2003: Starting with Foreign Trade

Chapter 1003 "The Captain's Strategy"

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Looking at the automotive market in the first half of 2021, in addition to the chip shortage, there was also a battery shortage.

On the one hand, the special events of last year disrupted the industrial chain, and on the other hand, traditional automakers did not respond well to the new energy vehicle market. The global auto market recovered significantly in the first half of the year, with sales growth in China, North America and Europe all exceeding 25%.

New energy vehicles saw a year-on-year increase of 160%, with 260 million units sold globally. Although overall sales have not yet recovered to 2019 levels, the growth of new energy vehicles has exceeded expectations.

This has led to a global shortage of battery production capacity. Even though global battery suppliers such as Jinsheng Technology, BYD, CATL, and LG are doing everything they can to increase production capacity, no matter how fast they build factories, they cannot keep up with the growth of automobile production capacity.

In addition, the soaring prices of raw materials, with lithium prices rising by 70% and cobalt prices by 40%, have increased battery costs by 10% to 15% and limited battery production capacity.

According to incomplete statistics, the parts shortage that broke out in the second quarter caused major automakers worldwide to reduce production by at least 300 million vehicles, with the majority of these 300 million vehicles being new energy vehicles.

Large multinational automakers, including Volkswagen, Toyota, and Ford, are allocating more production capacity to high-profit models and reducing low-end production capacity.

"In fact, this short-term supply chain crisis is actually an advantage for some of our domestic independent brands."

In a public interview, Tan Jincheng expressed his views, saying that everything has two sides, and the supply chain crisis is no exception. Multinational companies have reduced the number of low-end models due to problems with parts supply.

This market vacuum was given to domestic brands such as BYD, Woolai, Geely, Changan, and Great Wall, whose growth rates this year have been very significant, all exceeding 50%.

The Wuling Hongguang EV MINI sold 18 units in the first half of the year, topping the global sales charts for a single electric vehicle. While profits were indeed limited, it played a very positive role in promoting the popularization of new energy vehicles, especially pure electric models.

Besides playing a positive role in popularizing the industry, the popularity of Wuling Hongguang has also led to a boom in the A00-class market, with A00-class cars such as Changan Benben, Chery Little Ant, and Zhidou Rainbow also showing significant sales growth.

Models priced between 30,000 and 70,000 yuan are very popular in the market, and the monthly shipments of the Zhidou Rainbow are approaching 7000 units.
In the A-class sedan market, only BYD and Wanda have performed the best. Other car companies, including multinational car companies, have few capabilities, which is mainly due to the supply chain crisis.

This is also the case for Tesla. In order to ensure the security of its supply chain, Tesla has renewed its battery supply contract with Jinsheng New Energy ahead of schedule and has also introduced CATL to participate in the competition, all in order to ensure the security of its battery supply.

In fact, major automakers have several battery suppliers. The mainstream domestic battery suppliers, such as BYD, Jinxin, Ningde, Guoxuan, etc., are purchased by major domestic and foreign automakers. The cost of batteries varies depending on the model.

Even large manufacturers like BYD and Wynn, which have their own production capabilities, still purchase a small amount of products from external battery manufacturers as a supplement.

Currently, about 10% of the ternary lithium batteries used in the BYD Tang EV come from CATL. BYD's goal is to achieve 100% self-sufficiency in batteries by 2023, but with their current production capacity or technology, they are not yet able to reach this standard.

Weilai uses Guoxuan High-Tech's batteries for its battery procurement supplements, and the reason is simple: to reduce costs. This additional capacity is mainly used for the Zhidou brand. In the future, the Zhidou brand will still have some battery supply from competitors, unless Jinxin's battery costs can be lower than those of its competitors.

BYD has its own mass-produced chips, and Weilai has its own stockpiled chips. Both companies have their own battery industries, giving them advantages in both core component supply and production capacity.

"The crisis in the supply chain has brought us considerable opportunities, allowing us to have a good chance to enter the A-class car market. This year, we have focused more of our production capacity on Exeed, Zhidou, and several other models that have sold well, which has also brought us a significant increase in sales."

The reason why Weilai did this is very simple: if it wants to become a mainstream model, the A-class sedan market is a must-win market. Otherwise, it can only be limited to a certain track like the new force brands, and its sales will be stuck at most around 50 units.

With such advantages now, how could we not take advantage of them to capture consumers' minds in the A-class sedan market and squeeze into the industry of million-unit new energy vehicles?

