2003: Starting with Foreign Trade

Chapter 918 Dimensionality Reduction Strike
P.S.: Please give me some guaranteed monthly votes!
Shanghai International Auto Show.

"Hey, Tan, do you know what? You saved me back then, but now you're pushing me into the abyss again."

Despite immense pressure, Musk has visited China once again.

Just like when Wei Lai went to Geneva to participate in the exhibition, Tesla, which has already established a branch in China, also brought their products to the Shanghai Auto Show this time.

They still have their three trump cards: Maodou S, Maodou X, and Maodou 3.

After meeting, the two shared a big hug. The future richest man in the world is not yet in such high spirits. Tesla is going through a hellish year, which is more serious than the two times it faced bankruptcy before.

Their stock once again became a favorite of short sellers. Throughout March, Tesla's stock price plummeted by 22.42%, marking the largest monthly drop since December 2010 and the second-largest monthly drop since Tesla's IPO.

While Musk was joking, his statement is essentially true.

In 2008, Tesla faced bankruptcy for the first time. At that time, they survived with $5000 million from Daimler and low-interest loans from the US government, but the low-interest loans from the government were not directly deposited into Tesla's account.

Tesla required upfront investment and then waiting in line for reimbursement, much like our current new energy vehicle subsidy policy. You had to invest first. At the time, Tesla's actual disposable assets were only $5000 million from Daimler.

The hasty IPO in 2010 was largely due to this reason, but the money raised had already been mostly spent after the launch of the Model S. By the time Tan Jincheng invested, Tesla was in dire need of funds.

This was also a period when Tesla faced the risk of a second bankruptcy. At that time, Musk had discussed selling Tesla to Google with Larry Page, and the two sides had already entered into substantive negotiations.

However, Musk demanded that Tesla remain under his complete control for eight years after the sale, and Google's requirement that it not interfere was unacceptable to Google's lawyers, leading to a standstill in negotiations.

Why sell to Google? It was because of a lack of money. At that time, Tan Jincheng's involvement not only brought Musk much-needed funds, but also access to a huge network of parts suppliers in the Chinese market.

Back then, Tesla couldn't find any good suppliers. Top-tier suppliers simply ignored them, and the quality of the first version of the Model S was also questionable.

It was Tan Jincheng's intervention, like a white knight, that solved Musk's most pressing problem at the time and avoided the risk of Tesla being sold to Google. This is how a personal friendship was formed between the two.

"Everything will be alright, won't it?"

Tan Jincheng didn't know how to comfort him. Musk was right. The two companies were founded a few years apart, but from the perspective of development in the field of new energy vehicles, the gap was not particularly large, and their styles were similar.

Those who truly understand Musk should know that he and his Tesla are indeed very excellent, but what makes him excellent is his forward-thinking ideas that can integrate various industries. Tesla's success is based on Musk's technological foresight and determination to change the world.

It is Tesla's team's efficient engineering capabilities that bring technologies from various industries to the automotive industry, resulting in a disruptive product experience, rather than the technology itself.

Just like when the iPhone came out, it was a breath of fresh air.

In a strict sense, the Edam S is a product of "freebies". Its motor technology originally came from AC Propulsion, the idea for lithium batteries came from Straubel, and the manufacturing concept was inherited from Antonio.

As for autonomous driving, it was learned from Google. Tesla's first sports car was assembled based on Lotus and major top component suppliers. In today's terms, it was a gasoline-powered car converted to electric.

However, this kind of free learning is not like some of our companies, which take things and then stop striving for improvement. There is nothing wrong with learning from others or learning from them for free. As long as you invest in it later, do your research and development seriously, and find your own path, that's fine.

Aside from these, the production plant of the Elephant S is more like a free ride on Toyota. When Toyota was about to close their factory, Musk, who had no factory, heard the news and approached the founder of Toyota.

However, he didn't have any money at the time, so after some persuasion, Toyota invested in Tesla, and the factory naturally became the production plant for the Tesla Model S.

By leveraging various "freebies" and applying them across different fields, Tesla naturally achieves technological breakthroughs, ultimately building its own competitive advantage. This is the key to Tesla's success.

The same applies to Weilai. Weilai's factory has learned from the advanced concepts of BMW and Tesla in many aspects, and in some aspects it has directly copied them. Through this learning, and with the help of our national conditions, Weilai has formed its own characteristics.

When Tesla faced its second bankruptcy risk, Tan Jincheng stepped in to save it. Of course, he also benefited greatly. In addition to making a fortune from Tesla stock, he also made rapid progress in his cooperation with Tesla.

Now, with Tesla facing its third crisis, the roles of Wei Lai and Tan Jincheng are somewhat contradictory. Wei Lai, who also follows a high-end strategy and has already established a certain position in the domestic market, is Tesla's biggest competitor.

