That balance is breaking.

China’s NEV landscape is undergoing a reordering. In the first half of 2025, BEVs recaptured over 60% of the NEV market, growing nearly twice as fast as PHEVs. July and August sales confirmed the inflection: BEV demand is rising, PHEV growth is slowing, and EREV demand is dropping YoY. long-range BEVs are emerging as the preferred option. Even brands that built their portfolios on EREV platforms are investing heavily in charging infrastructure—an implicit admission that BEV-first strategies are the future.

What we are witnessing is not a cyclical shift. It is a structural inflection—and one that holds massive implications for China’s automakers, suppliers, and investors.

From Bridge to Barrier: The Limits of EREV

Led by Li Auto, extended-range electric vehicles (EREVs) rose to prominence as a clever workaround: smaller battery packs, no range anxiety, and faster time-to-market. At a time when battery prices were high and public charging infrastructure was underdeveloped, they offered a pragmatic solution.

But that equation no longer holds.

In China today, LFP battery pack prices have fallen below ¥450/kWh, enabling battery electric vehicles (BEVs) with 60–80 kWh packs to achieve 600–700 km of real-world range. Public charging infrastructure is now widespread, and battery swapping—pioneered by companies like NIO—offers an even faster and more convenient alternative.

This progress has fundamentally changed the economic logic. EREVs require a dual powertrain architecture that adds roughly ¥13,000 in bill of materials (BOM) cost—covering the engine-generator unit, exhaust treatment, cooling system, and fuel components. Meanwhile, a BEV only needs an additional 20–30 kWh of battery to match an EREV’s total range. At current pack prices, the cost of that extra battery capacity is equal to—or even less than—the cost of the EREV’s internal combustion components. In many configurations, BEVs are now more margin-accretive for automakers.

The inefficiency compounds as EREVs attempt to increase their electric-only range to 400+ km. Doing so requires BEV-scale battery sizes (60+ kWh)—while still retaining the full weight, cost, and complexity of an ICE powertrain. The result is a vehicle that carries the cost burden of two systems but only fully utilizes one.

The chart below illustrates this BOM comparison between BEVs and EREVs in China, based on LFP battery pricing at ¥450/kWh:

• The red dashed line shows the fixed ~¥13,000 BOM premium of an EREV’s internal combustion hardware.

• The blue line charts the cost of additional battery capacity for a BEV as it increases from 10 to 50 kWh.

• The green dotted line highlights the crossover point at approximately 28.9 kWh—beyond this, BEVs become cheaper to produce than EREVs on a BOM basis.

In practical terms: if the battery capacity difference between a BEV and its EREV counterpart is less than ~29 kWh, it’s actually more profitable for an OEM to build the BEV.

Viewed through this lens, the long-range EREV no longer looks like a bridge to full electrification. It looks more like a costly detour.

Why BEV Is the New Rational Choice

The return of BEV in China isn’t about idealism. It’s actually about economics and execution.

Battery costs have fallen to the point where the BOM advantage of EREV no longer holds. Regulatory pressure continues to build in favor of zero-emissions vehicles. The convenience of charging (or swapping) is improving monthly. And consumer awareness is catching up: today’s NEV buyers know the trade-offs, and more of them are choosing simplicity and scale.

BEVs are easier to build, cheaper to certify, and simpler to maintain. They reduce weight, eliminate emissions compliance burdens, and unlock new cabin configurations. And in a price-competitive environment, they preserve margin better than hybrids.

You can simply see the difference in complexity between the 2 platforms in the images below

As China’s domestic champions look to continue expanding it’s EV leadership, investments in BEV platforms are picking up steam and offer the clearest growth path forward.

An Industry Shift in Strategy

Across China’s auto sector, recalibration is underway—driven by a distinct shift in consumer behavior and confirmed by market data.

According to the China Association of Automobile Manufacturers (CAAM), BEVs accounted for 61.2% of all NEV sales in the first half of 2025, up from 58.7% in the same period last year. Year-on-year, BEV sales grew by 38.2%, while PHEV and EREV segments slowed to 26.5% growth—their weakest since 2021. Moreover, data from CPCA (China Passenger Car Association) in July and August showed BEVs continuing to outpace EREV volume even as overall NEV growth plateaued.

The signal is getting louder: BEVs are capturing the incremental demand, especially in Tier 1 and Tier 2 cities where infrastructure coverage has reached maturity.

According to data released by the National Energy Administration, as of the end of July this year, China had a total of 16.696 million EV charging connectors, representing a 53% year-on-year increase. Among them, public charging connectors totaled 4.202 million and private charging connectors reached 12.494 million (link). There are total of ~38 million NEVs on the road today, meaning that there’s a charger for every 2.2 cars on the road!

As infrastructure gets better, range anxiety improves, EREV models, once a compelling compromise, are now struggling to sustain momentum in the face of rapid BEV improvements.

In response, major OEMs are starting to shift resources accordingly:

• BYD, the country’s NEV leader, has ramped up its all-electric Dynasty and Ocean series, with models like the Dolphin and Seal gaining momentum even as it continues to push PHEVs.

• Xiaomi, a new entrant to the auto industry, has seen overwhelming demand for its BEV models SU7 and YU7, both of which have quickly established themselves as high-volume, high-visibility success stories.

• Geely, while maintaining hybrid lines, has channeled its premium aspirations into BEV-focused brands like Zeekr.

• XPeng is fully committed to BEVs, leveraging its SEPA platform and launching long-range, high-efficiency models like the G6.

• And NIO, once the poster child of capital-intensive growth, is emerging as a case study in margin-focused BEV strategy. Management have stated that both the Onvo L90 and NIO ES8 have 20%+ vehicle margin, despite their aggressive pricing.

William Li, NIO’s CEO, has drawn a clear line: "The end of the range extender is pure electric." NIO has doubled down on large-format BEVs with swappable batteries, smart cabins, and user-first design. Its Q4 2025 profitability plan—centered around gross margin improvement, delivery growth, and cost discipline—relies entirely on BEV economics.

NIO’s bet is bold, but it is not alone.

Looking Ahead: Execution Over Experimentation

The bridge era of EREVs is ending in China. What we’re seeing is the normalization of BEV in the world’s largest auto market. As costs fall and infrastructure scales, BEVs now align not just with policy goals, but with consumer logic and manufacturer margins.

For China’s automakers, the implications are clear:

• Product strategy must shift toward dedicated BEV platforms.

• Cost structures must be engineered around larger batteries and simplified drivetrains.

• Premium and mainstream segments alike must be won through differentiated software, cabin experience, and lifecycle services.

The BEV comeback is not a rebound—it’s a realignment. And in China, I believe it’ll be another watershed moment to reshape the competitive order over the next 5 years.

I had the opportunity to spend time with Zeekr executives at CES recently. There were lots of information shared around their strategy and progress to date. For those that are unfamiliar, over the past four years, Zeekr has quickly emerged as one of China’s most remarkable electric vehicle (EV) success stories. A dynamic blend of Geely’s established manufacturing prowess and the resourcefulness of a startup, Zeekr has raced to the forefront of the premium EV segment—touting premium experience, sophisticated technology, and an expanding global footprint. They recently merged with Lynk & Co as well, further solidifying its position within the Geely Group. I previous wrote about that here.

