Fourth-, five- and sixth-tier cities: Wei Xiaoli is coming

The picture shows the group photo of He Xiaopeng, Li Bin and Li Xiang taken by auto blogger Yu Dawei at the "China Automotive T10 Special Summit" in July (from left to right)

Author | Zhou Xin

Edit | Qiu Kaijun

The channel sinks and has become the most shouted slogan by the head new car-making force "Wei Xiaoli" this year.

In May, at Li Auto's 2023 first quarter earnings meeting, Li Xiang said that it will cover almost all fourth-tier cities in the future; In August, in their respective second-quarter earnings calls, He Xiaopeng said that he would accelerate the expansion of market share in second-tier and lower-tier cities; Li Bin said that the sinking of the channel will be the most important thing for NIO. "Late Auto" also recently reported that NIO's sub-brand "Alps" is experimenting with the dealer model to accelerate the expansion of stores nationwide.

The reason for this, in the view of Li Jinyong, president of the new energy vehicle branch of the All-China Federation of Industry and Commerce Automobile Dealers Chamber of Commerce, is for the sales target, but also determined by the development trend of new energy vehicles, and it is more related to their survival.

"Electric Vehicle Observer" analysis found that although they are all shouting slogans and have firm goals, they also walk fast and slowly, and the ideal walks relatively fast and steadily, followed by Xiaopeng and NIO at the bottom.

And when they go to the sinking third-, fourth- and fifth-tier markets, they will also usher in Armageddon in a broader market. At the same time, in this Asura field, their former learning objects BBA, second-tier luxury brands, joint venture brands, etc. will all be very injured.

The picture shows the group photo of He Xiaopeng, Li Bin and Li Xiang taken by auto blogger Yu Dawei at the "China Automotive T10 Special Summit" in July (from left to right)

01

Go down, for sales and for survival

2022 is a juncture. This year, although Wei Xiaoli's annual sales continued to increase, the growth rate fell seriously.

From 2020 to 2022, NIO's year-on-year sales growth rate decreased from 121% to 109.1%, and then to 34%. Xiaopeng grew from 112% to 275.2%, and then fell off a cliff to 23%; Ideal sales growth in 2022 decreased from 177.4% y/y to 47.2%.

Their performance is related to the environment. In the past three years, the growth rate of national new energy vehicle sales was 10.9%, 113.9% and 89.7%, respectively, and although the total sales of new energy vehicles are still growing, the growth rate is significantly declining.

But the lower volume growth collided with ambitious targets.

At its strategy meeting in early 2020, Li Auto set a target of selling 1.6 million vehicles by 2025. He Xiaopeng said at Xpeng's 2022 annual summary meeting that sales in 2027 will exceed 1.2 million units.

Although NIO did not shout a clear sales target slogan, Li Bin also said at the beginning of this year that "after 2025, it will enter the final stage" and lock the monthly sales target at 30,000 units in the middle of the year.

To accomplish this, you have to extend your tentacles downward. Why?

Changes in the sales trend of new energy vehicles in various tier cities are the answer. The sales of new energy vehicles in second-tier cities and below continued to increase from 37% in 2017 to 50% in 2021, and the market further sank.

The city division is based on the statistics of the "2023 City Business Attractiveness Ranking"; Data source: Shangli Volume; Electric car watchmaker

From the change of NIO's main sales model, it can be seen more clearly. From 2021 to 2022, the proportion of sales of NIO ES6 in first-tier and new first-tier cities will decrease from 75% to 66%, while its share in other sinking markets will increase from 25% to 34%, of which the proportion in first-tier cities will drop from 36% to 23%, and the proportion in new first-tier cities will increase slightly from 40% to 42%.

Even BYD. During the same period, BYD Han's sales in first-tier and new first-tier cities fell from 64% to 52%, and then to 46% from January to August this year, while the proportion of sales in third-tier and below markets rose from 36% to 48%, and then rose to 54% this year.

These three problems show that new energy vehicle sales continue to grow, but the growth rate has declined, and with the decline in the proportion of sales in first-tier and new first-tier cities, the sinking market of third-tier and below has been upgraded from "sales supplementation" to "growth engine".

These three sets of data are also explained from the market law, Wei Xiaoli must take the initiative to sink through channels. From the perspective of enterprise development and even survival, even passive, it must be done.

He Xiaopeng said that if this target is not reached (1.2 million units in 2027), there will be no way to survive the knockout race of future smart electric vehicles.

This knockout competition will be in the stage of popularization of new energy vehicles, and it will come soon.

"Next year's new energy vehicle sales will definitely exceed 10 million, this figure means that new energy vehicles will account for nearly half of the annual new car sales, but also represents that more and more people will experience the advantages of new energy vehicles", Li Jinyong said, "high-end new energy vehicles have good performance, low-end new energy vehicles save energy and save money, both advantages will be vividly reflected, but at this time if you can't keep up with the channel, you can only lose share."