The pricing of the ET5, whether in the European or domestic market, makes no secret of its ambition to compete with the Model 3. Musk once said he would create a $3.5 pure electric car, and he did.

Not to be outdone, Tan Jincheng also produced one, and the two have been in competition since the pricing of the ET5.

On a personal level, Tan Jincheng has also provided considerable support to Musk. He did his best to facilitate the Tesla Shanghai Gigafactory project and also contributed significantly to the construction of Tesla's Nevada battery factory.

"Yes, everything will be alright. My current hope is that your German battery factory can start production as soon as possible; it's just a bit of a pity that it's unlikely you can invest in North America under the current circumstances."

Factory Manager Ma shrugged helplessly, and the two chatted obliviously at the Tesla booth.

Speaking of the European battery factory invested and built by Jinshidai, besides the Europeans who are both happy and envious, the happiest person should be Musk. According to the order volume of the Model 3, if timely delivery is required, its own production capacity will definitely be the biggest problem.

But besides its own production capacity issues, there is another major problem: batteries.

Based on last year's battery industry capacity, if Tesla wanted to deliver the Model 3 as quickly as possible, it would almost exhaust the world's battery production capacity, which is obviously impossible. The repeated short selling of Tesla's stock is also largely due to battery supply issues.

The problem is that as a car factory, Tesla didn't know how to manufacture batteries when the Model 3 was in high demand, and it still doesn't now.

Strictly speaking, there are only two car manufacturers in the world that can actually produce batteries: WTI and BYD. Musk hardly needs to consider who he partners with.

If we disregard these two Chinese companies, then we'll have to partner with either Panasonic or LG.

However, this is clearly not in line with Tesla's China strategy. If battery supply is handed over to Panasonic or LG, how can they compete with us?

Another issue is battery technology. Weilai, which is already a leading global battery supplier, is no worse than established companies in battery technology. In addition, Chinese companies are much more generous in terms of patent licensing.

Those who frequently surf the internet should know that Musk is very good at making empty promises, but looking beyond the surface, his promises are actually no different from selling courses online: first, he sells anxiety for free, and then he sells hope for a fee.

The only difference is that Musk's hopes are real, which is why Tan Jincheng is willing to believe in his promises. Wei will fund the construction of a factory to produce battery cells, while Tesla will handle the rest of the miscellaneous tasks, such as assembling battery packs.

Tesla's battery factory in Nevada was built with technical support from Wei Lai. Of course, Wei Lai also has a certain share in it. I believe that the factory manager's promises are one thing, but Tan Jincheng is also very clear about what he deserves.

Musk clearly agrees with this approach. While personal relationships are important, cooperation is ultimately driven by mutual benefit. Once Tesla becomes successful, it will also buy back the shares held by Wei Lai.

If Tesla goes under, it's not impossible that the battery factory in Nevada could be taken over by the company.

Of course, if the Americans don't object.

In terms of battery technology, the progress made by WIL in recent years has been gradually applied to the latest models. For example, the ET5 and the 3 have both upgraded from 18650 cells to 2170 cells. The new cells have lower costs and higher energy density. At the same time, the high-voltage three-in-one solution has reduced the overall weight of the battery pack by 25%.

The two companies are roughly in sync in terms of battery supply, and have also upgraded their battery and electronic control technologies. In addition, there are also improvements in manufacturing. The number of parts in the ET5 is reduced by half compared to other pure electric models.

"How are the pre-orders for the ET5 from Weilai?"

The only good news for Musk this month is that Tesla's stock performance has been decent, without the sharp drop of last month, but with some recovery, which has given him some relief.

Unlike the domestic ecosystem, Tesla's stock price fluctuations have a significant impact on Tesla itself. However, the performance of A-shares is also not very good, and the same is true for Weilai's stock price.

Tesla has its problems, and so does Weilai.

The biggest problem is that the decline in sales has led to poor performance in the two financial reports (2017 annual report and first quarter report). Otherwise, Tan Jincheng would not have convened a meeting with the Yuechi team immediately after returning from Europe.

Given the deteriorating relationship between the two companies and the old man's unpredictable behavior, it's understandable that the two companies hadn't officially started negotiations in April and were in a standoff. The poor performance of the three major A-share indices and the impact on Weilai's stock price were objective reasons.

However, the subjective reason is that this is the first time since the listing of Weilai that the overall net profit margin has declined. In addition to the decline in profits, the decline in sales volume of Yuechi in the first quarter is also an indisputable fact.

Compared to its peak market capitalization of nearly 3800 billion yuan, Weilai's current market capitalization has fallen to between 3100 billion and 3200 billion yuan.

In March, for the first time, Weilai did not release its financial report for the previous year at the beginning of the month. Instead, it chose a time similar to other car companies, namely the end of March. This simple change was enough to cause a market reaction.

