2003: Starting with Foreign Trade

Chapter 1024 The Production Capacity Plan of the Super Factory

The drama between Tesla and Weilai is fascinating, but the last two months of 2021 were a very happy time for new energy vehicle companies and for potential car buyers.

The new regulations for subsidies for new energy vehicles will be officially implemented on January 1, 2022. According to the new subsidy rules, starting from New Year's Day, the subsidy for hybrid vehicles, including range-extended electric vehicles, will be uniformly adjusted to 4800 yuan.

续航里程在300至400公里车型补贴降至9100元，续航里程大于400公里降至1.26万元，较之2021年补贴政策，新版本下调了30%。

As before, the new subsidy regulations have significantly raised the technical threshold. To receive subsidies, automakers must launch new models with higher battery density, lower energy consumption, and compliance with charging standards.

In addition, there is an interesting point in the new subsidy policy: the government has limited subsidies to 200 million vehicles, and those exceeding this limit will no longer be eligible for subsidies. This clearly shows that the market has realized that new energy vehicles have truly entered a mature stage.

The changes in subsidies have been very evident in the performance of car manufacturers and specific models. The most direct result is that some consumers chose to purchase cars in advance, leading to a surge in total sales of new energy vehicles in China to 531,000 units in December.

Hybrid vehicles benefited the most, with those registered before December 31 enjoying the 2021 subsidy policy. Sales of the Weilai L1, Xinghe P1, and BYD's DM series surged.

For BYD, whose production was affected by the special event, and for Galaxy P1, which is still ramping up production, this can be considered a happy problem. However, for Weilai L1, it is the biggest beneficiary model.

For two consecutive months, the sales of the Weilai L1 reached 13,500 and 14,100 units respectively. For a model priced at over 300,000 yuan, the fact that it can sell more than 10,000 units in a single month is unbelievable. The popularity of range-extended electric vehicles is so high that many car companies don't even understand what the selling point of this car is.

Of course, there are also clever companies in the market. In addition to Seres, another car company that has reverse-engineered this model is Leapmotor, which is not currently favored. Looking at the history of new energy vehicles in China, Leapmotor seems to have no presence at all.

Leapmotor's popularity is even less than that of Hengchi (belt brand) and Faraday Future (Jia's company).

With subsidies being phased out, in addition to consumers rushing to buy cars in advance, most car manufacturers have responded in an interesting way: by raising prices. Car companies such as Xiaopeng and BYD have announced price increases, passing the costs onto consumers.

The attitudes of the two leading companies, Weilai and Tesla, are quite interesting. No one expected Tesla to announce a price cut on New Year's Day. This move was incredibly damaging to the market.

Especially for those who missed out on last year's subsidies, the Tesla Model 3 and Model Y are extremely competitive after the price reduction.

With many car models raising prices, the attitudes of the two main players in the automotive industry's opening drama of 2022 are worth paying close attention to.

Li Xiang made a sarcastic remark on Weibo that Tesla's market value was too high, which was one of the reasons for Tesla's stock price drop. In fact, it's not just Tesla; the bubble in the new energy vehicle brands is currently very high.

Take Li Bing's Wenjie as an example. Wenjie's current market value is between 50 billion and 60 billion US dollars. At the beginning of the year, it even soared to 100 billion US dollars. Xiaopeng's market value is also high. It is really ridiculously exaggerated.

However, besides Li Xiang, the media also paid close attention to Tan Jincheng. The reduction in subsidies, the dispute between the two companies, and Tesla's price cuts have led the media to pay close attention to Wei Lai's attitude.

At a meeting during the New Year's holiday, Tan Jincheng also publicly responded to these two questions.

"First of all, it should be noted that Weilai will not raise prices. Whether it is the popular models such as the Exeed S01 and L1, or the models such as the Galaxy P1 which are in the process of ramping up production, the prices will not be raised. Weilai's high-end models will also not be raised."

"As for whether we will follow Tesla's lead in lowering prices, that depends on the market in 2022. For the time being, we have no plans to lower prices for our best-selling models."

"Actually, we don't have much conflict with the Maodou 3 and Maodou Y models. The ones we should be worried about are not Weilai, nor other new energy vehicle companies, but the car companies that are still selling gasoline cars."

"In a market where electrification penetration is increasing, traditional gasoline vehicle companies should consider accelerating their transformation to electrification."

"We support and welcome Tesla's proactive price reduction. As a technology-driven company, making technology accessible and equitable is our eternal goal."

"No consumer product should become a luxury item, nor should it be high-end for the sake of being high-end. The same applies to cars; they should be affordable for more users."

"The Exeed S01 is an attempt by Weilai to promote technological equality. In the future, Weilai will launch more cost-effective smart cars so that more users can experience the fun of intelligent driving and the thrill of technology."

