A Chinese auto price war, possibly stimulated by the opening of the epidemic policy, swept through the entire first quarter of 2023. In the mouths of some auto executives and practitioners who have contacted the car at this auto show, it has also become the most "heartbreaking" price war in the automotive industry in the past 10 years.
However, in the view of Qin Lihong, co-founder and president of NIO, the overall passenger car market fell by a full 14% in the entire first quarter, once again proving that price wars may not necessarily bring short-term sales.
As a new energy brand that occupies about 60% of the market share in the high-end price range of 300,000-600,000 yuan, and one of the most typical representatives of China's new car-making forces, NIO is also not immune to the general status quo of industry-wide losses in the context of extremely irrational lithium prices. Qin Lihong told Pinchai that the recent market disturbance is indeed greater.
He himself also hopes that this auto show can become a turning point, so that everyone can return to rationality and return to the essence of competing products, technologies and services: "Look at the report, everyone is not making money, whether it is BYD, Tesla, or the new energy department of international brands, everyone is losing money." I really don't think new energy brands have the power to cut prices. Product definition, configuration research, energy system, battery, intelligence, etc... Of all the factors, price must be last. ”
The overall loss of NIO is not only uncontrollable factors such as lithium prices, but also high-intensity research and development investment. At present, in addition to conventional technical directions such as brake calipers, in-car seats, intelligent driving technology, and cockpits, NIO is also developing chips and battery cells, and plans to launch NIO mobile phones in the second half of the year, as well as a number of sub-brand models with lower prices of 200,000-300,000 or even 150,000-200,000 in planning - resulting in NIO's research and development intensity and diversity, as well as the corresponding costs, have opened a gap with the vast majority of peers.
Photo by Du Chen
In the context of the collective loss of the whole industry, will the R&D investment be recovered in order to reduce costs in the future? Qin Lihong made it clear that NIO has insisted on high-intensity R&D investment for many years and will remain unchanged in the future. "We did take a few more classes and the tuition was higher than the rest of the students... But if you think the child has a future, continue to pay to get him to school instead of returning early to work and support the family. ”
Unlike most Chinese new energy brands, NIO launched an offensive into the BBAs' home of Europe at a very young age. According to Qin Lihong, NIO's current book sales in Europe are not large, mainly because it has adopted a fashionable subscription usage model in Germany in overseas markets, which is not included in sales. It is expected that starting in the second quarter of this year, people will see NIO's delivery levels in Europe.
A Chinese car company's entry into the European consumer market often bears a burden that should not belong to it to a large extent: because most of the predecessor brands go overseas and run with a shot and sell a few vehicles, lack of strategic patience and long-term preparation for operating the local market, coupled with the general prejudice of consumers in developed countries against Chinese manufacturing, especially Chinese cars, such as the stereotype of low-end positioning and embarrassing quality, resulting in a bad overall reputation of Chinese car brands.
However, today, with the emergence of new energy tracks, the hard power of China's automotive industry has ranked among the forefront of the world. As the first international A-class auto show held in China after the relaxation of the epidemic policy, the Shanghai Auto Show attracted a large number of overseas visitors. Qin Lihong told Pinchai that today I saw many friends who work in the Western automotive industry, proving that the center of the next change in the world's automotive industry is in China, not Europe. Under such conditions, Chinese and Western brands already see hope of significantly narrowing the gap.
Photo by Qin Lihong, co-founder and president of NIO, and Du Chen
But even so, Qin believes that the design aesthetic of imported brands in their products, as well as the spiritual emotions and identities that consumers project onto BBA's century-old brands — things that are difficult to immediately obtain by new Chinese high-end car manufacturers like NIO.
"So what we need is time. People have been working for 100 years, how can you have to work for more than ten years, right? Europe, a place where traditional automobile brands gather and car culture is highly developed, it is impossible for China's new brands to gain a foothold without ten years and eight years. ”
The following is the transcript of the interview between Pinchai and NIO President Qin Lihong at the Shanghai Auto Show (the text has been refined and modified for accuracy):
Q: The price war in the new energy industry is particularly fierce, the volume is fierce, the range is beginning to diverge, and the price of 300,000-600,000 yuan is becoming more and more difficult to fight? What is NIO's coping strategy?
A: The price war started in Q1 this year is indeed fierce, probably the most powerful in the past 10 years. But the overall Q1 passenger car market fell 14 percent. History has repeatedly shown that price wars do not necessarily lead to short-term sales. However, with the level of competition increasing, the price war is undoubtedly a good thing for consumers.
But NIO will not participate in the price war. When it comes to pricing, our route is one-step. From the financial report, you can also see that we have no gross profit - those companies with 30% or 40% of gross profit may still have to fall.
As for whether NIO will continue to reduce prices and involvement: I don't think new energy brands have the power to reduce prices. I don't think there will be another wave of price cuts, everyone thinks too much. Looking at the report, everyone is not making money, and everyone is losing money on new energy vehicles, including BYD and Tesla, as well as the new energy departments of big brands. Of all the factors we look at, price must be last. Product definition, configuration research, energy system, battery, intelligence... We need to focus on these more important elements.
In the price range of 300,000-600,000 yuan, we will continue to take root. In this grade, especially in the pure electric market, I think the competition is not as fierce as our lower price grade, and it is relatively calm. Our share of the pure electric market of more than 300,000 yuan is almost 60%.