Below, we explore the brand’s swift ascent to date and how it strategically fits into Geely Holding Group’s ambition to exceed 5,000,000 units by 2027.

Part I. Zeekr’s Rapid Growth and Strategic Focus

Premium Positioning & Swift Scaling

When Zeekr introduced its first models in 2021, few anticipated how quickly it would evolve into a key player. Yet by late 2024, the brand had already delivered over 420,000 vehicles. This momentum stems largely from the company’s decision to focus on the premium EV segment, offering variety of models ranging from 200k RMB to 800k+ RMB:

• 001 (Premium GT Shooting Brake)

• 007 (Premium compact sedan)

• 009 (Luxury MPV)

• 7X (Family-oriented SUV)

• X (compact SUV)

• MIX (A better take on the VW ID BUZZ),

• 001 FR (High Performance Sports Car)

By catering to affluent, tech-savvy consumers, Zeekr secures both healthier margins and a more distinctive brand identity in a market often defined by aggressive price competition.

Crucially, Zeekr’s monthly sales in the latter part of 2024 have exploded, reaching 27k+ deliveries in Dec 2024 and 220k for the full year (+87% increase). For a premium BEV-only brand, this is quite remarkable. The upward trajectory reflects a market appetite for vehicles that marry advanced electrification with a premium driving experience—demonstrating an impressive rate of growth for a brand established just four years ago.

Vertical Integration & Technology Leadership

A cornerstone of Zeekr’s success has been its vertically integrated approach. The company controls a significant portion of its technology stack. Its in-house Golden Battery Gen 2 is capable of reaching a 10–80% charge in under 10.5 minutes. They not only design the pack, but also the individual battery cells as well.

Recently, they also made progress on its self-driving stack. It’s in-house ADCU Max domain controller, which incorporates NVIDIA DRIVE AGX Thor for robust computational power. This end-to-end control not only guarantees faster innovation cycles but also bolsters Zeekr’s image as a tech-forward brand.

Another defining feature is Zeekr’s 800V ultra-fast charging ecosystem. Thousands of ultra-fast chargers are already in operation across China, with an additional 1,000 targeted for deployment abroad. This dedication to charging infrastructure helps Zeekr vehicles stand out for convenience and efficiency, reassuring customers that they can enjoy both exhilarating performance and rapid recharging.

AI-Driven, Software-Defined Vehicles

While hardware and battery tech remain essential, Zeekr has also prioritized advanced software and AI capabilities. The brand’s intelligent cockpit and driving features process a variety of sensor inputs—enabling continuous learning, real-time route optimization, and a cabin experience that evolves via over-the-air updates. Its’s self-driving stack have also now fully cut away from MobileEye and have been building their own end to end model to tackle autonomous driving.

Zeekr’s venture into shared mobility further showcases its technological confidence. The purpose-built Zeekr RT autonomous taxi, now in limited pilot testing with Waymo in Las Vegas, is expected to enter mass production in 2025.

As the wider automotive industry embraces software-defined experiences, Zeekr’s integration of AI at every step underscores both its readiness for an autonomous future and its appeal to consumers craving innovation.

Global Footprint & Service Network

Bolstered by its product innovations, Zeekr has seized on international expansion with an impressive showroom network—538 outlets worldwide by end of 2024. Its 500th showroom opening in Singapore stands as a testament to the brand’s desire to engage customers face-to-face, even far from its home market.

Meanwhile, Zeekr’s 800 KW ultra-fast charging stations are set to multiply globally. There’s 3893 in China alone. They plan to build another 1000 aborad, including key markets like Thailand, Australia, UAE, Brazil & Mexico. Zeekr understands that in order to have success abroad, they have to invest in better charging infrastructure for its customers.

At the stand, they even had a demo showing a robotic arm charging the EV automatically, envisioning a world where the vehicles are autonomous and can drive to charging piles by themselves to replenish battery.

This carefully orchestrated growth abroad is made possible by the groundwork laid in premium product development, vertical integration, and AI-driven innovation. Taken together, these elements strengthen Zeekr’s ability to replicate its domestic success overseas, ensuring buyers encounter a consistent level of service and reliability wherever they go.

Part II. Zeekr’s Role in Geely Holding Group’s 2027 Vision

Context: Geely’s 5 Million-Unit Goal

For Geely Holding Group, which includes brands such as Volvo, Polestar, Lotus, and Farizon Commercial Vehicles, the path ahead is defined by a bold target: surpassing five million annual units by 2027. This projection builds on an already strong performance—3.32 million units sold in 2024, with 1.48 million of those being new energy vehicles. Zeekr’s premium EV expertise positions it as a key lever in elevating both profitability and reputation on the global stage.

Strategic Synergy: Multi-Brand Architecture

Zeekr’s growth doesn’t exist in isolation. Within Geely’s passenger vehicle ecosystem, the company joins Galaxy (mainstream NEVs), Lynk & Co (stylish, high-end NEVs), and China Star (focused on fuel offerings). Together, these brands address a broad spectrum of price points and consumer demands. Zeekr’s 220k units sold in 2024 alone, an 87% year-over-year rise, complements Geely’s broader passenger vehicle achievements, including a 50% NEV penetration rate for several consecutive months.

All this is underpinned by shared platforms like SEA (Sustainable Experience Architecture) for high-end EVs, and GEA for multiple powertrains. By capitalizing on these architectures and standardizing key components, Geely achieves both cost savings and faster research cycles, while each brand, Zeekr included, maintains a distinct identity.

Long-Termism & Quality-First Approach

Chairman Li Shufu’s guidance has long emphasized sustainable development over short-term ambition. Geely’s strategy shuns “malicious competition” or reckless expansion in favor of high-quality products, cohesive brand-building, and careful scaling. Zeekr embodies these principles by focusing on research and development—whether in AI integration or next-gen battery designs—instead of slashing prices to gain quick market share. It also fosters strong user communities, having integrated hundreds of user-suggested features through over-the-air updates, ensuring each product iteration aligns with genuine consumer needs.

Accelerating Growth Through Shared Mobility & Exports

Beyond conventional retail, Zeekr also taps into the burgeoning market for shared mobility and exports. Geely’s domestic robotaxi service, CaoCao Mobility, aims to roll out operations by 2026. Meanwhile, exports continue to rise, with Geely surpassing 400,000 units shipped globally in 2024—supported by Zeekr’s 40-country presence. Ongoing deployment of 800V charging stations in various international markets further amplifies the brand’s worldwide growth potential.

Conclusion

In the span of just four years, Zeekr has carved out a compelling place in the premium EV landscape—demonstrating rapid sales growth, a robust 800V ecosystem, and clear acumen in AI-driven software. Acting as the “tip of the spear” for Geely’s broader strategy, Zeekr fuses the group’s storied automotive background with the agility of a young tech startup.

Given Geely’s multi-brand configuration, long-term commitment to quality, and quest to exceed five million units by 2027, Zeekr’s rapid ascent is both illustrative and instrumental. By pioneering upscale design, vertical integration, and global expansion, Zeekr not only advances its own vision of luxurious electric mobility but also anchors Geely’s broader shift toward a green, intelligent future—one that promises to redefine automotive competition on the global stage.