By sacrificing some profits to focus on promoting models that capture consumers' minds, the changes in Weilai's sales have been very significant.

The matrix of four major new energy vehicle brands—Weilai, Aion, Exeed, and Zhidou—comprising a total of nine mainstream models, has brought Weilai sales of up to 24.2 units, accounting for 20.17% of the domestic market share.

However, in the global new energy vehicle market, WIL's market share has dropped to 11.8%. Like Tesla, the European market mainly relies on imports, which still limits WIL's expansion speed in overseas markets.

"We have sold nearly 30 vehicles in the North American market, but we have not sold a single one. This is a huge disadvantage, but there is really no good solution for the time being. However, we can increase our global market share through the export of the Zhidou series."

"So I want to emphasize here that WILRA is still a global new energy vehicle company, and it is the most successful one in China."

After returning from the capital, Tan Jincheng was scheduled for a financial report conference call.

During the earnings conference, Tan Jincheng was not so low-key. The domestic sales volume of Weilai was 24.2 vehicles, while the global sales volume of Weilai in the first half of the year was 30.7 vehicles, with a total export volume of 6.5 vehicles, accounting for 21.17% of Weilai's total sales volume.

However, it is an undeniable fact that Tesla's market share has declined in both the global and domestic markets. Of the nearly 30 vehicles sold in North America, Tesla alone accounted for 17.7, which has been a very lucrative business for the company.

It's fair to say that North American automakers, whether traditional or emerging, don't have a single truly competitive player.

Of course, this does not mean that Weilai does not have any vehicles in the North American market. It's just that they are imported in small batches through some special channels, and these vehicles are not counted in Weilai's global sales.

According to rough estimates, the two subsidiaries, Weilai and Yuechi Auto, have accumulated at least 2000 vehicles in the North American market over the years.

Currently, among all companies with overseas sales, only Chery has a higher percentage than Weilai. However, Chery's exports are mainly gasoline-powered vehicles, and the main markets are Russia and South America.

"Then I wonder what Mr. Tan thinks of the Russian market? Does Weilai have any plans to develop the Russian market? With Yuechi Automobile's advantages, it has a great advantage in exporting to the Russian market, just like Chery and Great Wall."

For well-known reasons, Russia has had a tough time in recent years, and its automotive industry has been severely impacted. Domestic manufacturers like Chery and Great Wall have seized this opportunity and are actively expanding into the Russian market. Great Wall has even built a factory there.

"There are no plans to develop the Russian market for the time being. Our main task at present is to vigorously develop the European market, followed by the South American market."

The Russian market is still too sensitive. If the US wants to become a global car company like Tesla, it is most sensible to avoid the Russian market. In addition, the Russian market is not a high-profit market.

Chery and Great Wall's models exported to Russia are mainly low-end models. Instead of spending a lot of effort to develop the Russian market, it would be more sensible to go to Africa. At least in terms of consumer mindset, Africa is easier to convince than Russia.

"Zhidou Auto is currently rebuilding its overseas channels, and it is estimated that Zhidou will be able to resume some of its export business by the fourth quarter, which will be beneficial to our market share increase."

"Of course, Zhidou Auto's revenue will not be included in Weilai's revenue, but this will not affect our Weilai strategy."

"In addition, please remember one thing: although our market share is declining, our sales volume is growing significantly. Instead of focusing on market share, it is more practical to focus on specific sales volume, which is the real source of revenue and profit."

Weilai's performance in the first half of 2021 was outstanding. In terms of sales, it has firmly held the title of the number one domestic independent brand in terms of sales volume, thanks to the strong surge in new energy vehicles.

In addition to the global sales of 30.7 vehicles, Yuechi Auto's sales have also been very stable, with a total sales volume of 39 vehicles in the first half of the year, bringing the total to 69.7 vehicles.

With sales of 69.7 vehicles, it surpassed Geely's overall sales of 63 vehicles, which is equivalent to the overall sales target of 150 million vehicles in 2021. In just six months, Weilai has already achieved 46.47% of that target.

This level of completion ranks first among domestic car companies. Compared with other companies with an annual sales target of 1.5 million vehicles, Weilai's biggest advantage is new energy vehicles. The sales share of new energy vehicles has almost reached a 50/50 split.

In a sense, abandoning Yuechi Automobile from now on will not have a significant impact on the company's operations.

Geely, Great Wall, and Changan, three automakers with annual sales targets of 1.5 million vehicles, still primarily focus on gasoline-powered vehicles. Geely, in particular, experienced dismal sales of new energy vehicles in the first half of this year, selling only a little over 30,000 units.