In 2017, Weile's total revenue reached 901.27 billion yuan, a significant increase of 30.68% compared to the previous year, which is already a very good result. However, the nature of the capital market is greed, and they expected Weile's 2017 revenue to reach 100 billion yuan. 90 billion yuan is obviously far from 100 billion yuan. Furthermore, Weile's net profit declined sharply, with a total net profit of 93.27 billion yuan for the year, which not only did not increase compared to 2016, but actually decreased by 16.84%.

The drop in net profit margin to 10.35% is one of the important reasons for the decline in Weilai's stock price. Another reason is that Weilai's performance in the first quarter also declined significantly compared to last year.

The decline in sales of the Yuechi series, the reduction in subsidies, and the rise in raw material costs have all affected Weilai's net profit. Fortunately, Weilai's automotive business segment as a whole can still maintain a gross profit margin of 18.43%.

According to industry standards, traditional fuel vehicles maintain a gross profit margin of 10%, while for new energy vehicle companies, a gross profit margin of 15% is the bottom line for survival. If they want to achieve sustainable development, the gross profit margin must be maintained between 15% and 20%.

Otherwise, they will have to rely on financing or policy support.

"It's alright, not as good as your Maodou 3, but our pre-orders are still pretty good."

Speaking of this, Tan Jincheng's smile deepened. The popularity of the ES3 and ET5 in the consumer market has alleviated some of the current pressure.

The low-end Aion S and Aion Y, the mid-to-high-end ES3, ES6, ES8, ET5, ET7, L1, and Huanghai electric bus series together form Weilai's current new energy product matrix.

The prices of the two ES series models have been adjusted, as have the two Aion series models. While the L1 model has not been adjusted, it has been given certain discounts to new users. As for the sales of the ET7 model, they can be basically ignored.

As of the Shanghai Auto Show, deliveries of the Weilai ES3 and ET5 have gradually begun. The Weilai factory, which resumed normal production after the Spring Festival holiday in March, is operating at full capacity, but even so, there are still not enough cars to meet demand.

The 10,000 vehicles that Zhang Li had prepared for the launch of the new car have already entered the concentrated delivery period, and the new production capacity regulations are giving Zhang Li a headache again.

For this reason, delivery to the European market has also had to be postponed. According to the current production capacity plan, the delivery period to the European market will begin in the fourth quarter of this year.

"I really wish a factory could spring up right now."

Although the delivery period in the European market has been delayed, it still has a few months' advantage compared to Tesla's planned delivery to China and Europe in February 2019.

This made Musk extremely envious.

"Then you should finalize the plan as soon as possible so that the Shanghai factory can be built and put into production as soon as possible."

"Yes, that's right. I came here this time hoping to finalize things as soon as possible."

Based on first-quarter sales figures, authoritative institutions estimate that global sales of new energy vehicles in 2018 will be around 200 million units, with domestic sales accounting for approximately 55% of global sales.

However, it must be said that there is still room for improvement in sales. With years of subsidies and promotion, car consumers' understanding of new energy vehicles has changed significantly, and the market has been initially cultivated.

However, it must be said that the main reason restricting the sales of new energy vehicles is the production capacity of each company. It is not only a matter of the production capacity of car factories, but also has a great deal to do with batteries and other components.

Companies like BYD, Guoxuan, and CATL, all leading domestic electric vehicle manufacturers, are rapidly building factories. CATL, in order to develop quickly, applied for an IPO as early as last year.

As expected, Ningde Times will still be listed on the ChiNext board, and the listing date is set for June of this year. However, Ning Wang, whose luck has been taken away, is no longer as prominent as he was in his previous life.

However, Ningwang's strength should not be underestimated. After going public, Ningwang will no longer be restricted in terms of financing, and its development will surely be as rapid as other companies.

Most companies experience steady growth before going public, but once they do, their expansion speed becomes almost visibly rapid, changing every single day, including Weilai.

Ningwang's listing is a strong competitor for both Weilai and BYD.

Although ByteDance, the controlling shareholder of Weilai, holds 13.34% (after IPO dilution) of Ningwang's shares, this has nothing to do with Weilai. Weilai is Weilai, and ByteDance is ByteDance.

The leaders of the world's two largest new energy vehicle companies made a public appearance at the Shanghai Auto Show and chatted happily, attracting attention even when standing in a corner.

Tesla's booth was packed with people, with reporters snapping photos of Tan Jincheng and Musk in waves, much to Musk's delight.

"Tan, your popularity is still so high."

The launch of Maodou S has made Musk a celebrity entrepreneur. Coupled with his distinctive personality, his every word and action has attracted great attention. The same is true for Tan Jincheng. This 33-year-old helmsman of a billion-dollar empire is comparable to Zuckerberg.