This is a reminder from Tan Jincheng to some domestic car brands, including Geely and Great Wall. In 2021, apart from launching the Geely 001, Geely made slow progress on the road to electrification.

Even with these difficulties in delivery, Great Wall Motors, once the king of the gasoline car market, is in even worse shape. Its ORA series has been brutally defeated by BYD's Seagull and Dolphin models, resulting in a severe decline in sales. The high-end Wey brand is also not developing smoothly.

The electrification of the traditionally best-selling gasoline-powered Haval series has been exceptionally slow. The best-selling H6 still does not have a hybrid version and is still under development as a gasoline-powered vehicle.

This counter-market behavior has caused considerable damage to Great Wall Motors. In contrast, Wooye and BYD have invested the vast majority of their resources in electrification. Both companies, especially Wooye, have been able to confidently say to the outside world since 2021 that they have broken free from their dependence on gasoline vehicle sales.

Tesla's proactive price cuts are not just aimed at the standard dispute with Weilai. Although the timing was earlier, it was not a hasty move, and Weilai would naturally not blindly follow suit.

Tesla's confidence in lowering prices stems not only from its highest gross margin globally, but also from another major surge in production capacity.

While announcing price cuts on New Year's Day, Tesla also revealed that its Shanghai Gigafactory's monthly production capacity had exceeded 60,000 vehicles, accounting for more than half of Tesla's global sales. Each major increase in production capacity brings about a qualitative change for Tesla.

Like BYD, Weilai was also affected by the special event. The special event at Beicang Port was not particularly serious. If it were a relatively relaxed policy like in 2020, there wouldn't be any major problems.

But now the environment has changed, and Wei Lai has no choice but to take it seriously.

"There's nothing to worry about. Tesla will be next sooner or later. We just need to do things at our own pace."

Tan Jincheng knows this matter very well. From BYD to Weilai, it's only a matter of time before Tesla follows suit. In fact, Tan Jincheng wasn't wrong when he was interviewed. Weilai's main models for 2021 are the Exeed S01 and Weilai L1.

One is a compact A-class sedan, and the other is a spacious six-seater SUV. Neither of them had any competitors in 2021, and their models were not competing with Tesla's. From the perspective of model competition alone, they are actually different types of car companies.

To be honest, the main battleground for the two models is not in the domestic market, but in the European market. Tesla currently holds a certain advantage in the European market, but the latter is making rapid progress and catching up is also very obvious.

The lawsuit and the countersuit will likely last at least six months, and the final outcome will most likely be a settlement. While the lawsuit is being fought, both sides are quietly preparing and accumulating strength.

However, with the European market opening up charging options, both Wynn and Tesla will have to postpone their launches.

In China, Tesla's charging station opening plan is still being promoted step by step. Tesla has no good solutions in terms of public opinion or policy. Besides catching up as soon as possible, the only option is to build more charging stations and improve Tesla's charging network.

Both companies have invested heavily in charging station networks and are well-funded, so it remains to be seen who will emerge victorious.

"To be honest, Tesla's Gigafactory is indeed much more successful than ours, and we still have a lot to learn from them."

Due to the special circumstances, Tan Jincheng, who had returned to Beicang, was more concerned about the production in Weilai. On January 5th, Tan Jincheng and Li Xiang inspected the production situation in Weilai together.

"Yes, Tesla has a lot of experience in this area, after all, they've learned from their mistakes."

Wearing a mask, Li Xiang answered in a muffled voice. The pairing of Tan Jincheng and Li Xiang is often compared by netizens to Xiaomi's senior executives, and is considered a humorous combination on the internet.

Tesla's formidable production capacity and rapid delivery cycle are its biggest weapons, which are of course thanks to its Gigafactory model.

“Sometimes it’s good to suffer a loss. We will build more super factories in the future.”

Li Xiang was referring to Tesla's Gigafactory in North America. At the time, due to its overly advanced concept and inadequate technology, the production capacity of Tesla's North American factory was almost paralyzed. This incident led to the Shanghai Gigafactory plan.

"The investment is also quite staggering."

When Li Xiang truly got involved in the full operation of Weilai, his feelings were completely different from when he was at Lotus. First of all, the investment in Weilai was enormous, and money was needed in every aspect. The CEO's responsibility included making a profit, so Li Xiang was very sensitive to costs.

However, although the investment is large, the returns are also very obvious. "The bigger the storm, the more expensive the fish. High investment carries high risk, but this is also the biggest advantage of large-scale intelligent manufacturing, and it is also the trend of the times."

