510, which sold a whopping 11.5 units, are all competitors of the Yuechi series. The old rival, the Haval series, is also selling very well, but the fundamental reason is that the Yuechi series has been on the market for 10 years.

In an era of information overload, numerous car models, and the impact of new energy vehicles, a ten-year lifespan is nothing short of a miracle to still sell an average of over 40,000 vehicles per month.

Even though over the years, Wei has been making adjustments to the exterior design, power performance, interior and service, and has changed the engine from the old approach of domestic cars (Mitsubishi, Nissan series) to its own independently developed engine.

Even though the third-generation Yuechi A1 will be launched in the middle of this year, and the old model has many discounts, the Yuechi A1, which has accumulated sales of more than 200 million units over the past 10 years and created a sales legend for domestic SUVs, will eventually be tired of by consumers.

Since 2016, the Yuechi A1 has been breaking global sales records for a single SUV model, creating one legend after another.

According to the gas station attendant, in 2016, six out of every ten SUVs sold were from Yuechi, with 80,000 units sold in a single month. That scene was truly impressive, and the A1s at the dealerships didn't even need any promotion.

"It's time for a change. Sales declined sharply in the first quarter, and everyone should reflect on this."

The first thing Tan Jincheng did upon returning to the company was to hold a meeting with the team in charge of the Yuechi series, as it was time to bring about some changes.

The two new models, ET5 and ES3, brought a lot of attention to Weilai, but they did not receive much recognition in the capital market. Weilai's stock price fell in tandem with the overall market, mainly due to the severe decline in sales of the Yuechi series.

In fact, this trend had already begun to emerge in the fourth quarter of last year. Consumer fatigue and the emergence of new and powerful competitors are objective reasons, but definitely not the main reasons.

"Yuechi is like a son to Wei Lai. We can't just watch him decline step by step. We have to think of some solutions. We can't rest on our laurels either."

Tan Jincheng tapped the table, his expression somewhat serious. In the automotive industry chain of Weilai, after Yuechi gained momentum, he shifted his focus to the Weilai Research Institute and the new energy vehicle business sector.

However, this does not mean that he is indifferent to the Yuechi series. New energy vehicles are the future, but they are not profitable for him right now. It is easy to imagine how terrible it is for a car company not to make money.

In their past lives, the three families of Li, Xiao, and Li were all famous. Although the internet has always criticized Li Auto as being like Lifan, no one has ever doubted that Li Auto would go bankrupt. The fundamental reason is that they not only sold cars well, but were also the first new energy vehicle companies to achieve profitability.

On the other hand, Li Bing's Weilai brand didn't sell many cars and suffered huge losses every year, so there were news reports of its bankruptcy every day, which had a very big impact on its brand image.

Imagine if Li Bing could make Weilai profitable or at least reduce its losses, and if he could boost car sales, Weilai wouldn't be constantly rumored to be going bankrupt. Wouldn't that be better for his battery swapping model?

Considering the construction of European and domestic factories this year, as well as the combined effects of rising raw material prices, the profit margin of power batteries in 2018 will inevitably be greatly affected.

There are also several factories waiting to be expanded in the new energy vehicle sector. Investment cannot and cannot be stopped. Therefore, fiscal year 2018 will be a huge test for the financial statements of Weilai.

If the Yuechi series is still lying dormant, then the situation is even more serious.

When the boss returned from Europe, he didn't care about the pre-orders for the ES3 and ET5, nor did he go home. Instead, he went straight to the company and called a meeting with the senior executives of their Yuechi team. He started with a barrage of criticism, leaving the executives speechless.

Don't be fooled by Tan Jincheng's youth or his public image. In the company, he is the one who has the final say. When it comes to scolding people, he can be more scathing than anyone else, and he often uses foul language.

Resting on one's laurels is a serious criticism.

Indeed, it has set one global SUV record after another, and the Yuechi series contributes more than 60% of the company's profits. It is no exaggeration to say that the Yuechi team supports the huge Weilai Group. It would be hard for them not to get carried away.

Every year, their team receives the most bonuses, stock options, and equity incentives within the company. Over time, they've developed a disdain for other departments.

Tan Jincheng had actually noticed some signs long ago, but since the growth rate had been consistently high, he couldn't say anything. It wouldn't make sense to criticize a child whose grades were getting better and better each time; that would be pure manipulation and could easily cause instability within the team and create a rebellious mentality.

He wouldn't want to get angry if he could.

"I have a few suggestions for you to make changes as needed."

They didn't bother with any nonsense and just went straight for the intensity.