Li Bin, founder, chairman and CEO of NIO

Yang Feng, a senior automobile practitioner, said that this year's retail growth rate may be the same as last year, which is zero growth for capital, resulting in the fact that the entire market is now particularly difficult to finance, and without a steady flow of capital transfusion, coupled with several years of inability to make profits, and the loss is increasing, the new forces may not be able to play, so they must achieve hematopoiesis, the method is to seek quantity.

"The volume car is clearly suitable for the dealer model. In addition to sales, but also to reduce costs, Wei Xiaoli has reached the stage of lean operation of profits, the initial stage is to burn money to burn out the product, but this stage has basically passed, the task of the direct management model has been completed", Li Jinyong said, the second step is to reduce costs, the high cost of the direct management model cannot be consumed.

Yang Feng also said that the adoption of the dealer model can not only accelerate channel expansion and sinking, automakers can reduce inventory to a minimum, and have sufficient cash flow, but also transfer risk to dealers, "If there is a price war, the first wave must be the dealership."

The keen "Wei Xiaoli" quickly made changes in 2021. Channel construction began to increase, and channels began to sink.

According to CITIC Securities data, the proportion of Tesla, NIO, Lili and Xpeng in third- and fourth-tier cities increased from 11.6% and 3.3% to 15.6% and 6.7% respectively.

But this is not enough, because the decline in growth in 2022 is violent and even more brutal.

Therefore, Li Bin said that there is still a lot of room for NIO's channel sinking construction, and channel sinking is an urgent task, and said that NIO will open up a broader market in third- and fourth-tier cities. Li Xiang also said that the ideal will cover almost all fourth-tier cities. He Xiaopeng invited Wang Fengying in April this year.

02

BBA, "Xiaoli" first

Wang Fengying and He Xiaopeng

How to sink? Learn from BBA, extend channels and services.

"The overall strategy and coverage method will be similar to Mercedes-Benz, BMW, and Audi because they have already verified it," Li Xiang said earlier. NIO Li Bin also said at this year's mid-year earnings conference that BBA has 4S stores in almost every city, and NIO's layout is insufficient, such as Anhui, which has just opened NIO House in Wuhu.

Indeed, compared with BBA's ultra-high market coverage, Wei Xiaoli still has a lot of room for improvement.

Data source: Wei Xiaoli, BMW official website; Electric car watchmaker

"Electric Vehicle Observer" sorted out the distribution of its stores in various tier cities and found that Wei Xiaoli's first-tier, new first-tier and second-tier city stores accounted for more than 60%, 84%, 67% and 70% respectively, while BMW's data was 64%.

This may not seem like a big difference, but BMW's proportion in fourth-tier and fifth-tier cities is very high, reaching 20%, while Wei Xiaoli is only 14%.

"Almost all of BMW's prefecture-level cities have sunk, even to the top 100 counties like Zhucheng and Qingzhou," said Gao Jiangtao, former vice president of Shandong Guojin Automobile Manufacturing Co., Ltd. Indeed, as can be seen in the table below, BMW's fifth-tier city channels account for 8%.

Interestingly, through statistical comparison, it is found that the channel layout of "Xiaoli" is much better than that of NIO.

In third-tier cities, Wei Xiaoli's channels accounted for 34%, 19% and 16% respectively, while in fourth-tier cities it was 12%, 13% and 11%, but in fifth-tier cities, it became 0%, 1% and 3%.

The best way to sink the channel is ideal, and because of the ideal, Xiaopeng and NIO are in a hurry.

"Ideal is likely to complete 400,000 vehicles this year, it is a high-end model, its 400,000 units is equivalent to one million Great Wall Motors, ideal this year's profit is very likely to exceed 10 billion, which is a very big breakthrough," Li Jinyong said, "This is also forcing NIO and Xiaopeng to sink channels and reduce operating costs, or it will be thrown off by Ideal."

It is worth mentioning that the same high-end route of Extreme Krypton Automobile has not yet sunk, its third-tier cities account for only 10%, and the fourth- and fifth-tier cities are not at all. And Nezha Auto, which originally took the dealer model and the market sinking, the channel is very balanced.

Data source: Nezha, Extreme Krypton official website; Electric car watchmaker

As for how to sink exactly? Wei Xiaoli has his own way.

NIO and Ideal are firmly self-operated models. NIO sinks the channel at the same time, more from the aspect of efficiency, because as Li Bin said, NIO sales staff and sales ability is still lagging behind competitors, Mercedes-Benz BMW sales staff is 6-7 times that of NIO, which will affect user satisfaction and sales conversion, and can not meet the sales of 7-8 cars at the same time.

At the same time, compared with Xpeng and Li Auto, NIO is also accelerating the construction of substations, aiming to build 4,000 substations by 2025, covering 19 major urban agglomerations. In Li Bin's view, this will help increase user touchpoints and increase sales.

On the one hand, it is ideal to upgrade stores that can only put one or two cars, and at the same time build comprehensive stores in auto cities in fourth-tier cities, and the coverage model is similar to BBA. At the same time, the ideal has also changed from regional management to provincial direct management of stores to improve the output of single stores and single people.