Like Musk, Tan Jincheng is more approachable to the public, but he also has a distinct personality, especially in business. The pricing of the ET5 and ES3 has completely disrupted the current pricing system for new energy vehicles in China.

Keep in mind that this was an era when a car like the Zhidou, an A00-class sedan, dared to set its guide price at 15.18 yuan and 18.88 yuan. The D3, touted as the high-end version of the Zhidou, had a range of only 210km, but its guide price was set at 19.58 yuan and 20.58 yuan.

Although the final price of these cars to consumers is between 5 and 10 yuan, this is the current chaos in the new energy vehicle industry.

Various inflated prices, national subsidies, and local subsidies are public policies, but subsidies between companies are unknown. This kind of false labeling leaves a lot of room for companies and distributors to operate.

Consumers have a lot of knowledge about products, but some also buy on impulse. These falsely advertised prices easily fool this group of users. Anyway, if they run into one of these suckers, they'll make a fortune. Distributors won't explain the various subsidy policies in detail.

This is somewhat similar to how many unscrupulous businesses used information asymmetry to deceive consumers at the beginning of the century.

The starting price of a B-class sedan is only 21.98 yuan. Why should an A0-class sedan have a starting price of 20 yuan?
If Tan Jincheng's guide price for the ES3 was somewhat considerate of his peers, then the pricing of the ET5 was a slap in the face to them.

This isn't targeting any particular company, but rather the fact that almost 90% of the new energy vehicles currently on the market, as well as those about to be released, have been the subject of heated debate online since the pricing of the Weilai ET5 was announced.

If a few years ago, Wei Lai developed an advanced intelligent driving system and was spared due to pressure from higher authorities to protect the entire industry chain, then this time Tan Jincheng has truly revealed his fangs.

Unlike last time, the higher-ups fully support the pricing of the ET5. They believe that if Americans can produce a $3.5 pure electric sedan, so can our companies.

At such a crucial juncture, Wei Lai's performance was truly inspiring.

The pricing of the ET5 doesn't alarm its competitors in the same class; at most, they'll grit their teeth and follow suit. But for those "mediocre" companies that mainly produce A00-class cars, such as Zhidou, BAIC, and Chery, it's a huge blow.

They can no longer arbitrarily set extremely high prices and then use various subsidies and information asymmetry to create the illusion of great discounts for consumers and take advantage of the situation.

Take the Zhidou D3 four-seater model as an example. It is a hatchback with dimensions of 2975*1585*1590 mm and a basic range of 210 km. The starting price is 20.58 yuan, but the actual price after purchase is probably around 10.98 yuan.

They created the impression of huge discounts for consumers, but once the ET5's price was announced, this tactic stopped working, meaning that Tan Jincheng completely overturned their marketing plan.

This is fatal for these car models; they can no longer fool people, and therefore they can't sell them.

Why spend 11 yuan on a hatchback with a range of 210 kilometers, instead of spending a few tens of thousands more to get a mid-size sedan with a range of 354 kilometers?
Furthermore, the ET5's exterior design and appearance are also major highlights. There is a lot of discussion about the ET5's appearance on the internet, which is quite attractive to female users who value aesthetics.

Female users are the main consumers of A00-class cars.

To reiterate, not all female users prefer small cars; many also favor larger cars. The biggest factor in choosing a small car is its affordability. But if there's a large car that appeals to their aesthetic sensibilities and offers good value for money, why wouldn't they choose it?

The ET5, a newcomer to the sedan market, has delivered a devastating blow to the market simply through its pricing and aesthetics.

Fortunately, Mr. Tan didn't go too far. He announced the price during the Geneva Motor Show, giving domestic manufacturers more than a month to adjust their strategies. If he had waited until the Shanghai Auto Show to announce the price, there would have been widespread lamentation.

At the 2018 Shanghai Auto Show, automakers including international brands, domestic brands, and emerging players showcased more than 30 new energy vehicle models making their global or Asian debut. A total of 159 new energy vehicles were exhibited, accounting for 11% of the total, the highest number ever at the auto show.

It wouldn't be an exaggeration to define the 2018 Shanghai Auto Show as the debut year for new energy vehicles. Tan Jincheng gave everyone nearly two months, which was quite generous.

"Go and chat with the reporters for a bit, give your car company some publicity and maybe attract some foot traffic for me too. I saw someone I know over there, I need to go say hello."

Seeing that the crowd was growing larger and larger, Tan Jincheng decided to slip away.

That said, he was the one who first promoted this practice of car company bosses helping each other out, and now bosses from various car companies also attend auto shows to support their competitors.

Attending auto shows is no longer just about seeing tall, muscular men; the behavior of car company executives is equally entertaining.

"No problem, I'll come to your booth to find you in a bit."

(End of this chapter)