Zeekr recently announced its mergers with Lynk & Co in their Q3 earnings. I have been chewing on its implications, not just for the 2 companies, but also for the broader Geely group.

I think Geely’s recent decision to merge its two premium brands, Zeekr and Lynk & Co, is not just another round of corporate musical chairs—it’s a tide change for a conglomerate that once focused on brand proliferation. Now, with the Chinese automotive market awash in competition and riddled with overlapping product lines, Geely is taking a decisive step toward streamlining its operations. By consolidating these two brand powerhouses, Geely aims to eliminate internal rivalry and reposition itself to challenge industry giants like BYD and Tesla in a rapidly changing era of electrification.

Exposing Geely’s Past Strategy and Its Limitations

Nearly two decades ago, the company’s 2007 “Ningbo Declaration” kicked off an era of aggressive expansion. Geely’s approach—“more brands, more coverage”—proved effective in a growing market: Volvo, Proton, Lotus, London Taxi (LEVC), and numerous in-house brands were acquired or launched. From 2017-2021, Geely topped China’s independent passenger car sales five years running, thanks partly to its multi-brand strategy.

But the “Taizhou Declaration,” announced in September 2024, signaled a sharp pivot. Today’s environment demands a leaner, more focused approach. While once “not putting all eggs in one basket” made sense, now it’s threatening to become a muddle that dilutes brand identities and wastes R&D budgets. Faced with the rise of BYD as China’s EV leader and the intensifying global push toward electrification, Geely must recalibrate or risk sliding into irrelevance.

The Catalyst for Consolidation: Overlapping Missions and Products

Lynk & Co initially targeted mid-to-high-end segments, offering gasoline and hybrid models, and racked up over one million cumulative sales in just six years. Zeekr, born from Lynk & Co’s EV division, took a pure-electric premium route and soared to monthly sales of over 27,000 units in November 2024. Initially, these brands appeared complementary: Lynk & Co handled hybrids and high-quality combustion models, while Zeekr staked out the advanced EV frontier.

But by 2024, Lynk & Co also ventured into pure EV territory with the Z10 sedan, whose positioning overlapped with Zeekr’s offerings like the Zeekr 001. Meanwhile, Zeekr hinted at exploring range-extended drivetrains—territory Lynk & Co was already pursuing. This mutual encroachment created consumer confusion and internal turf wars, undermining Geely’s once-clear brand architecture. As one executive bluntly noted, if not integrated, these two brands would just keep on stepping on each other’s toes.

Minimizing Internal Turf Wars and Reducing Costs

This merger is designed to “reduce related-party transactions, eliminate internal competition, and deeply integrate resources,” as Zeekr’s management puts it. Without this step, overlapping R&D projects and competing supply chain contracts would continue inflating costs and eroding margins. Already facing a challenging market, Zeekr reported a loss of RMB 4.97 billion (about USD $691 million) in the first three quarters of this year, underscoring the urgency of cutting waste.

By merging Zeekr and Lynk & Co under one umbrella, Geely expects annual R&D spending to drop by 10%-20%, saving up to RMB 4 Billion (around USD $570 million) per year. Supply chain costs could fall by 5%-8%, and production efficiency could increase by 3%-5%. With combined sales of about half a million vehicles this year, An Conghui—President of Geely Holding, Chairman of Geely Auto, and CEO of Zeekr—believes the merged entity can soon hit the one-million annual sales mark, cementing its status as a leading high-end NEV (New Energy Vehicle) player.

Streamlining Technology and Enhancing Customer Experience

The merger also will allow Geely to deploy its best technologies more quickly and uniformly. Take the widely praised Flyme Auto infotainment system: Lynk & Co and other Geely subsidiaries adopted it, yet Zeekr lagged behind. Now, with the two brands integrated, expect a more agile rollout of cutting-edge features, from infotainment to battery systems and advanced driving assistance. Consumers win when internal brand silos vanish, making room for faster innovation and more cohesive product lineups.

In addition, the consolidation paves the way for clearer product differentiation, but specific details are still light. In theory, Lynk & Co will focus on the more “mainstream” compact and midsize market, while Zeekr will continue to improve its position in the premium market. Both brands will have BEV and PHEV in their lineup going forward. The idea is that when freed from the need to compete with each other, both can find niches that add value to the overall portfolio without confusing consumers.

Positioning for the EV Future and Brand Hierarchy

Geely’s endgame is a simplified brand ecosystem: Geely (including Galaxy, Geometry, Radar), Zeekr (now with Lynk & Co and potentially Polestar in the future), Volvo, and Lotus. Each will have a distinct role, whether targeting mainstream EV segments, premium electrified categories, global luxury markets, or ultra-high-performance niches. The clarity should help Geely invest more intelligently, respond to market shifts faster, and present a coherent face to consumers.

In this streamlined configuration, there’s no room for “internal arms races” that pit sibling brands against each other. Instead, the resources that once supported parallel R&D streams can bolster the entire group’s competitiveness.

Execution Risks and Cultural Integration

Automotive mergers are seldom tidy. Integrating teams, product roadmaps, dealer networks, and marketing strategies won’t be a walk in the park. Lynk & Co loyalists may worry about losing the brand’s distinct personality. Zeekr enthusiasts might fear that this integration will “cheapen” the brand. There are for sure internal politics and people challenges as well. Yet Geely’s leadership clearly believes the short-term turbulence is worth the long-term payoff.

With top executives like An Conghui set to manage both brands under one streamlined structure, the hope is to unify corporate culture and decision-making. Behind the scenes, supplier contracts, product engineering, and manufacturing footprints will be rationalized to get the most bang for every invested dollar.

Conclusion: A Blueprint for the Industry’s New Chapter

The Zeekr-Lynk & Co merger is the latest and boldest example of Geely’s transition from an era of sprawling multi-brand strategies to one of sharpened focus and strategic resource allocation. As China’s auto market intensifies and EVs reign supreme, this merger stands as a lesson for others: Convergence and specialization often trump expansion for expansion’s sake.

If executed correctly, Geely’s sweeping internal housecleaning will allow it to meet—or surpass—its ambitious goals, like hitting that coveted million-unit annual sales figure for high-end NEVs. More importantly, it sets a template for China’s other multi-brand automotive giants. When the market toughens and old models fail, the winners are those who can recognize reality and pivot quickly. Geely’s move could herald a smarter, leaner era of competition—one where fewer brands, clearer identities, and better execution carry the day.

At the Beijing Auto Show this year, William Li was a busy man. He hosted top political figures like Wan Gang and mingled with other EV founders such as Lei Jun, Li Xiang, and He Xiaopeng at each other’s booths. In one interview, when Li Xiang lamented that premium BEVs are hard to sell due to lack of charging infrastructure, William playfully suggested to Li Xiang that he should consider joining NIO's battery swap network. When there was a moment to spare, Li Bin even found time for a karaoke session with Wang Feng, a renowned Chinese singer, showcasing a relaxed confidence that was noticeably absent in previous years.

Slower Growth Than Expected

On the surface, this seems odd. While NIO’s sales volume still grew modestly in 2023 to 160k deliveries, they missed their original sales target 200k+ by a significant margin. Overall EV adoption in this premium segment has been much slower than expected.