With the overall penetration rate of new energy vehicles in China exceeding 10%, Geely's sales share of less than 5% is hardly worthy of its reputation as a leading enterprise.

As of the first half of this year, Geely's strategy in the new energy vehicle sector still seems somewhat haphazard. The Geometry brand contributed the majority of sales, and while the newly launched Geely 001 received considerable attention, it's unlikely to sustain sales in the short term. However, like BYD and Weile, Geely has a deep technological foundation, but it hasn't yet experienced a technological breakthrough. BYD and Weile, which entered the market earlier, have both benefited from this breakthrough, and Geely, with its significant investment in technology, will likely follow suit.

This can be seen from Lei Jun's actions. When Lei Jun was building cars, in addition to the team supported by BAIC, most of the talent he poached from his peers came from Geely, BYD, Woolai, and Tesla.

The R&D and production executives, as well as the AI ​​talent, are mostly from these four car companies. The aggressive moves of internet and technology upstarts have had a significant impact on traditional car companies in the automotive business.

Take Xiaomi as an example. In the first half of this year, they acquired an autonomous driving team and started building their factory in Yizhuang, which is now on the right track.

There's not even a car in sight, but since announcing their car manufacturing plans, Lei Jun and his Xiaomi car have made headlines no less than ten times in just a few months.

Especially during the period from April to June, when Tan Jincheng was busy overseas, there was one less competitor for trending topics, and Xiaomi Auto really topped the trending topics every few days.

The question of which factory to visit for research made headlines once, and then which 4S store to visit again. In terms of factory location selection, Jiangcheng and Luzhou have repeatedly topped the trending searches, leading netizens to jokingly call it Lei Jun's nationwide 4S store tour.

Even in the area of ​​car trademarks, there were trending search terms like "Xiaomi car trademark was preemptively registered," demonstrating how clearly the internet is being manipulated.

During the process of the deal between Weilai and Ford, from strategic cooperation with Tan Jincheng to their current separation, Lei Jun has been quite adept at "riding" the wave of trending topics. He previously made headlines multiple times for his talent poaching.

The moment the transaction was completed, this natural-born internet savvy person immediately posted, "This is a collective victory for China's automotive industry!"

The background is still the Xiaomi car, which they haven't announced yet, and the ET5, the main selling model of Weilai in Europe. By using this joint appearance, they increased the exposure of Xiaomi car and played the traffic game very clearly.

However, Lei Jun wasn't the only one trying to capitalize on the buzz surrounding the Ford deal. After all, this was the largest overseas acquisition by a Chinese automaker in recent years. Whether it was traditional automakers like "Boatman Brother" or "Boss Wei," or new energy vehicle bosses like Li Bing and He Xiaopeng who had close ties with Tan Jincheng, they were all swarmed by the media even if they didn't want to ride the wave.

The boatman generously congratulated Wei Lai on taking another step forward in its globalization strategy. He also jokingly asked if Tan Jincheng would be willing to sit down and discuss a plan to jointly build a European logistics warehouse and share the costs.

To be honest, Boatman's suggestion is indeed a good idea. On the one hand, it can indeed share the costs, and on the other hand, it can reduce the hostility of domestic car companies going overseas.

BYD and Geely both aspire to be international automakers, but the market is only so big, and the biggest fear is that everyone will engage in malicious competition overseas.

Coincidentally, these same hot topics were also raised by investors during the conference call.

“I have noticed Mr. Wang’s suggestion, and it is indeed a good idea.”

In China, engaging in price wars and price cuts can be beneficial, even if people complain about the quality issues after the price reduction. At least the car price is lower, and the benefits can be passed on to domestic consumers. However, if this approach is used overseas, it will be counterproductive.

Price competition is unavoidable in the bulk consumer market, but Tan Jincheng is still reluctant to get caught up in a vicious competitive environment, especially in overseas markets.

Aside from making the financial statements look better, there are no other benefits.

"We noticed that Mr. Tan just mentioned a term, which is the 'Captain's Strategy.' Could Mr. Tan elaborate on what the 'Captain's Strategy' includes? Also, what is the current situation of Yuechi Auto, and how is the electrification process progressing?"

"Okay, let's talk about it then. Let's start with Yuechi Auto, since sales are what everyone is most concerned about."

