Ideal Car: The Glory and Hidden Worries of the 'New Power Brother'

The management team of Ideal Automobile stated that it aims to deliver 30000 units of sales in June, and the core goal for the second quarter is to increase the market share from 11% in the first quarter to 13%; The city NOA early bird test will be launched in June.

Author | Silin

Editor | Yuchen

Ideal Automobile's financial report for the first quarter of 2023 has been released.

In this quarter, Ideal sold 52600 cars, creating a sales revenue of 18.33 billion yuan. The company's overall revenue doubled year-on-year (18.79 billion yuan), with a net profit of 930 million yuan. It was the first time in the first quarter to break free from losses, making Ideal the most profitable car company among the new forces.

The impressive performance has also brought about an increase in stock prices. As of the press release, the Ideal Automobile US stock market rose by over 13%, with a market value of $3 billion more than NIO and Xiaopeng combined.

The doubling of revenue is due to the increase in sales of the L-series. Generally speaking, the first quarter is the off-season for sales in the automotive industry, while the fourth quarter is the peak season for sales. But Ideal sold 52600 cars this quarter. During the same period, Weilai had 31000 vehicles and Xiaopeng had 18500 vehicles.

Ideal to break industry rules in one's own way, such as announcing weekly sales. Since April, the most recent weekly sales volume has been ideal, delivering 8100 units, which is more than the sales of the last three combined.

An ideal employee once told Lei Feng Network in 2022, "There are two very important milestones internally. In 2025 and 2030, the company's entire strategic planning and product strategy are formulated around 2025 and 2030. The goal for 2025 is to achieve a sales penetration rate of 20% in the entire vehicle model market

However, some time ago, Li Xiang posted a friend circle stating that in December 2025, the proportion of NEVs (i.e. electric vehicles) in new car sales will reach over 80%, and the five permanent member brands will be born.Not to mention 2030 at all,heI want to roll it out in 2025.

However, against the backdrop of a significant decline in lithium carbonate prices, the first quarter vehicle gross profit margin of Ideal Automobile did not meet expectations (19.8%), not only lower than the first quarter of last year (22.4%), but also lower than the fourth quarter of last year (20%). CFO Li Tie explained at the financial report that the sales of Ideal ONE resulted in a 1.6% decrease in vehicle gross profit margin.

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In terms of monthly sales, based solely on April's sales, Ideal ranks seventh, with the top three being BYD, Tesla, and GAC Aian; In terms of profits, among the car companies that have already released their first quarter reports, Ideal can only rank fifth, with Changan (6.97 billion yuan), BYD (4.13 billion yuan), SAIC (2.78 billion yuan), and GAC (1.537 billion yuan) ranking first.

In this war, ideals have not yet won.

01

Saving money while expanding

In the car industry, Ideals is known for being "frugal", as it not only makes the most money but also saves the most.

Except for a net profit of over 9 billion yuan, the ideal cost has not significantly increased. The research and development expenses in the first quarter were 1.85 billion yuan, although an increase of 34.8% year-on-year, it was lower than the previous quarter and also lower than the full year plan. Ideal spent 1.65 billion yuan on sales and management expenses in the first quarter, despite continuous expansion, the expenses did not significantly increase compared to the previous quarter.

How can ideals save money?

For many years, there has been only one model of Ideal ONE, but now, although the L series has released three models: 7, 8, and 9, they are all developed on the same platform, and their product features are very similar. Moreover, the yet to be released L6 is positioned in the compact SUV market, and from the appearance of spy photos alone, it is not much different from the previous three models.

At the same time, within the new forces, NIO has launched a "car group" model, with five models available under the main brand alone, including both coupes and SUVs. In addition to the main brand, NIO also has multiple sub brands such as Alps and Firefly in preparation for research and development, and the resource utilization rate is not high. Xiaopeng started as a sedan and is known for its cost-effectiveness. However, since last year, it has been preparing to expand into high-end models and has at least two product lines, including sedans and SUVs.

Traditional car companies don't need to mention that they usually have over 10 models on sale, and each model has its own unique positioning.