Furthermore, competition is more intense than ever in 2024. Unlike last year where NIO launched the brand new ES6, at this year's Beijing Auto Show, they have no new models to show outside of a mid-cycle refresh of the ET7, a high-end executive sedan. Other high profile updates, like the full-scale NOP+ rollout, or the launch of the new sub-brand Onvo, were all scheduled for later.

Author note:

I previously wrote a post on NIO back in 2023. Looking back, my observations about them last year were largely correct. In 2024, despite the heightened competition, I have a much more positive outlook on the brand. If they can execute well, end of 2024 can become a major turning point (for the reasons I list below). While not necessary, if you are new to NIO, it may be helpful to read last year’s article before continuing this one.

Brand Perception Still Lags Behind BBA

During a NIO user meetup with Li, one owner made a comment: "Driving a Mercedes symbolizes status without words; driving a NIO requires you to champion the brand." This observation sheds light on how legacy brands command inherent prestige, whereas newcomers like NIO must continually justify their place in the market. Another owner highlighted the regional disparities in brand acceptance, noting the stark contrast between the brand's visibility in metropolitan areas like Shanghai versus smaller cities.

To those pointed concerns, Li’s answer was simple: “be patient. The tide is about to turn.”

Product Competitiveness

The confidence isn’t unfounded from Li’s standpoint. Since launch, the ET7 has nearly 30,000 cumulative deliveries, affirming its stronghold in China’s luxury BEV sedan segment above 400k RMB. The latest refresh have also corrected many of the pain points existing customers have had over the past 3 years. The rear seats saw the biggest upgrade.

Sales & Promotions

In recent months, NIO seemed to have also found their rhythm on sales & marketing, introducing a variety of policies to stimulate demand without explicitly dropping price. Some of the most impactful changes to date are:

• Adjustments of the BaaS pricing

• Launching a 1 Billion RMB subsidy for customers switching from an ICE vehicle to a NIO.

• Reimbursing Xiaomi SU7 pre-order customers for their non-refundable deposit if switching to a NIO

As a result of these changes, despite the intense competition, NIO's in-store orders have seen an uptick in recent month, contrary to the downtrend experienced by its contenders. Competitors like Li Auto have faced challenges with their MEGA series, not living up to the high expectations set by their L series. Furthermore, other key players like Xpeng Motors have not managed to reach the10k monthly delivery mark since entering 2024, allowing NIO to maintain a solid performance with 10k deliveries in the high-end pure electric sector. So far, Zeekr is the only brand that’s able to go toe to toe with NIO.

Infrastructure and Strategic Partnerships

Looking beyond the car, NIO’s heavy investment into battery swap and charging infrastructure is finally poised to bear fruit. With over 2,400 battery swap stations and 3,828 supercharging stations, NIO has laid a robust foundation that not only serves its current fleet but tempts other automakers into partnerships. These collaborations are not merely operational ventures but strategic alignments that could open new revenue streams for NIO down the line. Prior to the auto show, Geely, Changan, Chery and JAC have signed formal partnership with NIO. At the auto show, Lotus also announced that they intend to partner with NIO on both charging infrastructure and battery swap technology. We should expect battery swap capable models from these partner brands to come online in the next 18 months.

Onvo Sub-brand Launch

Additionally, the impending launch of the Onvo brand is set to push NIO into the much more lucrative, but competitive mass market BEV segment. This new brand, plans to leverage NIO's established strengths in its vehicle powertrain, swapping/charging infrastructure, and smart cockpit/autonomous driving. Their target is squarely fixed on the Model Y, the undisputed leader in this category.

On paper it’s a compelling entry. Based on existing report, it will have the following:

1. Battery: Offers a choice between a 60 kWh (BYD LFP) and a 90 kWh (CATL NMC) battery.

2. Energy Consumption: class leading efficiency at 13 kWh per 100 km, benefiting from vehicle 900V silicon carbide powertrain and a low drag coefficient.

3. Cabin: Equipped with an ET9-style horizontal screen, 8295 chip, and interior craftsmanship comparable to NIO, creating a mobile home experience. It’ll also have a fridge, tv, sofa like all the other popular models in this segment.

4. Charging: Access to over 2000 charging and 2000 swapping stations (ready upon delivery, compatible with third-generation stations). It’s also equipped with AC ports.

5. Price: Estimated starting price of 230k - 250k RMB for outright purchase, with BaaS (Battery as a Service), starting price should be closer to 170k RMB to 190k RMB.

Final Thought

It appears that NIO's strategic investments and the groundwork laid in previous years are now starting to bear significant fruit, propelling the company into a phase of accelerated growth and solidifying its position in the competitive EV market. The company's forward-thinking approach, particularly in infrastructure with over 2,400 battery swap stations and 3,776 supercharging stations, has not only enhanced its service offering but also positioned NIO as a desirable partner for other automakers.

As NIO continues to enjoy this momentum, it's crucial for the company to leverage its strengthened market position to convert prospects into loyal customers. This involves continuing to innovate in product offerings, maintaining a high standard of customer service, and effectively communicating the value and unique advantages of its EVs. With the introduction of the Onvo brand, NIO has a significant opportunity to tap into the mass market, further expanding its customer base.

Share

The electric vehicle (EV) market stands at a crucial juncture, with consumer preferences increasingly leaning toward more affordable and accessible options. The key enabler for affordability is the cost of the battery pack, which is the most expensive component of an EV. Currently, the price of a battery pack hovers around $100/kWh, equating the cost of a 100 kWh pack to that of a GM LS3 crate motor.

Despite the general decline in costs over the years, a significant price disparity persists between China and other parts of the world. This is not surprising, given that 75% of the global lithium-ion battery manufacturing capacity is concentrated in China, where economies of scale remain unrivaled.

However, this scale and cost advantage come with challenges. Overextending capacity beyond demand is unsustainable for manufacturers and detrimental to the industry.

There is a clear and obvious solution. On one hand, U.S. and European automakers are in search of more cost-effective batteries. On the other, Chinese battery manufacturers like CATL, with their competitively priced batteries, are exploring new growth and revenue opportunities. On paper, it’s a no brainer, but it’s by no means an easy path to walk. Given the strategic importance of the industry and entrenched interest, many groups will have to come together, find common ground, and compromise. In many ways, the collaboration between Western OEMs and Chinese battery makers is set to dictate the pace at which affordable EVs become prevalent on roads across Europe and America.

Bridging the Gap: The Demand for Affordable Electric Options

The electric vehicle market is at a critical point, with demand in Europe and America centering around more budget-friendly options. The ideal price point appears to be around $25,000, a figure that could significantly accelerate EV adoption. However, this poses a considerable challenge for traditional manufacturers like Ford, GM, VW, BMW, and Mercedes, who need to develop strategies that make EVs competitive and profitable compared to their internal combustion counterparts.

This drive for competitiveness has led these legacy automakers to forge strategic collaborations, notably with CATL. The Chinese battery giant has not only emerged as a key supplier but also as an essential technological partner. According to SNE Research, CATL holds a 37% market share in 2023 and has become the world’s largest battery manufacturer.

But make no mistake, CATL also needs these foreign automakers as much as these automakers need CATL.