Regarding the hardware of super factories, Tan Jincheng is quite supportive of Tesla. As the pioneer of the Gigafactory model, Tesla is a worthy role model in terms of production capacity. Most car companies interested in Gigafactories also like to poach people from Tesla. This year, Musk and He Xiaopeng had a major falling out over poaching.

The core of a gigafactory is vertical integration, economies of scale, technological innovation, and localized production. Its core objective is nothing more than to reduce manufacturing costs and achieve rapid delivery through economies of scale.

To put it simply, they acquire a large plot of land, build various factories on it, and handle most of the work themselves, from parts to complete vehicles.

However, realizing this model is extremely difficult. Currently, there are no more than ten companies worldwide with the capability to build super factories.

Building a super factory is the ultimate challenge for the automotive and battery industries. The primary challenge is the high investment threshold. Compared to traditional car factories, the construction cost of a super factory is five to ten times higher. Secondly, there is the long period of pressure on cash flow and the risk of technological iteration.

In terms of funding, Tesla is listed on the US stock market and its stock price continues to rise, making financing convenient. Although Weilai is listed on the A-share market, its financing capabilities are also strong, and it also has a powerful major shareholder.

The risks of technological iteration are even more serious. A misjudgment of a technological route may lead to the elimination of an entire production line or even an entire factory. Take Tesla's 4680 battery, which it has invested heavily in this year, for example. The cost of a single production line is as high as 200 million US dollars. If it fails, it will not be just a simple matter of eliminating a production line.

Besides the financial black hole, the integration of supply chain and technology is also extremely difficult, and the talent requirements are extremely high. There are fewer than 10,000 engineers worldwide who understand both battery technology and AI algorithms.

In addition, there are policy pitfalls, which also pose significant risks. For example, Tesla's Berlin factory was halted by the court 11 times due to environmental issues. Geopolitical issues can also affect the return on investment.

There are also negotiations over subsidies and other factors that prevent large automakers from easily investing in Gigafactories. Only a maverick like Musk would dare to build a Gigafactory in Mexico.

Weilai also has its own true super factory, namely the Weilai Automobile Factory located on Meishan Island, which is also the headquarters of Weilai. It follows a self-supply system for batteries and complete vehicles.

The Meishan factory has the highest automation rate among all the factories, using robots and automated production lines. It has introduced integrated die-casting machines ranging from 6000T to 9000T, and the factory roof is a solar roof with a complete energy storage system.

This is a benchmark factory that Weilai has built step by step with a lot of investment, and it is also the factory with the highest return on investment for Weilai.

The battery is from Jinshidai, while the motor, electronic control, body structure, interior, electronics, and charging equipment are all sourced locally. With the rapid development of the industry chain, the localization rate of Weilai's parts has reached 95%, with only some high-end chips relying on imports.

In addition to investing heavily in its own resources, Weilai has also invested heavily in integrating the supply chain. It is not advisable to squeeze the supply chain at will. If suppliers cannot make money, they will definitely cut corners, and the quality and safety will be greatly compromised.

For products like integrated die casting, chips, and motors, suppliers have always invested money in their R&D. By sharing R&D costs with supply chain companies, the company aims to improve the technological upgrades of its suppliers.

This also creates a technological moat for Weilai. The benefits of high localization brought about by the maturity of its suppliers are also very obvious. Compared with other car companies whose localization rate is generally between 70% and 80%, Weilai has a huge advantage in cost.

In terms of overall vehicle cost, by the end of 2021, the overall cost of Weilai had decreased by nearly 20% compared to previous years. Currently, the Ningbo Super Factory is introducing AI technology and following the route of integrating batteries, vehicles, and AI to further improve production efficiency.

The Ningbo plant currently has an annual production capacity of 60 vehicles, mainly producing models of strategic importance to Weilai, such as the Exeed S01, Weilai L1, and Xinghe P1. Other high-end models of Weilai are produced at the Luzhou industrial base.

The planned Yongcheng Super Factory is an automotive industrial base with an annual production capacity of 120 million vehicles. It is also the core of Weilai. Today, the entire Meishan Island and the Chunxiao Industrial Base across the sea are full of vitality.

Unlike BYD, which builds production bases all over the country, Weilai does not intend to follow this multi-point development strategy. Weilai has only a few industrial bases planned, taking a concentrated approach.

The Ningbo headquarters super factory is ultimately planned to have an annual production capacity of 120 million vehicles, while the Luzhou production base is planned to have a capacity of 60 vehicles plus a supporting battery industrial park. These two industrial bases are the core of Weilai.

In addition, there are bases in Changzhou, Xiangcheng, Jiangcheng, Shancheng, and Shanghai. These places are either mainly battery factories or have limited planned production capacity, ranging from 10 to 40 vehicles per year.

In terms of production capacity and models, Weilai does not have the all-round development strategy of BYD and Geely, but takes the "elite" route to ensure that all models sold on the market at all price points are above the qualified standard.

