「Core Tips」
Building a car may not be as simple as we think. Strategic choice, timing, and product polishing will all pose a test for founders.
Author | Li Xin
Edited by | Gokuno
"Building a car is very simple, it's just four wheels and a few sofas."
More than 20 years ago, Geely founder Li Shufu, with an almost ignorant and fearless mentality, plunged into the automotive industry and created Geely, a car company with a market value of 100 billion Hong Kong dollars today.
One Christmas 7 years ago, another 48-year-old middle-aged man who was pointed out that he "didn't know how to use cars, what cars to build" saw the industrial trend of electric vehicles and decided to try it.
This person is not a vegetarian, but the co-founder of Dahua Shares, the second brother of global video security: Zhu Jiangming.
On March 17, Beijing time, Zhu Jiangming took Zhejiang Zero Run Technology Co., Ltd. (hereinafter referred to as "Zero Run Auto") to submit a listing application to the Hong Kong Stock Exchange, planning to be listed on the Hong Kong Stock Exchange.
Based on the latest round of financing, the valuation of zero-running cars is about 27.6 billion yuan.
It seems as if this is another story of success, and it is the peak after the peak that people like to hear the most.
However, let's not look too high on the listing.
As Fu Sheng, the founder of Cheetah, once said, the listing does not mark how high the company has reached, nor does it mean that the company will be smooth sailing from now on, it just means that the company has become an adult and it has a chance to live.
If we carefully study the prospectus data of Zero Run and bring it into the current competitive environment, we will find that Zero Run still has a long way to go in the future.
1, the car stumbled
Although he has been evaluated as not understanding cars, Zhu Jiangming has always accepted cross-border. Because in his view, these so-called crossovers have technical coherence behind them.
In 1993, Zhu Jiangming, as a co-founder, and his friend Fu Liquan founded the current security giant - Dahua Shares.
The earliest field that Dahua shares cut into was actually not security, but the field of scheduling and communication.
The reason why it can successfully cross over to security is because in Dahua's view, the dispatching machine and the security dvr must use embedded software, and the two have a common logical core.
In 2015, from security to the car, Zhu Jiangming believes that the hundreds of processors in the car are still operating embedded software, so the logic is still connected.
This is reminiscent of the "second curve", a business concept that has been hot in recent years.
The so-called "second curve" is those new businesses that continue the life of the enterprise. Only by constantly creating new "second curves" can enterprises achieve true longevity.
Image source: Chaos University
Many people believe that the "second curve" is the manager's far-sighted layout, in fact, the emergence of the "second curve", the greater probability, is based on the past self-sufficient underlying capabilities, with the ability, encounter the right scene, the new business is possible to do. People who simply chase the wind often stop and fall.
However, the truth seems to be correct, but in the specific process of car building, the reality will only be more complicated than the theory.
In January 2019, the first product of zero-running cars, the S01, was released in Beijing Water Cube, and from this product, we can find that Zhu Jiangming is a non-conformist who hopes to be "better than better, better than different".
Unlike "Wei Xiaoli", who chose to cut into the market with a medium-sized SUV, this model with zero running chose a relatively niche electric coupe, hoping to become the first car for young people and the second car for families.
However, the sales of this car that is wide-eyed by the market can only be described as dismal.
The S01 will sell just over 1,000 units a year in 2020, less than one-tenth of the stated target.
In the eyes of some people, this car priced at more than 100,000 yuan does not have a cruising range of 500km, and the cost performance is low.
At the same time, because the wheelbase of the zero-run S01 is only 2500mm, the whole car looks as if it is laterally compressed from the side, and the figure is slightly shorter, but it still has to be fortified under the front and rear rows of seats, and it is also designed as a Coupe shape, and the rear seats are destined to be very chicken.
Some netizens also commented that this main "science and technology sports wind" civilian electric sports car is "old Audi", "old Lamborghini", "old age scooter"...
Zero Run S01, Image source: Zero Run Car Prospectus
Sales did not go up, making Zhu Jiangming, who is in his 50s, anxious for a while. Originally scheduled to travel abroad, at that time there was no mood. Coupled with the epidemic situation, Zhu Jiangming simply shut himself at home and thought about it for more than a month.