Although Ideal will also launch pure electric models by the end of the year, compared to competitors, its model and product line are relatively simple. The strategy of using dolls, although risky, can reduce the cost of research and development on different platforms and facilitate resource reuse, making it a cost-effective option for ideals.

Automobiles are a scale driven industry, and this is a limited war that is not friendly to latecomers. Competitors who have established themselves in the market are more likely to live without making mistakes than making random innovations. This is proved by the ideal doll strategy. In the financial report, the ideal Free cash flow in the first quarter has doubled to 6.7 billion yuan.

The ideal car sales strategy has created an excellent financial model, which is the closest gross profit margin to Tesla among Chinese electric vehicle companies. In the first quarter of this year, it was 20.4%, compared to the previous highest of 22.6% (in the first quarter of 2022). Tesla's highest rate was 30.17% in the third quarter of 2021, and 19.34% in the first quarter of this year.

Apart from being meticulous in research and development, Ideal is also very frugal in marketing.

Just a week before the release of the financial report, Li Xiang himself and a certain car blogger directly engaged in a "war" that attracted overwhelming comments on ideal car marketing on social media. Li Xiang revealed that the ideal market expense rate for the entire company is 0.6%, approximately "600 to 700 million yuan per year", which includes all the brand's public relations, activities, advertising, car shows, press conferences, car owner operations, and other related expenses.

This is already quite economical. According to Li Xiang's disclosure of the mainstream automotive market expense rate, it is approximately 4-5 times the ideal, "including the full range sales expense rate of brand+channel

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After the ideal exposure of the automotive marketing market's gameplay, it attracted many traditional car companies to watch. Yang Xueliang, Senior Vice President of Geely Group, lamented on Weibo, "The market cost for such expensive cars is only 0.6, which is worth learning from for all brands. We will convene a meeting with all teams tomorrow

Regardless of whether the marketing department of Geely actually had a meeting to discuss, Li Xiang's traffic momentum was also very successful. Looking back at the launch of the Ideal L9 last year, the car has not yet been launched. The continuous months of hype and the phrase "the best SUV under 5 million" at the press conference have only increased the topic of this car.

It should be noted that marketing cannot be fully translated into sales, and products are king. Taking Wenjie as an example, Yu Chengdong has many platforms for Wenjie brand platforms, with frequent golden sentences and high traffic popularity. But since the beginning of this year, the sales of Wenjie have been in a sluggish state, and the fundamental reason is that the product strength is still lacking.

While saving money, my ideals are also expanding, and compared to my previous self, my business is becoming increasingly aggressive.

The scale of the organization and employees is constantly expanding. The ideal number of employees has grown rapidly from 4181 at the end of 2020, 11901 in 2021, and 19396 in 2022. Lei Fengwang learned that as of May 11th,The ideal has expanded to around 21000 people

The number of stores is also constantly expanding. From 206 at the end of 2021 to 276 at the end of 2022, covering 119 cities. In the first four months of this year, Ideal opened four new cities and added 26 stores.

Saving money while expanding

02

Ideal hidden worries: pure electricity, research and development, organization

For ideals, achieving quarterly profitability is of great significance. Maintaining a good financial ratio is important, but focusing on future expansion and layout is also important, not just selling a few cars.

The challenge faced by the current ideal is whether it can maintain high gross profit and low cost rates while expanding at a high speed in the future, while also not falling behind in research and development.

The first is the expansion of the product line.

Previously, Ideal only had one model, the Ideal ONE, but now there are three available for sale. However, Ideal Automobile claims that its product layout will become "one super flagship model, five extended range electric models, and five high-voltage pure electric models" in 2025. A single product dominates the world and advances side by side with multiple product lines, corresponding to completely different technical, organizational, and supply chain management capabilities, and the difficulty is not of the same magnitude.

At the Shanghai Auto Show, Ma Donghui, the president of Ideal Automobile, stated in an interview that the ideal pure electric vehicle or a similar MPV model is mainly determined by the structural and layout characteristics of electric vehicles.