CATL’s Facing Stiff Competition In China

Two years ago, CATL wielded considerable bargaining power due to its advanced battery technology and capacity, attracting top automakers who were eager to secure substantial orders—some amounting to hundreds of gigawatt-hours—to ensure their supply lines.

Today, they are faced with excess capacity in China and a shrinking technological divide with other emerging battery manufacturers. Its portfolio of BEV customers like NIO, Xpeng, Avatr all had a tough year and didn’t meet their sales goals. Aiway, the EV startup CATL first invested in back in 2021 (link), is nearly bankrupt.

The segment that did grow quickly is PHEV/EREV, but CATL doesn’t have a strong foothold there. In contrast, it’s the smaller battery manufacturers, like Honeycomb Energy, that have successfully capitalized on the growing market. Last year, Honeycomb Energy's installed capacity in the PHEV segment saw a dramatic increase of 409% year-over-year, with shipments exceeding 400,000 battery packs. It was able to attract orders from Geely’s Galaxy, Dongfeng’s Voyah, GWM’s Tank & Li Auto.

There is also another elephant in the room, BYD. In the past 5 years, BYD has gained significant consumer traction with its DM-i and blade battery technologies. In 2019, BYD sold just 229,000 NEVs (includes both BEV and PHEV). In 2023, they sold over 3 million. In addition, BYD's ability to independently supply batteries globally poses a significant threat to CATL's market share.

Amidst the intense competition domestically, CATL is turning to international markets for expansion, hoping to secure long term partnership with foreign automakers before others gain a foothold.

Factory Buildout In Europe

In Europe, CATL's strategy is straightforward: build factories, lots of them. This is the most expensive, but also the fastest way to enter a new market. In the region, CATL will provide both technology and initial capex in exchange for long-term battery supply agreements from OEMs. Today, this is happening at a modest scale. The company began local production in their Erfurt, Germany plant. It first started as a module assembly facility in 2021 and transitioned to cell production by the end of 2022. The original capacity of 8 gigawatt-hours (GWh) per year has since expanded to 24 GWh. Despite this increase, capacity still falls short of meeting the demand in Europe.

A second facility, with a capacity of 100 GWh and costing $7.5 billion, is under construction in Debrecen, Hungary. It is expected to commence operations in 2026. Discussions are ongoing to establish the third (link) and fourth (link) European factories in partnership with various OEMs.

Partnership in the U.S.

North America represents another key market for CATL. However, the same model used in Europe faces geopolitical challenges in the U.S. Previously, CATL did consider establishing a battery plant in the region to quickly begin operations and assist OEMs in qualifying for EV tax credits. The plan was likely similar to Europe’s initially. Build plant quickly for pack assembly, and then add production equipment and expand to cell production. But in either case, they’d be using materials from China.

However, strict material sourcing requirements introduced by the Inflation Reduction Act (IRA) have rendered this strategy unfeasible. The full explanation of how the IRA works is outside the scope of this post, but essentially EV batteries must have 40 percent of the critical minerals contained within them sourced from the US or its free trade partners to remain eligible for the tax credit. China is certainly not on the list right now nor will it be added in the foreseeable future.

Yet, not all hope is lost. Recently, a novel "License Royalty Service (LRS)" model has gained traction, where CATL extends its intellectual property rights, oversees construction of battery production lines, and manages manufacturing processes, while automakers cover the capital expenditures and retain full ownership of the plant. In return, CATL simply charges a patent licensing and service fees. This model has found favor with Ford, Tesla, and GM, exemplifying a new dynamic in battery production.

• Ford's initiative in Marshall, Michigan, where it partnered with CATL for a battery factory, was the first to adopt this model (link).

• Tesla's collaboration goes even deeper, involving the supply of battery technology and co-development of new battery chemistries for its Gigafactory in Nevada (link).

• General Motors, too, has entered the fray with plans to acquire licensing for LFP battery technology from CATL, potentially leading to a joint venture factory in North America (link).

Weighing the Model: Prospects and Challenges of the LRS Approach

The License Royalty Service (LRS) model presents both significant opportunities and notable challenges across various stakeholders.

For CATL: The LRS model decreases investment costs and boosts profit margins by providing technical support and overseeing construction, while also reducing geopolitical risks. However, this model may limit CATL's revenue and profit potential as it transitions from direct sales to a structure dependent on one-time fees and continuous patent licensing. This shift could constrain long-term financial growth despite short-term advantages.

For Automakers: Constructing new battery manufacturing facilities is expensive, and the swift pace of advancements in battery technology poses a real risk. By the time a plant is operational, there is a chance that its technology may no longer be best in class, rendering the investment less effective in maintaining competitive advantage.

For U.S. National Interests: The LRS model facilitates the transfer of technology and manufacturing expertise back to the U.S., potentially bolstering domestic capabilities. However, the success of such a model hinges on consistent policy support over extended periods and across different government administrations. It also requires U.S. automakers to invest in robust domestic research and development in house rather than outsourcing these critical functions. This approach is crucial for maintaining technological leadership and ensuring the quality of locally produced innovations.

CATL's Global Strategy: Expansion Amid Challenges

Despite all these stated challenges, CATL's global expansion continues. Its leading position in the European market as the top battery supplier highlights its industry dominance. The partnership between CATL and American automakers illustrates the complex interplay between collaborative gains and competitive dynamics. The proactive and creative engagement displayed by both sides paints a hopeful path forward. In this intricate global dance, each forward step not only signifies progress for the companies involved but also represents a leap toward realizing the vision of making affordable, sustainable electric vehicles a mainstay on roads worldwide.

Share

According to recent Reuter report (link), Tesla has abruptly shifted gears, sidelining its much-anticipated affordable electric vehicle (EV) in favor of a full-throttle push into the commercialization of self-driving robotaxis. The market's reaction to Tesla's strategic pivot was swift and stark, with Tesla’s stock taking a -6% hit post-announcement.

Musk have since come out and said the report is not true, though the subsequent announcement to unveil the robotaxi on 8/8 suggests that the reporting isn’t an outright lie. I suspect that the $25k EV is not “dead”, but it has taken a back seat against the robotaxi for now. In fact, the announcement is likely a rallying cry for one of Musk famous “surges” to achieve something incredibly daunting under seemingly impossible timeline.

This isn’t the first time Elon Musk, Tesla's visionary CEO, has made a bold bet. In the past 20 years, his penchant for high-stake gambles has reshaped industries. However, this latest bet might just be his most controversial yet, potentially marking a significant strategic misstep for the electric auto giant.

The High Stakes of Autonomy & The Promised Land of Affordable EVs

The narrative of Tesla has always been supported by 2 pillars:

1. achieving full self-driving

2. releasing an affordable EV for the mass market

The road to realize full self driving is a path riddled with complex engineering challenges and regulatory hurdles. While FSD have come a long way, even the latest version (v12.3) is still very far from driving itself. The entire industry, including Musk himself, has a terrible track record of predicting the arrival of fully autonomous driving. Even if the technology is good enough, solving for the regulatory and insurance hurdle will also take time and is a major risk for commercialization. As a result, FSD has always been viewed as an option for the future. It would be incredible feat if achieved, but it’s not a requirement for Tesla to grow.