Subsequently, Zhu Jiangming adjusted his thinking and tried to start from sales, which led to a second small electric car priced at 70,000 to 85,000 yuan: T03.
For this strategic layout, Zhu Jiangming's explanation is, "There are relatively few companies doing trolleys now, and I believe that this is only a matter of order." In the future, Zero Run will also do SUVs, and Xiaopeng and Weilai will also make cars. ”
If you only look at the amount, T03 is a move to achieve the goal.
In the second half of 2020, with the rise of personal consumption in the electric vehicle market, T03 seized the opportunity, and by the end of 2021, T03's cumulative sales were 46,000 vehicles.
But if you look at the profits, zero running is a loss. Since 2019, the gross margin of zero-run cars has been continuously negative, which means that the company is selling completely below cost. 100 yuan of goods, sold at 70 yuan.
Source: Zero Run Auto Prospectus
Why is gross profit negative? Obviously, this is because the product is still not sold enough, there is no scale effect, and the cost cannot be reduced.
Similar to Moore's Law in the chip industry, manufacturing has a Lyt's law.
In the 1920s, when Theodore-Wright studied aircraft production, he found that for every cumulative doubling in the number of aircraft manufactured, the cost of manufacturing continued to decline by a fixed percentage.
That is, the higher the output, the lower the manufacturing cost.
The cost reduction brought about by the Lytamine law learning curve is mainly based on: increased manual proficiency, optimization of production processes and savings in raw materials.
Therefore, for zero running, if the product volume can not continue to enlarge, the gross profit is negative, I am afraid it is unavoidable.
Of course, in addition to the volume, car companies can also try a way - to the high-end of the high-end with higher gross profits.
2. Why is it listed now?
In October 2021, Zero Run finally extended its strategy to the mid-range "normal model" and began delivering the C11 mid-size all-electric SUV.
The model is priced at a price range of 160,000 yuan to 200,000 yuan. Zero said that as of December 31, 2021, the C11 had a total of 22,536 orders, of which 3,965 units had been delivered.
To go public, we must always give the capital market more optimistic expectations.
In addition to the C11, Zero Run said in the prospectus that it plans to launch eight new models by the end of 2025 at a rate of one to three models per year in the future, covering sedans, SUVs and MPVs of various sizes.
At the same time, it is planned to launch a smart pure electric medium and large sedan C01 in the second quarter of 2022, and start delivery in the third quarter of 2022.
C01 is based on the same platform of C11, with a cruising range of about 700 kilometers and an acceleration time of less than four seconds for 100 kilometers. At the same time, it is equipped with a self-developed intelligent power system that zero-running is proud of: Leapmotor Power.
Image source: Zero Run Car Prospectus
In the eyes of some, zero runs are starting to get on the right track.
Whether it is on the right track remains to be seen. However, it must be admitted that until today, it has only cut into the market of 150,000-200,000 yuan, and the competitive pressure facing zero running will be unprecedented.
Taking stock of the players present, we will find that in the current range of 150,000-200,000, there are already Xiaopeng G3i, BYD Song Plus EV, Volkswagen ID.3/4, GAC Aean V and other models competing on the same stage, each of which is a fierce role.
From the perspective of R&D investment, Xiaopeng's R&D expenditure in the first three quarters of 2019 alone reached 2.662 billion yuan, while BYD and GAC motor were 5.234 billion yuan and 761 million yuan respectively in the same period. In the same period, NIO and Ideal were 2.763 billion yuan and 2.056 billion yuan respectively.
In contrast, although Zero Run claims to be the only company in China that has achieved "global self-development" of core systems and electronic components. However, its annual research and development expenditure in 2021 is only 700 million yuan, although compared with some traditional industries, it is not low, but compared with competitors, there is still a gap.
Regarding the importance of research and development to electric vehicles, Zhu Jiangming, who is from a technical background, must know better than anyone.
As early as 2019, in an interview, Zhu Jiangming said that the direction of the future car is automatic driving, that is, intelligence, and behind the intelligence is AI (artificial intelligence).
