Reporter | Zhou Shuqi
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"The automotive industry has always claimed to be very innovative and innovative, but I think this may not be the case at all. The business model and business model of the automotive industry today is almost unchanged from 50 years ago. Alain Visser, who has worked in the automotive industry for 36 years, said in an interview with media such as Interface News. He is the CEO of Lynk & Co International Europe and has held positions at Ford, GM and Volvo.
The unchanged business model that Wei Silan mentioned is the dealer model that is still widely adopted today, in which car manufacturers produce vehicles and ship them to dealers, who sell, repair and after-sales service. In his opinion, under the operation of this model, the actual utilization rate of cars is only 4%, and the remaining 96% of the life cycle vehicles are in a state of stagnation.
At the same time, the consumption behavior and mentality of consumers around the world have also changed. Consumers value not the ownership of the car, but the experience of using the car. The old business model of the automotive industry is difficult to match with today's consumer psychology.
Wei Silan bluntly said that the world does not need new car brands, but new business models. Therefore, when Lynk & Co went overseas to Europe, he decided to use the "subscription system" that Chinese auto companies had never tried to open up the market situation and broaden brand awareness.
The subscription system is between short-term and long-term rentals, and consumers can enjoy a variety of services such as car insurance, daily maintenance and after-sales repair after paying the subscription fee. According to incomplete statistics, since 2020, Hyundai Motor, Jaguar Land Rover, Toyota Motor, Suzuki Motor, Porsche, Volvo and other car companies have begun to try the car subscription model.
Lynk & Co was the first Chinese car brand to start a subscription system overseas. At the beginning of the establishment of the brand in 2016, Lynk & Co proposed a subscription business model with monthly payment, which was implemented in Europe in 2020. In October this year, NIO also officially announced that it would use the subscription system to enter Germany, Sweden, the Netherlands, and Denmark.
One of the prerequisites for subscription to take off in Europe is that the European automotive industry has matured. On the one hand, the idle rate of individual users' cars is as high as 96%, and on the other hand, consumers are also prepared for car subscription sharing.
At present, in the European D, E, and F high-end car market, subscription, leasing and other models account for almost 60% of the market share of automobile sales; According to statistics from the German Vehicle Authority, rental cars accounted for 42.1% of the annual new car registrations in 2019.
Unlike NIO, which chooses to take a high-end subscription service, Lynk & Co focuses on the mass market, with a monthly rental fee of 550 euros (about 4,000 yuan), covering maintenance, insurance and other expenses, which is half of the cost of NIO's subscription model. Moreover, on the basis of the monthly rental model, Lynk & Co also provides the unique function of "car sharing".
According to the official introduction, if consumers share the rented car, they can get certain economic compensation, and the more times they share, the lower the subscription cost. Lynk & Co insiders told Interface News that some users earned more than 900 euros a month through Lynk & Co car sharing, not only earning back the rental fee, but also making profits, and the platform will only symbolically extract part of the handling fee.
"Calling Uber and public transport costs around €500 a month. And most of the money is spent by young people who 'I can't afford a car'. "We offer a completely new option to have the right to use, lease and sublease a car for the same money, which is attractive enough for young people." ”
Another challenging move for Wei Silan is to introduce only one model of the Lynk & Co 01 PHEV to the European market, and the colors are only available in black and blue. In contrast, NIO has launched three models at once: ET7, EL7 (ES7), and ET5 to four European countries.
In the six years since its establishment, Wei Silan's single-model launch strategy has been questioned, but he insists that the Lynk & Co 01 is enough to meet the needs of 70% of European consumers. The variety of models on sale will not help to raise the awareness of the car brand, the key is marketing.
To strengthen the brand's recognition in overseas markets, Lynk & Co has opened nine offline experience stores in the Netherlands, Sweden, Belgium, Germany, Italy and Spain. According to the plan, in November this year, Lynk & Co will open its 10th experience store in Milan, Italy.
Only one Lynk & Co model is displayed in these stores, selling some products that cooperate with local brands. Unlike traditional dealer stores, whose main business is to sell models, the function of the experience store is to provide services and communication to consumers, and strengthen the connection between consumers and brands.
"Experience stores must subvert traditional dealerships, whether you want to buy a car or maintain your car, as long as you want to meet others and go out to play, you can think of this place." This is Wei Silan's requirement for experience stores.
However, it should be warned that the large amount of capital and service investment in the early stage of the subscription model poses higher challenges to the company's gross profit level and operational ability. Li Bin, founder of NIO, said that the subscription model is more difficult than car sales and requires very strong operations. The turnover rate and full occupancy ratio of the vehicle age determine the capital efficiency and the operational efficiency of the company in the short term.
Due to low market demand, Mercedes-Benz and BMW cancelled car subscriptions in some cities in the United States in July 2020 and January 2021 respectively. Volkswagen also recently decided to sell the car-sharing business to a German start-up because it could not bring any profit.
But Wei Silan remains optimistic about Lynk & Co's earnings in Europe. According to him, the source of profit for traditional car manufacturers is to buy low and sell high, that is, to buy cars at a relatively low price and then sell them at a relatively high price. However, Lynk & Co first recovers part of the value of the car in the form of a monthly fee through the subscription model, and when the residual value of the car is close to the cost of the car, it will sell the car in the form of a used car.
This means that the revenue of the Lynk & Co subscription model is mainly the monthly subscription fee, as well as the income from the sale of this car as a used car. According to Lynk & Co's calculations, the operating cost of this model is one-third of the operating cost of traditional car manufacturers, and the profit margin is higher than that of vehicles recycled after direct sales.
In response to the problem of long cash return time under the subscription model, Lynk & Co's advantage is that it has the endorsement of Geely Group, which bears part of the operational pressure, and the after-sales maintenance of rental vehicles is also entrusted to Volvo's dealer team.
Data shows that as of September this year, the number of Lynk & Co's "subscription" European members has exceeded 150,000. The 150,000 users include both owners who buy Lynk & Co directly and practitioners of the subscription model. In addition, more than 20% of European users use the "car sharing" function on the Lynk & Co platform.
However, market research found that Lynk & Co's brand recognition in Europe is currently only 7%. Wei Silan believes that the main reason is that Lynk & Co has not yet launched large-scale marketing in the European market, and the supply cannot keep up with the demand, which may affect the realization of Lynk & Co's long-term goals in the European market.
From January to September this year, Lynk & Co has shipped 23,984 vehicles to overseas markets and 6,493 vehicles per vehicle in September, setting a new high for shipments to Lynk & Co's overseas markets. The relevant person in charge of Lynk & Co told Interface News that due to supply chain problems such as chip shortages, Lynk & Co's supply to the European market is still very limited.
In addition, with the addition of new power companies such as NIO and AIWAYS to the subscription model, the subscription market, which has a low market share, will become more competitive.
According to a 2021 study released by the Boston Consulting Group, the car subscription market in Europe and the United States could reach 5 million to 6 million units by 2030, accounting for 15% of new car sales, worth $30 billion to $40 billion, of which Europe is likely to become the largest car subscription market.
Up to now, Lynk & Co is still a long way from achieving its profitability target in the European market, but Lynk & Co has walked out of the new model of Chinese auto brands going overseas with the subscription system.