The affordable electric car, however, is. The promise of the “Model 2” has been a cornerstone of its brand allure, promising to bring sustainable transportation to the masses. With an expected price tag of around $25,000, the “Model 2” was poised to be a game-changer, opening the floodgates to mass-market adoption and securing Tesla's dominance in the burgeoning EV space. This dream, repeatedly teased by Musk, has been a tantalizing vision of the future, not just for consumers but for investors banking on Tesla's continued growth.

In Morgan Stanley’s latest investor note, they had accounted for Model 2 to contribute 40% of future incremental volume growth from FY24 through FY30. By 2030, it’s projected to account for 36% of global sales volume.

Tesla's abrupt pivot raises a critical question: Is forsaking the affordable EV market for the speculative future of robotaxis a strategic blunder? The company's financial health and market position could be compromised if it fails to deliver on the robotaxi promise or if the market for autonomous vehicles does not mature as quickly as Musk anticipates.

Meanwhile, the affordable EV segment is ripe with potential, promising not only volume sales but also a broader adoption of electric mobility. By sidelining its plans for a more accessible Tesla, the company risks alienating a significant segment of the market and ceding ground to competitors, especially agile and increasingly dominant Chinese automakers like BYD, who are quickly filling the void with affordable and appealing electric models.

The Global Race for EV Dominance

While Tesla has been focusing on premium segments and now autonomous driving, BYD has capitalized on the mass-market appeal, aggressively expanding its lineup with models that cater to a broader audience. This strategy has paid off. BYD has long surpassed Tesla in terms of overall sales volume, selling over 3 million vehicles vs Tesla’s 1.8 million vehicles in 2023. In Q4 2023, BYD also surpassed Tesla in BEV segment for the first time ever, selling 526,000 vehicles vs Tesla’s 484,000. This marked a historic shift, as Tesla, once the undisputed leader in the global electric vehicle market, found itself playing catch-up in terms of volume.

While this fierce competition is largely isolated in China today, that is also changing quickly. China’s overall BEV exports rose 70 percent in 2023, reaching $34.1 billion. The European Union (EU) is the largest recipient of Chinese BEV exports, accounting for nearly 40 percent of them.

Admittedly, today, majority of these exported vehicles are Tesla and other Made in China EVs with foreign logos on them (i.e. MG, Polestar etc.) With time, that will change as more domestic Chinese brands establish sales network abroad.

This development underscores the critical nature of the affordable EV market segment, which Tesla seems to be sidelining. As the demand for electric vehicles expands globally, the ability to offer competitive, accessible, and diverse EV options becomes increasingly crucial. In this context, Tesla’s decision to deprioritize “Model 2” in favor of robotaxis could be seen as a strategic misstep, potentially limiting its growth in a market that is rapidly democratizing and diversifying.

In Conclusion: A Risky Gamble with High Stakes.

Elon Musk's bet on robotaxis is undeniably bold, in line with his reputation as a disruptor. However, this move might be prematurely sidelining a critical market segment and betting the farm on a future that is still out of focus. While autonomous vehicles, particularly robotaxis, represent a significant advancement in technology with the potential to redefine urban mobility, the market for such technology is in its infancy. In contrast, the demand for affordable EVs is here and now, growing rapidly and increasingly serviced by Tesla's competitors.

The race for EV dominance is no longer a one-horse race with Tesla at the lead; it's a global marathon with numerous automakers vying for the top spot. Tesla's recent strategy shift, especially in light of BYD's recent sales achievements, highlights the competitive pressures and market dynamics at play.

As Tesla navigates this pivotal juncture, the broader question looms: Will Musk's gamble on robotaxis propel Tesla into a new era of transportation, or will it be a strategic misstep that sidelines the company in the race for EV dominance? Only time will tell, but for now, the decision to forgo the mass-market EV in favor of autonomous taxis is a high-stakes strategy that could redefine—or derail—Tesla's journey.

Share

Xiaomi's recent entry into the EV market has sparked a buying frenzy, challenging established industry norms. At the heart of Beijing's bustling Hopson One Shopping Mall, the Xiaomi store became a spectacle of consumer excitement after the unveiling the much-anticipated Xiaomi SU7.

Surge in Consumer Interest

The launch day witnessed an extraordinary scene: an overwhelming crowd, encompassing a diverse demographic, swarmed the Xiaomi store, eager to catch a glimpse of the SU7. The vehicle, showcased in an eye-catching Bay Blue, was an instant hit.

numbers speak volumes, with 50,000 deposits collected within minutes and total reservations nearing 90,000 in just one day, dwarfing the sales figures of traditional automotive giants. Normally, it takes almost 6 months to collect this many orders post launch.

Online, the SU7 was the talk of social media. 7 of the top 15 keywords on Weibo (i.e. Chinese Twitter/X) that day were related to Xiaomi and the SU7.

Offline, the Xiaomi store, typically known for its consumer electronics, transformed into an automotive hotspot overnight. Consumers visiting are diverse, from tech enthusiasts to elderly individuals, underscored the wide appeal of Xiaomi's automotive venture. In contrast, neighboring competitors like Huawei's AITO M7 and M9 attracted only a fraction of Xiaomi's crowd, highlighting the stark difference in consumer pull.

Interestingly, Xiaomi's new vehicle has not only captivated existing fans but also attracted a new segment of consumers, many of whom are novices in the car-buying process. This unprecedented demographic shift is crucial for understanding Xiaomi's disruptive power. The company's ability to draw in a vast customer base, including those with limited automotive exposure, is a massive competitive advantage that very few others have. Arguably, only Apple and Huawei are the only other 2 brands with similar brand loyalty.

The successful launch of SU7 also underscores how important brand awareness is in China.

Operational Challenges Amidst Market Euphoria

The enthusiasm, while a positive indicator of market demand, exposed operational strains. Stores across Beijing and other cities were inundated, pushing the limits of crowd management and test drive logistics.

To better manage this, store staff are divided into two teams: in-store sales and test drive team, akin to a mini production line. A paging system for test drive was implemented to manage the customer flow. As soon as the test drive vehicle completes a service and arrives at the store's entrance, a salesperson will immediately call the number to let the next customer to get in the car. That previous test drive customer will then be handed over to in-store sales person.

Despite these efforts, the sheer volume of interest led to fully booked test drives and stretched the capacity of sales staff. Test drives at certain hot markets were fully booked out for 9 straight days, and many sales staff don’t have time to eat lunch during the day. One test drive vehicle used up its entire 800km range in a single day doing nothing but test drives.

Consumers Are Buying In

With that said, Xiaomi’s efforts are bearing fruit. Recent data from 36kr revealed that approximately 25,000 of the initial 90,000 orders have now become fully non-refundable, indicating strong commitment from buyers. This conversion to non-refundable status is viewed positively, with expectations for this rate to increase further.

The excitement around Xiaomi’s SU7 has translated into considerable wait times for eager customers. Depending on the chosen model, buyers could be waiting anywhere up to 6 months to receive their vehicles. The Standard Edition of the SU7 will take 11-14 weeks for delivery, the Pro Edition 13-16 weeks, and the Max Edition, the longest, at 19-22 weeks.