Yuechi Auto's sales in the first half of the year continued to decline compared to previous years, mainly due to the decrease in its market share of gasoline vehicles. It is clear to everyone that Yuechi Auto is becoming less and less important to Weilai Group.

However, a car company that maintains annual sales of around 70 units cannot simply give up like this; accelerating electrification is an inevitable process.

"First of all, it should be noted that Yuechi Auto will continue to develop a certain number of gasoline-powered vehicles. For example, the Tank series of hardcore off-road vehicles will still be mainly gasoline-powered, and the development of new models will also lean towards the gasoline-powered vehicle segment."

"With the Yuechi and Yangzi series, our electrification process is indeed lagging behind. The reason behind this is well known: before the new energy vehicle market matures, we have to rely on the sales of existing models to maintain the company's size."

"This is a legacy issue for the company, and we will not shy away from it, but we are working on it. The first hybrid model of Yuechi will be launched in September."

The Yuechi series focuses on hybrid power in terms of electrification. If sales volume is the real priority, then the existing range-extended electric vehicles are indeed a good choice, but range-extended electric vehicles are still too niche.

To truly establish itself in the hybrid market, BYD must develop PHEV models, rather than mild hybrids like HEVs. BYD's success with its DM series has proven that this market still has great potential.

BYD's true mass production of the DM-i system actually occurred at the end of last year and the beginning of this year. While the Yuechi is indeed lagging behind mainstream models, there is still time and space for improvement.

Based on this consideration, Yuechi Auto did not consider range-extended or HEV mild hybrid models. These transitional products could indeed bring a certain increase in sales, but they were not meaningful for the company's long-term strategy.

The Weilai L series focuses on range-extended electric vehicles, while the E series focuses on pure electric vehicles. The Exeed brand will be involved between the two, while Yuechi Auto will focus on PHEVs. This is the important adjustment in the so-called Weilai plan.

In addition, Yuechi Auto has made profound adjustments to its brand resources. Currently, it only continues to invest in its main-selling models such as the A1 and A3, while peripheral models such as the A7 have stopped being updated.

In terms of product line strategy, we are also gradually transforming our existing fuel vehicle production lines into electric vehicles. These are things that are not visible to the outside world. The reason why the speed seems to be relatively slow is actually very simple: we just want to ensure that the existing sales volume does not decline too much.

The slow decline in sales is due to market reasons, as well as deliberate actions taken by Yuechi during its electrification transformation process.

"Besides making efforts in areas that are not visible to the public, we also need to upgrade the brand marketing of the Yuechi series. The impression that Yuechi has left on everyone has been too deep. Whether the market can accept the electrification transformation is also something we need to consider."

This iconic car, a national icon of its time, has set countless records. It is the king of the mid-to-low-end SUV market, and its high cost-performance ratio are all hallmarks of the Yuechi brand, all based on the gasoline-powered vehicle market.

For a brand deeply rooted in the gasoline car market, whether electrification will be accepted by the market is actually the biggest concern for BYD right now. Before the Dynasty series, BYD's models were basically converted from gasoline cars, but the response was generally lukewarm.

The F3 was incredibly popular back then, but the hybrid version of the F3 wasn't exactly a success. At best, it only provided valuable experience and technology. The emergence of the Dynasty series was also a result of recognizing the difficulty of modification.

This is also the reason for many car companies' multi-brand strategy. In everyone's impression, BBA (BMW, Mercedes-Benz, and Audi) are all about gasoline cars. If you see a Mercedes-Benz with a green license plate on the street, most people will take a look.

This is brand image.

"In addition, we also need to consider differentiated competition with BYD. Since our Yuechi Auto is going to take the PHEV route, this is something we must consider."

"Of course, all of this depends on the market feedback of our first PHEV model. If the market feedback is good, we will continue to do so. But if the market feedback is average, Yuechi Auto will launch a new brand."

"We cannot even rule out merging with Weilai Automobile again."

The mergers and splits between subsidiaries and brands of large enterprises are all based on market changes. The initial split between Yuechi Auto and Weilai Auto was based on the principle of allocating resources to Weilai Auto.

Yuechi Auto focused on boosting sales and generating revenue, while the Weilai brand received significant investment. Now, the Weilai brand has grown to the size of a "medium-sized" automaker, so it no longer needs Yuechi Auto to generate revenue to support it.

If Yuechi Auto's transformation fails at this point, a merger is not out of the question.

Just like a father and son dividing the family property, it is only natural for the son to take responsibility for caring for his parents when they grow old.

(End of this chapter)