"The ideal is to learn BBA in depth from the number and model," Gao Jiangtao said, for example, the number of channels in Nanjing and Hangzhou is basically on par with BBA, because its target group is particularly like BMW.

The most aggressive is Xpeng, which is aggressively cutting out directly operated stores with poor profitability and lowering standards to expand the scale of agent dealers.

Image from Xpeng Motors' official website

It can be seen from the recruitment conditions of Xpeng Motors' authorized dealers that urban blank automobile business districts and blank commercial business districts accept authorization franchise applications, regardless of cities.

For the city's mainstream automobile business district, that is, the 4S store park storefront, the total area is required to be not less than 1000 square meters, and the sales exhibition area is only 300 square meters, and the sales exhibition area is the same as the standard of Nezha. For cities with light capital operation (focusing on fourth- and fifth-tier cities), you can choose city showrooms or supermarket experience centers, and accept part-time operation and light renovation.

It is not difficult to see that Wei Xiaoli's channel sinking is mainly concentrated in the automobile sales park of the sinking market, which is the traditional dealer model, focusing on the integration of pre-sales and after-sales.

03

Luxury and joint venture brands hurt the most

Since the head of the new power channel is sinking, it is to go for sales and market share, it is inevitable to seize the sales of other brands.

"Although the BBA is learned, but at present, the impact on BBA is not great," Gao Jiangtao said, although the economy has not been good in recent years, but the sales of luxury cars such as BBA in China of 300,000 and above are still growing.

But Li Jinyong said that the first impact is the luxury car BBA market, and the impact is still very large, because Wei Xiaoli and Tesla grab the share of BBA.

"Nezha and the leading manufacturers are also concerned about this now," Xiao Dong said, but he believes that at present, Nezha has little impact, because Nezha itself focuses on models below 150,000, NIO and Ideal are more than 300,000, and Xiaopeng is also more than 150,000.

Cadillac CT6

"The biggest impact may be Cadillac, Lincoln and other second-tier luxury brands," Xiao Dong said, if Wei Xiaoli channel sinks, in the fourth and fifth tier cities, the first main should be more than 200,000 models, because this price is more acceptable in this market, which will inevitably compete with second-tier luxury brands.

Xiao Dong, for example, there were originally two Cadillac stores in his city, and now there is only one left, even if the price of CT5 and CT6 is very low, but there is still no heat, the original well-sold Lincoln is now not hot, but ideal to fill part of the market, "many consumers buy cars mentality is not want to be high-profile, or to pursue other aspects of quality, such as intelligent driving, tram driving quality, etc."

It is worth noting that with the sinking of the channel, the product will also sink further.

NIO's mass market sub-brand Alps, priced in the range of 200,000-300,000 yuan, will launch its first new car in the second half of next year, "Late Auto" recently reported that in the first half of this year NIO took the initiative to contact a domestic head dealer, planning to Alps after-sales service, delivery center by a national dealer group to undertake. In addition, Li Auto will also enter the mid-end market in the range of 200,000-300,000 yuan.

"Focusing on less than 200,000 and very competitive independent brand new energy vehicles will have a huge impact on the joint venture brand," Li Jinyong said, Nissan, Toyota, Honda sales will fall sharply next year, even the sales of self-owned brand fuel vehicles are already declining rapidly, and when it enters the popularization stage, the decline will be faster.

Toyota's new RAV4 is on display, and the picture comes from the company's official website

But the sinking of the channel is also a double-edged sword, and it is still very challenging. "The cost of building your own channels is very expensive, and the average construction cost of a store is about 10 million yuan. If the channel is not proportional to the increase in sales, then it is his profit that will be eaten up, unless he is particularly confident and sure that this channel will bring profits in the future," Yang said.

"With more and more networks, they will face talent training problems and chain store management problems, which are their shortcomings," Li Jinyong believes that the current annual salary of high-end talents in the automotive industry has been speculated by Wei Xiaoli, but this high-salary state can still be long-lasting. In addition, the management difficulty of chain stores has also increased exponentially.

In addition, affected by the fluctuation of the economic cycle, the spending power of users in the sinking market is weakening. According to data from Tong Jiren Automobile Research Institute, in 2022, car sales in third- to fifth-tier cities will decline considerably, and the lower the city line, the greater the decline in sales. Among them, passenger car sales in fifth-tier cities fell by nearly 10% year-on-year, and the cumulative sales of passenger cars in 134 fifth-tier cities were only 2/3 of those in 4 first-tier cities.

But in any case, the temptation to sink the market is still great, after all, the development of new energy vehicles is also a pyramid development law, spreading from the first tier to the third, fourth and fifth tier cities, and the popularization stage of new energy vehicles is also imminent.

Compared with first- and second-tier cities, although it is difficult to sink the market, it is also a market that is easy to defend and difficult to attack and firmly rooted.

Note: The interviewees Xiao Dong and Yang Feng in the article are pseudonyms; The deadline for Wei Xiaoli channel data statistics is September 13, 2023.