Now the next set of challenge is production ramp. Previously, Xiaomi had planned for an 80,000 unit capacity with its suppliers. It has now instructed suppliers to plan for a 120,000 units capacity, aiming for 10,000 deliveries/month. Managing its supply chain and production to ensure vehicles are delivered to customers on time with quality, is the next challenge ahead for Xiaomi and Lei Jun.

Future Outlook

Xiaomi's rapid accumulation of orders signifies a market disruption that may redefine competitive landscape in the automotive sector. Along the way, there will inevitably be operational hurdles and challenges. For example, in the first day post launch, there was some confusion over whether the deposits were refundable, causing a small controversy on social media. How well and quickly Xiaomi reacts to that will be key to its success in the coming months. As Xiaomi navigates these challenges, its peers will watch its every move and react accordingly.

As the first few days have indicated, Xiaomi & Lei Jun means serious business, and they certainly have the brand, capital, and operational excellence to pull this off.

Share

Li Auto recently unveiled its first pure electric MPV model, MEGA, sparking a flurry of discussions and opinions. The launch event, held with much anticipation, highlighted not just a new product but also signaled Li Auto's shift towards a "dual-energy" approach, combining range extender (L7/8/9) and pure electric (MEGA) models.

MEGA is Li Auto’s first hand shake with the world in the BEV segment. It’s both a halo vehicle for the brand as well as a representation of the company’s ambition to lead in the premium EV segment.

Li Auto’s High-End Aspirations And First Foray Into BEV Segment

With a sale price of 559,000 RMB, LiAuto’s MEGA is certainly not a cheap vehicle. However, on paper, they certainly have the presence and “talking points” to back it up.

First, it’s a massive vehicle. With a length of 5.3 meters, it’s 30 centimeters longer than the Toyota Alphard, the most popular luxury MPV on the market today. It’s one of the very few passenger vehicles on the road where passengers in the third row genuinely wouldn’t feel cramped and uncomfortable.

Second, its design is futuristic and has been compared to a highspeed rail on the road. It’s attention grabbing everywhere you go. You’ll get noticed driving this more than any BMW, Mercedes, or Audi.

Third, Li Auto have designed the MEGA as a long range BEV from the ground up. This has afforded it a number of key technological advantage. For example:

1. The vehicle's aerodynamic efficiency is off the chart. With a notable drag coefficient of 0.215, it even compares to Tesla Model S's 0.208 in aerodynamic performance, despite it being a substantially larger vehicle.

2. Its charging performance is also stellar. MEGA is built on the latest 800V architecture. It co-developed a 5C battery with CATL, which can charge up to 520 KW and can provide 500 KM of range in under 12 minutes.

Both of these underscore Li Auto's commitment to leading the technology race with its first BEV platform and provide a competitive offering in the pure electric MPV market.

Interestingly, Li Auto doesn’t view MEGA’s competitors as just luxury MPVs. Liu Jie, a VP within the company, once gave an example in an interview: “Before the Alphard was introduced, there was no million dollar MPV on the market. Once the Alphard emerged, its users came from previously luxury mid-to-large cars, SUVs. We think Mega is a product that’s directly competing with traditional luxury brands. Our goal is to become the number one in sales above 500,000 RMB, regardless of energy type, regardless of body type"

To prepare for that goal, Li Auto spared no expense in its marketing effort leading up to launch. MEGA's launch was strategically orchestrated, with various marketing milestones keeping the public buzz alive months prior to launch. They hosted a number of high profile media and influencers in Sanya (a trendy beach town in southern China), and ensured everyone had ample time to review and test drive the vehicle over multiple days. They also pre-build a large number of test drive vehicles ahead of launch to they are available at all major store locations the same day as the product launch. It’s a very expensive strategy, but one that’s designed to maximize sales conversion and has worked very well with their past launches.

Lackluster Market Response and Consumer Feedback

While all these investments, along with the charismatic Li Xiang (Founder & CEO) hyping it up ahead of launch, MEGA created a ton of buzz online and offline on the day of the unveiling. However, despite its best effort, MEGA's performance post-launch has been underwhelming, with sales not matching the anticipated levels. The initial sales data revealed that despite significant interest in test drives, actual purchase conversions were low. According to recent report from 36kr, conversion from test drive to order is < 10%.

Consumer hesitancy appears linked to concerns over the vehicle's size, price, and the practicality of owning a large pure electric MPV in a segment that is not inherently large. The hypothesis that it’ll attract customers from other large SUV/sedan segments simply did not materialize.

Additionally, the perceived quality of MEGA's interior and design has been criticized, with some customers feeling that it does not live up to the luxury expected at its price point. It’s largely a replica of Li Auto L9’s interior, which is over 100,000 RMB cheaper. Many also compared the MEGA to Xpeng’s X9 and thought the X9 offered far more value for 200,000 RMB less.

According to Carfans 72 hours sales report, MEGA’s customers tend to be younger (35-45 years old), likely due to its futuristic design. However, the reality is that there really isn’t that many 35-45 year old with 600k RMB on their hand and is on a market for a 7 seater MPV.

The Path Forward

The journey of the Li Auto MEGA illustrates the complexity of entering and establishing a foothold in the high-end EV market. While MEGA's technological attributes and strategic market positioning are clear, the consumer response underscores the need for a more nuanced understanding of market dynamics and buyer preferences. The company's ability to adapt and refine its offerings in response to market feedback will be critical in achieving its ambitious goals.

In my opinion, there are 3 clear challenges that Li Auto needs to overcome:

• Consumer acceptance of BEV is still developing. Selling BEV requires far more consumer education. Charging infrastructure buildout is also important.

• The interior of MEGA was a clear miss & Li Auto will need to make adjustments here. Customers need to feel special sitting inside the vehicle.

• Consumer preference in the 500k+ RMB segment is very different. Intangibles attributes such as brand image matters a lot more. Li Auto is still a young brand and its pricing power is still weak. It’s generally not considered a high end brand, even thought it sells expensive vehicles.

From product standpoint, the path forward involves addressing the concerns highlighted by potential customers, enhancing the perceived value of MEGA, and possibly adjusting its pricing strategy to better align with consumer expectations.

From an organization standpoint, they need to ensure they build mechanism to disrupt themselves. While BEV is undoubtedly the future, it’s also a segment that require substantial higher upfront investment and infrastructure development. Since inception, Li Auto have largely avoided those investments by choosing a niche customer segment (large family SUV) and technology roadmap (EREV). In the BEV segment however, they have to realize they are the challenger and need to earn their spot at the top in the market.

In conclusion, Li Auto's MEGA encapsulates the challenges and opportunities inherent in the high-end EV market. Balancing technological innovation with market realities and consumer preferences will be key to its success. As Li Auto navigates these dynamics, MEGA model will continue to be a significant indicator of the company's ability to achieve its vision of leading the premium electric vehicle segment.

Share China EV Hub

Last week, I had a special opportunity to visit the Monticello Motor Club in New York to try out the ZEEKR 001 and 009. ZEEKR is a new EV brand from China. They are not yet available for sale in the U.S., but are on an IPO roadshow and have brought a few of their vehicles over. I had done number of these events at Rivian, but this was my first time attending as a member of the "Media." It’s pretty cool experiencing the other perspective.