Zhu Jiangming once said that the security field where Dahua is located is the earliest application of AI (Note: face recognition technology). Therefore, he has the clearest vision of the prospects of AI technology.
In his view, because Dahua has also made AI chips, such chips can be used in the scene of intelligent driving and automatic driving.
But good technology is fed out of money, whether it is the research and development of autonomous driving chips or the research and development of algorithms, it will require a lot of investment. In the critical period, the investment is insufficient, and the future may be passive everywhere.
In addition, good research and development bring products, but the wine aroma is also afraid of deep alleys, and good products also need to be sold and promoted.
It also costs money.
From the financial report, the sales + management expenses of Xiaopeng, BYD and GAC in the first three quarters of 2021 were 3.29 billion yuan, 8.043 billion yuan and 5.857 billion yuan, respectively. In the same period, WEILAI and Ideal were 4.229 billion yuan and 2.337 billion yuan respectively.
The sales + management expenses for the full year of 2021 of Zero Run were 825 million yuan.
Apportioned to each car, taking the new car-making forces as an example, Weilai is 63,700 yuan, Xiaopeng is 58,400 yuan, ideal is 42,300 yuan, and zero running is 48,400 yuan.
Source: Annual report and prospectus of the new car-making forces
Again, the money for zero running is not less to spend, but the peers are not soft to spend money.
So what is zero running's own cash hematopoietic ability at the moment?
This does not need to be asked, the gross profit margin has not turned positive zero run, operating cash flow has continued to be negative in the past three years.
This also explains why the valuation of Chinese stocks is so low, but zero runs still choose to run and go public.
Because research and development cost money, promotion costs money, and it cannot make blood for the time being.
Therefore, it is not difficult for us to foresee that even after the listing, zero run may continue to issue additional financing.
But we have to say that financing is necessary now.
According to the famous positioning theory, if a company wants to succeed, it must establish a new category in the minds of consumers, and then become the first in this category.
In the final analysis, positioning is a differentiated competitive strategy based on consumer minds.
But in fact, whether it is the development of categories, or to become the first category, it is not easy, many times there are so many categories, it is first-come, first-served.
Therefore, for the current electric vehicle companies, the speed of doing anything must be fast, especially financing to get money. The brand must be quickly nailed into the user's mind.
3, get up early, don't rush to the late set
Some people say that the zero-run car was named for the harmonic "lead".
Judging from the time when Zhu Jiangming announced his business on Christmas Day 2015, zero running is indeed not too late. At that time, Weilai and Xiaopeng were only founded for one year, and the ideal car was founded about 5 months ago.
However, from the perspective of historical layout, due to the early differentiation strategy is not very successful, the current zero run gives people the impression of getting up early and catching up with a late set. Some even think that Zero ran a detour.
But is the differentiated route really wrong? Not necessarily.
If you make an analogy from the biological point of view, the essence of differentiated competition is that it is in a different ecological niche from other species, which can reduce friction and reduce competition.
However, from a business point of view, the premise of differentiation can be successful is that the product can fully meet the market demand.
As Wu Bofan wrote in the preface to Christensen's Chinese The Innovator's Quest:
Even in an overly competitive market, there is no shortage of user needs, what is missing is the willingness and ability to discover the hidden needs of customers.
If we can figure out what users need to achieve like parents to their children, and interpret tasks that users themselves don't know from superficial symptoms like doctors, companies will create an unprecedented market space and achieve amazing growth.
However, from the sales of the two cars in the early days of zero run, as well as the corresponding financial data, the first two products of zero run do not seem to fully meet the needs of users.
Bridgewater Fund founder Ray Dalio once said that progress = pain + reflection.
For entrepreneurship, mistakes or detours in the middle are not so terrible, the key is to iterate cognition in action.
However, in today's electric vehicle industry trend is too obvious, the speed of this progress iteration needs to be faster and the quality is higher.
Resources
"Zero-run car Zhu Jiangming: Zero-run is more like xiaomi in the automobile industry", a column of extremely intelligent people
The Innovator's Mission, Christensen