For fuel powered vehicles, industry experts will layout the engine and gearbox in the early stage, and the front suspension of the entire product will be relatively long. However, if it is a four-wheel drive electric vehicle, only the motor will be arranged in the front cabin, and the entire front suspension, including the front cabin, will be relatively short. This form is actually conducive to making the wheelbase longer and space larger under the same vehicle length, gradually becoming closer to the MPV form, which is determined by the technical characteristics of pure electric vehicles

The ideal pure electric vehicle model is launching the MPV model, which has caused many concerns because MPV is still a niche market. At present, the high-end new energy MPVs (priced at over 300000 yuan) that have been launched in the market include Jikron 009, Lando Dreamer, Tengshi D9, etc.

In the entire year of 2022, the overall sales of automobiles were 26.864 million units, an increase of 2.1% year-on-year, but the sales growth rate decreased by 1.7 percentage points. The cumulative sales of MPV in the market were 943000 units, a year-on-year decrease of 12.6%. That is to say, MPV not only has its market share been shrinking, but it has not outperformed the market last year.

Secondly, there are still shortcomings in investment in research and development compared to peers.

In the first quarter, the total R&D investment was 1.85 billion yuan, although it increased by 34.8% year-on-year and the R&D expense rate remained around 10%, it was still insufficient. NIO has not yet released data for the first quarter, and its research and development investment in the fourth quarter of last year has reached 3.98 billion yuan.

Taking chips as an example.he 2024

Technically speaking, chips are the key focus of our efforts this year, but according to Lei Fengwang,At present, the ideal entire chip team consists of less than a hundred people, including software and systems, and only one or twenty positions have been released by the chip team Next door, NIO, according to Lei Fengwang, has over 400 employees who specialize in pure chip manufacturing, over 600 people in software, and over 1000 people in systems. Regarding the progress of self-developed chips for Ideal Cars, Leifeng Network will release relevant reports in the future. Interested readers are welcome to add the author WeChat ysl1075442629 for further discussion

Lei Jun once said that making chips is a $1 billion business, with a starting capital of at least 1 billion RMB. Ultimately, we need to spend $1 billion to mass produce.

And an automotive industry analyst told Leifeng.com,Everyone makes chips to reduce costs. If a car factory sells less than 1 million cars a year, even if the debt cannot be recovered, making chips will be very profitable. Currently, the only thing China can do is BYD, and the ideal time to achieve this quantity is until 2025

Finally, there is an increase in difficulty in organizational management.

With the increasing size of the organization, Li Xiang announced in December last year that the entire company was upgrading to a matrix organization and fully implementing the IPD system (centralized product development model). After a period of 4 months, it was not long before Ideal adjusted the complete organizational structure, indicating that the difficulty was not low.

Compared to the organizations of NIO and Xiaopeng, the ideal organization is relatively stable. However, recent high-level changes have been significant. Apart from the resignation of Shen Yanan at the end of last year, the introduction of Huawei's Li Wenzhi and Zou Liangjun, as well as the significant turnover of some vice presidents, such as the resignation of Xu Yingchun, the head of the computing platform exclusively reported by Leifeng. In the future, Lei Feng Network will continue to report exclusive news related to Ideal. Welcome to follow and look forward to interested readers' communication and exposure. The author is on WeChat ysl1075442629.

03

epilogue

Ideal ambition is great.

Li Xiang himself stated in the financial report that he values market share more in terms of profitability, cash flow, sales, and market share, but he will not trade discounts or price reductions for higher market share.

We currently do not consider a price reduction because when we are making detailed long-term planning and pricing, we have already set the price at the most competitive price point in the corresponding price range based on the level and size of each model. There will be problems with both upward and downward price fluctuations

The ideal market share for the first quarter is 11%, and Li Xiang stated that this number will increase to 13% in the second quarter.

The management also gave optimistic expectations, with sales expected to reach 76000 to 81000 units in the next quarter, and revenue ranging from 24.22 billion to 25.86 billion yuan.

At the beginning of the year, Ideal Automobile set a sales target of 350000 vehicles for this year, which will be evenly distributed to each quarter. At least 8.7 units must be sold in a single season in order to achieve this year's sales target. From the sales volume in the first quarter, it is still 35000 units short of the average.

The revolution has not yet been successful, and ideals still require effort. The author has long been concerned about the ideal carWelcome readers who are interested in the ideal car to come and exchange information. The author WeChat ysl1075442629

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