In Mr. Tan's view, the business models of these two car companies are not healthy. Once they expand too much, they simply cannot stop. It seems that there is no better way than to keep expanding production capacity.

Weilai's approach to production capacity is to avoid overcapacity as much as possible, like Tesla, by leveraging the advantages of centralized production to reduce production costs while controlling corporate risks.

Within Weilai, there is a plan for the company to take when facing a crisis: if sales decline, it will gradually shut down the peripheral production bases to ensure the continued operation of the Ningbo headquarters and the Luzhou production base.

With sales steadily increasing, Weilai is focusing on expanding its industrial bases in Ningbo and Luzhou. These two places are the most friendly to Weilai in terms of both personal connections and relationships, and are also the places where Tan Jincheng trusts the most.

In Ningbo, Weilai's status is comparable to Tencent's in Shenzhen. In Luzhou, with Jianghuai underperforming and Li Bing unstable, Weilai has placed several high-end models and a battery industrial park in Luzhou, and its status is rising.

Who says that among the car companies in the Luzhou area, only Weilai is the most promising? Although BYD also has a factory in Luzhou, BYD's core factory is actually in Chang'an. Shenzhen is BYD's headquarters, but BYD's car manufacturing journey actually started in Chang'an.

January 5th is the day when major automakers announce their sales figures for last year and their sales forecasts for this year.

Weilai achieved considerable success in 2021. After incorporating Zhidou Auto's sales, Weilai's vehicles now cover a full price range from 30,000 yuan to 500,000 yuan, with each model having its own unique highlights.

If Lotus is included, Weilai can be said to have achieved full coverage of the price range under 100 million yuan, which is unprecedented among domestic car companies.

“We have won several championships in the segment, but our main advantage is still in the traditional track SUV segment. However, the performance of the Exeed S01 has allowed us to successfully enter the pure electric sedan market.”

"Thanks to the efforts of the Exeed team, we have finally entered the C-end sedan market in a proper way, and it is the most competitive mass market."

In the morning, they inspected the factory, and in the afternoon, they held a meeting to prepare for the public announcement of this year's sales forecast, as well as the public announcement of Weilai's total sales for 2021.

It was less of a meeting and more of a celebration. The Exeed S01 team received special praise from Tan Jincheng for achieving sales of 12.37 vehicles in three quarters, averaging more than 1.3 vehicles per month.

Since its launch, monthly sales have never fallen below 10,000 units, making it a phenomenal model and of extraordinary significance to Wei.

The Galaxy P1 also performed well, but it was launched late in the day, so its overall sales performance was relatively less impressive. Apart from these two new cars this year, the most outstanding performer was naturally the Weilai L1.

With annual sales exceeding 90,000 units, it became the champion model in the high-end new energy SUV segment, severely squeezing the market position of BBA (BMW, Mercedes-Benz, and Audi), and incidentally, it also became the profit driver for Weilai Auto.

“We have seen the efforts of the L1 team, and they will receive the rewards they deserve. However, we must say that compared to other models, L1, you are under more pressure.”

Range-extended electric vehicles are too easy for competitors to reverse engineer, resulting in high profits, but also the lowest technological moat. Consumers' jokes about them being like refrigerators, color TVs, and large sofas, while somewhat biased, do reflect the current state of range-extended electric vehicles.

As competitors enter the range-extended electric vehicle market and develop range-extended models, coupled with the increasing maturity of hybrid technology, the market space for L1 will only be squeezed step by step. Fortunately, Weilai L1 has already established its own brand advantage, which is a major boost.

However, this advantage must be built on continuous technological research and development. Only by maintaining a leading position in the same type of technology can the existing market be guaranteed. Therefore, in Tan Jincheng's view, this year will be a crucial year for L1.

If they do well, they can maintain their leading position in the range-extended electric vehicle market and continue selling for several more years to make money. If they don't do well, their market share will be taken by brands including Chrysanthemum and even Leapmotor.

Of course, the ultimate goal is still pure electric and hybrid power. Range-extended electric vehicles are just a transitional phase. Therefore, Exeed S01 has abandoned the launch of range-extended electric models. Since the pure electric models are selling very well, there is no need to add anything unnecessary.

"So let's discuss the sales forecast for the Weilai L1 in 2022."

Last year's sales figures were there, and after the praise, Tan Jincheng didn't mention them much. In any case, the company had its own rules for rewarding KPIs. However, there was a big disagreement within the group regarding the sales of the Weilai L1 and the 2022 facelifted model and new cars.

The afternoon meeting mainly discussed this point.

It seems that fate had ordained it, and the point of contention came from Tan Jincheng and Li Xiang.

(End of this chapter)