At the beginning of this year, Ideal paid a hefty "tuition fee" for its pure electric car, MEGA.
In the first quarter of 2024, Ideal sold 28,000 more cars than the same period last year; total revenue reached 25.6 billion yuan, a year-on-year increase of 36.4%, but a decrease of 38.6% compared to the previous quarter; net profit dropped from 930 million yuan in the same period last year to 590 million yuan, a year-on-year decrease of 36.7% and a quarter-on-quarter decrease of 89.7%; free cash flow turned negative to -5.1 billion yuan, compared to 6.7 billion yuan in the same period last year.
It's worth noting that Ideal had a shining year last year.
In 2023, Ideal sold 376,000 vehicles throughout the year, breaking the one trillion yuan revenue mark for the first time, reaching 123.85 billion yuan in revenue, becoming the first domestic new energy vehicle company to join the "trillion-yuan revenue club"; net profit also achieved annual profitability for the first time, reaching 11.81 billion yuan.
With such strong performance, Ideal set a high sales target of 800,000 vehicles this year, placing the heavy burden of this sales volume on its pure electric vehicle products. According to the original plan, in addition to the already launched Ideal Mega and Ideal L6 in the first half of the year, Ideal planned to launch three new pure electric vehicle models in the second half of 2024, forming a "4+4" product layout (4 pure electric vehicle models and 4 extended-range electric vehicle models).
The failure of MEGA has forced Ideal to urgently adjust its strategy for upcoming pure electric vehicle models. According to the latest plan, Ideal has postponed all pure electric SUVs to 2025.
In the past 50 days, Ideal's stock price has plummeted from a high of 182.9 Hong Kong dollars per share to 79 Hong Kong dollars per share, evaporating 220 billion Hong Kong dollars in market value compared to its peak.
As the new energy vehicle industry approaches a moment of "clearing out," competitors are playing key cards to survive, such as NIO's LeDao and Xpeng's modified 001. The lack of stable sales support for pure electric vehicle models has also led many players to switch to hybrid models.
Can Ideal climb out of the MEGA pit?
01 The "tuition fee" for pure electric vehicles is a bit steep
Originally, in preparation for MEGA, Ideal made thorough preparations in terms of personnel, goods, and upstream supply equipment.
Financial reports show that in the first quarter of 2024, Ideal's sales and distribution costs were 2.978 billion yuan, an increase of about 81% year-on-year, and research and development expenses were 3.049 billion yuan, an increase of about 65% year-on-year.
Since last year, Ideal has been continuously "recruiting troops."
In October last year, Interface News reported that "Ideal Motors' salary level has reached the top tier in the industry, and some talents can receive salary increases of over 50% when switching jobs."
In 2023, Ideal's staff increased from 19,396 to 31,591, a growth of about 63%. Among them, the number of R&D personnel was 6,726, accounting for 21.29% of the total number of employees.
In terms of upstream equipment production lines, Ideal also invested heavily.
As of the end of March 2024, Ideal's fixed assets such as property, plant, and equipment amounted to 20.32 billion yuan; at the end of last year, this amount was 15.75 billion yuan, meaning Ideal invested 4.57 billion yuan in the first quarter.
As a result, this year, Ideal's inventory is also abundant.
As of the end of March this year, Ideal's inventory was 12.16 billion yuan, an increase of over 5 billion yuan from the 6.87 billion yuan at the end of last year.
All these preparations were based on the expectation that Ideal MEGA would sell well, thereby driving the layout of Ideal's upcoming pure electric vehicle models. In Ideal's forecast, MEGA was expected to achieve a stable monthly sales volume of 6,000 units, which was one of the key drivers to reach the annual sales target of 800,000 units.
However, in reality, in the first quarter of this year, Ideal only sold 80,400 vehicles, falling short of the previously estimated delivery volume of 100,000 to 103,000 units. Achieving the challenging annual sales target of 800,000 units is even more difficult.
Specifically, data from the China Passenger Car Association shows that in April this year, Ideal MEGA's wholesale sales volume was 1,145 units, a 64.54% decrease from the 3,229 units in March. It's worth noting that Ideal MEGA was just launched as a new car in March, which should have boosted the company's sales.
Unfortunately, by the end of March, Ideal had lost confidence in MEGA, reducing the monthly sales target from 8,000 units to 2,000 units, and lowering the company's annual sales target to 560,000 to 640,000 units.
Founder Li Xiang openly admitted that MEGA had failed in its promotional rhythm.
In a company-wide message, he pointed out two major issues in March for Ideal Motors: "the rhythm issue of Ideal MEGA and the desire to focus excessively on sales volume." He also stated, "Incorrectly managing the rhythm of Ideal MEGA has significantly reduced the sales team's time and energy to serve L-series users."
It can be predicted that the initial failure of MEGA will not only affect the company's performance and income but also mean that the previous investment preparations will become a burden: accumulated inventory, expanded teams, and more.
However, Ideal has begun a series of "remedial" actions.
Firstly, the company underwent an organizational restructuring internally.
In April, an internal announcement at Ideal revealed an upgrade to the current matrix organizational structure, focusing mainly on the company's CEO office department, transforming from the original departments covering brand, product, business, strategy, and supply to a "product and strategy group," weakening the supply chain and commercial sales functions.
Subsequently, Ideal reintroduced the L-series models, but all new models were sold at reduced prices.
It is understood that price adjustments were made for this year's L7, L8, L9, and MEGA new models, with price reductions ranging from 18,000 to 20,000 yuan. Among them, Ideal MEGA saw a direct price reduction of 30,000 yuan, with a revised selling price of 529,800 yuan. Until the release of this quarter's financial report, NIO has completely confirmed the postponement of the layout of its upcoming all-electric SUV products. Originally, NIO had planned to launch four all-electric models within the year, including one all-electric MPV and three all-electric SUVs. However, during the first-quarter performance meeting, Li Xiang stated, "There will be no release of all-electric SUV products this year."