Of course, in the future, we will also launch brother brands within the NIO Group, and each brand will do its own sub-category. At the same time, we hope that the trend of electrification will spread to both ends of the price range below 150,000 and above 300,000.
Photo by Du Chen
Q: What do you think of some of the amazing remarks made by friends including Volvo at this year's Shanghai Auto Show?
(Note, Volvo declared at the auto show that "the new forces will come, we will learn in three years; We will, the new forces will not learn for ten years. ”）
A: They're all right! We will not evaluate the specific remarks of the friendly businessman, we believe that he said that sentence must have represented his thoughts at that time, so we also respect everything you say.
But "the transformation of traditional manufacturers into electric vehicles has made you not nervous", I have been asking such questions for too long... In the high-end field, extended-range hybrid has ideals, pure electric has NIO, and there are no other real competitors in the world.
Some major brands, taking oil-to-electricity products, sell prices that are not worth spending by consumers. I can say very frankly that in the pure electric market of more than 300,000, except for NIO, it is not a smart electric vehicle that is in line with the trend of technological development.
Photo by Du Chen
Q: How do you view NIO's continued losses and will it adjust its R&D investment?
A: First of all, R&D will still be heavily invested. Every time we are asked, we say that if you think your child has a future, today you should spend money for him to continue his education, not come back to work and support the family. All the results of R&D require high-intensity continuous investment and rely on our tuition fees.
For example, our brake calipers, seats, etc., are all self-developed. After that, you will see that our research and development in all aspects will bear fruit. We are also developing our own chips and batteries, preparing innovative brands, and NIO mobile phones to be released in the second half of the year... It is true that I have taken a few more courses, and the tuition fee is higher than that of other students.
Li Bin said at the investor conference call that if we don't look at the innovative business, our core business can be positive. That's our home base, and as long as it's solid, the financial performance of the extension isn't that important.
In the next 3 months, we still have 6 new product releases - today's products can "dumplings", which is inseparable from our high-intensity research and development. In the short term, it is indeed a loss from the perspective of financial reporting, but if we accept that this is a mainstream track, this tuition fee is worth it.
The second problem is the price of lithium. Originally, lithium carbonate was 40,000 or 50,000 US dollars a ton, but last year it suddenly rose more than ten times. Now it has fallen back to 200,000, which is still several times the previous normal level. Last year, we lost more than 10 billion, of which only billions were invested in new business, and billions were lost in photovoltaic cells. Fortunately, after the price comes back this year, it will lose a little less.
An important assumption in our business model at the beginning of our founding was that battery prices should be low for a long time. As a result, there was a sudden jump last year, and no one expected that this mutation factor was being digested by the whole industry. Only when raw materials are expected will the industry be stable. Automobiles are a particularly long-term industry, and if you don't know even the most basic assumptions, it's very difficult.
I need to point out that it is still too early to say that the price of lithium carbonate will fall, and the gross margin (of car manufacturing) may increase. China's lithium reserves are very large, but our country's mining and operation in the past have not developed fast enough. This round of price fluctuations, if there is any good result, is to attract more funds and talents for the lithium mining industry. I believe that after the supply side catches up, the price will return to the level of long-term rationality.
Photo by Du Chen
Q: What is NIO's current layout in Europe? What is the biggest difficulty?
A: We are currently mainly in Europe, and the sales are not large, but not as small as you see. Mainly because the subscription model only started in Germany in March, and sales are not counted. It is estimated that after Q2 this year, everyone will see sales.
One of the challenges we face right now is that we are not as well prepared in Europe as we thought we were. For example, for the exchange of power stations, four or five new ones were added in China this morning, and 20 were said in Europe, but only 14 were today.
To make high-end cars overseas as a Chinese brand, we must be long-term, prepared and patient. In Europe, our difficulties are full-chain. It cannot be ruled out that many European consumers today still have stereotypes about Chinese cars, and when they mention China, they think of low-end products and quality problems - of course, there are indeed factors behind this that the footprint of Chinese brands in Europe in the early years was not very solid.
Lu Xun once said that "the excitement is someone else's", and I think it is very appropriate to describe the first few decades of China's automotive industry. But with the emergence of new energy tracks, I now feel that China has stood at the forefront of the world in terms of hard power. The next step is to focus on soft power, including brand image, popularity, user awareness, community, aesthetic design and so on.
Compared with BBA, our biggest advantages and disadvantages: BBA is a brand that has fully established recognition in the world, to put it bluntly, their advantage is that they are BBA; However, if we talk about products and services, we have an absolute advantage, at least 80 out of 100 items can prevail, whether it is traditional performance data such as zero hundred acceleration and braking, or the computing power of on-board intelligent systems.
However, we are also not naïve enough to think that outperforming the numbers will beat them. The spiritual and emotional attributes and identity attributes of BBA brands and products are all that we do not have. What we need is time. People are all century-old brands, why do you have to work for more than ten years?
Today, when we go to the developed country market, we must have a high degree of strategic determination, patience, and be ready for long-term operation.
Those who shoot and run, sell a batch of cars and withdraw, are no longer suitable, and I appeal to everyone to stop doing this. In the past, I did too much, which led to a very bad reputation of our Chinese brands as a whole. We have to pay this account, so don't owe a new one.