"First, optimize the product line. The third-generation Yuechi series is about to be released. Some of the products that don't sell well should be cut or their prices reduced. Don't give me any fancy styles to fleece customers. Just look at how Orange next door reduced prices and promoted during Singles' Day. It's obvious."

"Today's consumers are not so easily fooled. Your tricks from a few years ago are no longer effective. Do you understand sincerity? Sincerity is the ultimate weapon. If you genuinely offer discounts without reducing features, that is the best way to protect your brand."

In niche markets, he can't keep a close eye on things. In order to increase sales, the Yuechi series has indeed released some models that exploit consumers in recent years. He is not unaware of this, but sometimes he can only turn a blind eye.

When the market is immature, it's hard to remain unaffected. But the market environment has changed, and consumers are becoming more savvy, so you can no longer do that.

“Keep three series: A1, A3, and A9. And don’t make the models too complicated. Let customers know which one to choose as soon as they walk into the store. I doubt even you can tell the difference between some of the models now.”

The executives looked at each other, unsure of what to say. They were hesitant to object, but Tan Jincheng didn't intend to give them a chance to speak. He wasn't there to hear their opinions, but to tell them what to do.

"User-centric thinking has always been our emphasis. I won't dwell on the past issues, but we won't allow them to happen again."

After scanning the room, Tan Jincheng raised his voice and said, "Also, your marketing is absolutely terrible, not even worth a damn!"

"What the hell era are we living in? You guys are still focusing on publicity and marketing engines. Do you think this is 2008? It's 2018 now, comrades."

"Look at BYD next door. Their plug-in hybrid technology became an instant hit in the market. And look at how they advertise the Boyue. If you don't know how, you can learn from them. Do you really think we're in an era where you can just put a diamond engine on and call yourself high-end?"

"You don't understand users at all. Our Weilai mainly serves young users. Are you still thinking from ten years ago?"

It's 2018, and brands with a bit of success are talking about things that young people care about, like range, intelligent driving, and charging speed. But the Yuechi team is still talking about transmissions. What young people want is in-car karaoke and automatic navigation in the city.

The range extender of the Weilai L1 has been criticized by the industry, but so what? Without range anxiety, coupled with intelligent driving, refrigerator, TV, and a big sofa, this thing sounds exciting and is more in line with the current environment and policies.

The marketing approach of the Yuechi team might not have been so obvious before the first quarter of 2018. From steady growth to explosive popularity, Yuechi has a large user base. Admittedly, some users have a poor experience with the Yuechi series, but the overall reputation is there.

Currently, there doesn't seem to be any major problem, except that sales have dropped to 4 units per month. 4 units is still a very impressive number, but if this mindset cannot be changed within one or two years, or even less, then the Yuechi series will be completely finished.

Consumers will spoil you rotten when they dote on you, but they won't hesitate to abandon you either.

"The second is to develop hybrid technology as soon as possible, with the Yuechi A1 as the main focus. Hybrid technology is not our strength, but I can give you time. If you lack personnel or technology, seek support from the research institute. If all else fails, we will poach talent."

"In short, we should develop hybrid technology, or even pure electric technology, as soon as possible. As you have seen from the sales figures in the first quarter, the market for gasoline vehicles is basically saturated, but the growth of new energy vehicles is very significant."

In the first quarter, the overall sales of new energy vehicles increased by 154.3% year-on-year, with pure electric vehicles increasing by 124.7% and plug-in hybrid vehicles surging by 239.6%. BYD's sales have begun to pick up.

As for gasoline-powered vehicles, the overall growth was a paltry 2.8%. With such straightforward data, anyone who still can't understand the market trend is simply a fool.

If the Yuechi series wants to thrive in the market in the future, it cannot limit itself to gasoline vehicles. Hybrid and pure electric vehicles must also be developed. If gasoline vehicles really start to sell poorly, it may even go all in on new energy vehicles like BYD did.

"To summarize, we need to adjust our product line, change our marketing strategy, develop hybrid-enabled models as soon as possible, and stabilize sales through price reductions and promotions."

"Alright, you can go ahead and get busy. Mr. Zhang, please stay behind."

Zhang Yongchao waved to the senior executives of Yuechi team. As the CEO, he also had to bear a lot of pressure when the sales of the main model continued to decline.

"Should we consider spinning off Yuechi as a separate subsidiary?"

After a series of successes, the Yuechi team gradually lost its sense of vigilance. Tan Jincheng felt it was necessary to make adjustments to the Yuechi series, and to separate the brand into a separate subsidiary so that the management could feel the pressure of operations.

Otherwise, over time, Yuechi will only become another "Brilliance Auto".

That would be a shame for the Yuechi brand, since it's the brand that has supported Weilai's growth all the way.

"Then we need a new, strong leader."

(End of this chapter)