Simultaneously, there have been layoffs for "cost reduction." On May 22nd, internal employees of NIO disclosed to the media, "Currently, NIO is undergoing layoffs involving all departments, with no specific percentage provided."
It is evident that NIO is attempting to boost sales and performance through a series of "remedial" actions such as product layout adjustments, price reductions, and layoffs. However, the setback of the MEGA model has clearly disrupted NIO's original rhythm.
02 No lessons will be missed
So far this year, the new energy vehicle industry continues to undergo consolidation, where failure to progress may lead to being overtaken or even eliminated, as seen with the suspension of Weimar Motors last year.
NIO urgently adjusted its underperforming all-electric vehicle business, which is not only a problem with the all-electric models themselves but also a lesson learned from past successes.
The poor sales of the NIO MEGA model ultimately stem from the lack of consumer preference for all-electric vehicles, with the main issue being the difficulty in "charging up."
To succeed in the all-electric vehicle market, it is essential to have a robust charging infrastructure. One of the major selling points of the NIO MEGA model is its fast charging capability, with a 12-minute charge providing a range of 500 kilometers.
However, this selling point requires NIO to establish a comprehensive supercharging station system for effective "charging up."
Li Xiang has also mentioned that "self-operated supercharging stations are a necessary condition for selling high-end all-electric SUVs, aiming to achieve a quantity level similar to Tesla China, with over 1,900 supercharging stations."
Has NIO achieved this?
According to the official website, as of now, NIO has opened 404 supercharging stations, which may still be insufficient for the charging needs of all NIO all-electric vehicles once they are fully introduced to the market.
If customers find it difficult to charge their all-electric vehicles or if it takes too long to charge, they may be reluctant to choose such models.
From a market perspective, hybrid vehicles do seem more appealing than all-electric ones.
A survey report released in April by The Economist and research firm YouGov showed that Americans still prefer gasoline vehicles: only 4% of respondents have purchased electric vehicles, while another 8% have bought hybrid vehicles. This trend is also observed in China, where consumers opt for hybrid vehicles over all-electric ones to save on high electricity costs. This has become a common reason for purchasing new vehicles among Chinese consumers.
However, for NIO, both charging infrastructure and autonomous driving capabilities are essential lessons to learn.
In the past, NIO successfully targeted specific family car needs, telling a story of increased range, space utilization, and versatility. Along the eastern coast, NIO has already established a certain level of luxury reputation.
Nevertheless, with competitors imitating these strategies, NIO needs to tell a new story.
The L series is an older model for NIO, lacking new stories to attract new customers and expand into new markets. In March, the 2024 NIO L series models were launched with the selling point of additional features at no extra cost. While this approach may boost sales, it may not necessarily drive profit growth for NIO. This is why, in the "4+4" product layout, NIO initially focused its sales efforts on the MEGA model.
In the first quarter of 2024, NIO's vehicle sales gross profit margin had dropped to 19.3%, falling below the company's set target line of 20%; the overall gross profit margin of the company also decreased to 20.6%, barely maintaining above 20%.
In the absence of a mainstay in all-electric vehicle sales, how can NIO maintain its target gross profit margin of 20% and the sales guidance of 600,000 vehicles annually in the future? NIO may need to carefully reconsider its strategies.
On the other hand, in the "small and beautiful" realm, two other companies are continuously building differentiation to establish their core competitive advantages.
NIO, sticking to its high-end positioning this year, completed the production of its 500,000th vehicle in May. Of particular note is NIO's comprehensive "charging up" strategy.
As of May 21st, NIO has built a total of 2,420 battery swapping stations, 22,500 charging piles, and 800 high-speed battery swapping stations nationwide. Moreover, in NIO's "Battery Swap Alliance" plan, eight car manufacturers have joined, including Changan Automobile, GAC, and FAW.
It is evident that NIO is gradually constructing a battery swapping service ecosystem.
With the achievements in autonomous driving and electrification technologies, XPeng's software service business is becoming a new growth point for the company.
In the first quarter of 2024, XPeng's service and other business revenue reached 1 billion RMB, with a 22% increase compared to the previous period, and a gross profit margin of 53.9%, up by 24.3 percentage points year-on-year and 15.7 percentage points compared to the previous period.
XPeng stated, "This revenue mainly comes from the cooperation with Volkswagen." He Xiaopeng also mentioned, "Through strategic cooperation with Volkswagen Group, XPeng has taken the lead in applying self-developed intelligent technology. Today, XPeng is the first in the Chinese automotive industry to mass-produce AI large models."
At a recent AI DAY event hosted by XPeng, the company announced the full-scale deployment of the AI Tianji system to users and revealed that the first model of the MONA series will debut in June this year.
In the future, XPeng may not only be an electric vehicle manufacturer but also a supplier of automotive intelligent driving software.
In the second half of 2024, NIO is destined to contemplate how to play its differentiation card, as even with a cash reserve of 98.9 billion RMB, it cannot afford multiple setbacks and industry consolidation. In terms of ratings, more than ten well-known investment institutions such as Huatai Securities, CICC, and Bank of America Securities have given ideal ratings, mostly downgrading or maintaining outperform ratings but lowering target prices. It seems that most are adopting a cautious wait-and-see attitude towards Ideal at the moment.
References:
Market Value Rankings: Is MEGA dragging down Ideal?
Late AUTO: Ideal cancels this year's release of pure electric vehicles, is the pure electric business difficult to do?