There were also writers from a number of other prominent automotive publications. I suspect they weren’t as familiar with the brand as I was going in. I’m genuinely curious what they would write.

ZEEKR’s Brand Story

The event itself started with a short presentation from Giovanni Lanfranchi, the new CEO of ZEEKR Technology Europe (previously CEVT), headquartered in Sweden. Previously, he was the CPO of Here Technology, a mapping and location data provider to automotive OEMs.

The presentation itself was pretty high level and went through ZEEKR’s brand history and some of its accomplishments to date. Below are some key highlights:

• ZEEKR is a premium EV brand incubated under Geely. Geely also owns well-known brands such as Volvo, Polestar, Lotus, and Smart.

  

• The company is very young, having just launched in March 2021. Over the past 2.5 years, they have sold and delivered over 150,000 vehicles. For a new brand, this is very impressive. It took NIO almost 4 years to get to that point. Rivian, after 2 full years of production, will have produced just half that amount (~75,000 units).

• They currently have 3 products, the 001, 009, and X. The 001 is a sports wagon/shooting brake. The 009 is an luxury MPV and the X is a compact SUV. Unfortunately, the ZEEKR X wasn’t available at the event this time around.

• As an independent entity within the Geely group, ZEEKR believes it can leverage the parent company's supply chain and engineering expertise while maintaining the agility and investment strategies of a startup in the fast evolving EV market.

• ZEEKR vehicles utilize Geely's SEA platform, with batteries supplied by CATL and Viridi, a company in which ZEEKR has a 51% equity stake.

• The 001 will come with multiple battery pack sizes. The 100 kWh has a WLTP range of 385 miles. Its 140 kWh variant has a CLTC range of 641 miles (1032 km). Real world tested range was reported to be about 536 miles, courtesy of Jaime Kimi. With this kind of range, you can essentially drive from LA to Vegas, then back to LA on a single charge.

• Like Tesla, the ZEEKR 009 is also using single piece casting (i.e. “Giga-press”) for its rear structure. This process helped ZEEKR eliminate over 200 welds during manufacturing.

  

• Having achieved some initial success in China, they are now turning their attention abroad. Before end of 2023, they will open their first European markets in Stockholm and Amsterdam. In Netherland, the starting price for a ZEEKR 001 is 59,490 EUR, which is about the same price as a Audi Q4 e-tron or Polestar 2 Long Range Single Motor.

• Europe is the second largest EV market after China. EV penetration have grown 10x in the past 5 years (1.2% → 10.4%) and projected to reach 30% penetration (25% CAGR) by end of 2027.

• Internationally, they will go to market using a direct sales approach instead of leveraging a dealer network. The primary motivation behind this decision is to provide a consistent and strong brand experience.

• On the commercial side, ZEEKR is partnering with Waymo to build their next-generation of autonomous vehicles. The first prototype is slated to be delivered to Waymo for testing before end of year.

Driving Impression

The highlight of the event was for sure the test drive at the track. We got the experience both the ZEEKR 001 and 009.

ZEEKR 001

The 001 was the vehicle I was most excited about. Naturally, I paid the most attention to. While it’s ZEEKR’s first production vehicle, it doesn’t feel like an immature product at all. The panel gaps were even and build quality looked great.

The interior itself is modern, but not minimalistic like a Tesla. While I wouldn’t call the materials used in the 001 luxurious, they definitely feel premium. The cockpit layout is similar to that of a Model S. While I didn’t get much time to play with the infotainment, but the basic control and menu layout definitely took a lot of inspiration from Tesla.

The vehicle is also larger than I expected in person. There are plenty of leg room in the backseats. It also has a sizable trunk in the rear. Massive brownie points for everyday practicality.

On the track, the vehicle accelerated and handled well. Claimed 0-60 time is 3.8 seconds, which felt about right. The vehicle’s top speed is electronically limited to 200 KPH (125 MPH). On the back straight of the track, I was able to hit that top speed comfortably.

The handling around high speed corners was also impressive. The car was stable throughout. The long wheelbase definitely helped in this regard (It’s 2 inches longer than a Panamera and 6 inches longer than BMW i4). The air suspension also absorbed bumps extremely well.

On the flip side, getting it around tight hairpins was a bit more challenging. The car tended to understeer at low and mid-speed corners. On tight corners, you definitely could feel the heavy weight of the 100 kWh battery pack underneath. The car weights 5100 lbs! The Model S comes in about 400 lbs lighter.

The driving instructor later told me that to help the vehicle rotate, he sometimes lifts off the accelerator during mid-corner to help induce oversteer. Wished I had an extra couple laps to try that out…maybe next time.

The brakes on the 001 was felt good. It can stop this 5000+ lbs lump of metal from 60-0 in just 113 feet (same as a Lucid Air). More impressive is the fact that it can supposedly do this 12 times back to back without degradation. During my stint on the track, I felt the brakes were linear and was able to complete my laps without any real brake fade.

The steering was precise as well, but around this race track, I wished the steering ratio was a bit quicker & feedback a little more communicative.

I also didn’t like the constant warning and beeping from the car during the drive. This is apparently something that the Chinese market prefers, but I personally find quite intrusive. Hopefully, they can make some changes to that before delivering the European version.

Overall, the ZEEKR 001 is what I would consider an all-rounder vehicle. The car has good interior space and uses premium materials; it’s sporty but still comfortable; the infotainment system seems solid as well. I don’t think it’s the best in any specific category, but the combined package is extremely compelling.

In my discussion with management, the brands that ZEEKR draws the most customers from are Mercedes, BMW and Audi in China.

In the US, the closest comparison in the EV segment is probably the Tesla Model Y Performance and Polestar 2 Performance. Having driven all of them before, I think the 001 can more than hold its own against those 2.

ZEEKR 009

The 009 is ZEEKR’s pure electric MPV. It’s currently the best selling BEV in the MPV segment within China. To be honest, the 009’s exterior is a bit of an acquired taste and not really for me. When I first saw it in person, the massive chrome grill in the front reminded me of Lil Jon’s teeth in a rap video. It’s just a little too much bling for me.

However, I absolutely loved the inside of the vehicle. The back seats were beautifully appointed and cushy, kind of like sitting in First Class on an airline. The drive itself was also surprisingly sporty for an MPV, but the racetrack is definitely not where it belongs.

It’s also not an MPV for family either, at least by western standard where mom and dad typically sit in in the front, and kids sit in the second row. In the 009, the second row is where you want to be. It’s a vehicle meant to be chauffeured in. If they do decide to bring it to the U.S. one day, I can see it becoming a popular choice for Limo or Uber Lux drivers.

ZEEKR Waymo Robotaxi

There was also another special guest at the event, Waymo’s next generation robotaxi, built by ZEEKR. Eric, its chief engineer, spent a good amount of time walking through the vehicle and its design with us. It’s completely designed from the ground up to be a L4 robotaxi & bespoked to Waymo. ZEEKR manufactures the vehicle itself, and will ship it to the US. Waymo will then do the final assembly and calibration of its sensor suite before deploying it to the fleet.

The exterior design itself is quirky. The interior is functional and roomy, though it does sacrifice some storage space in the back. There is no steering wheel in this example, but ZEEKR said that depending on regulatory approval, the final version may still be fitted with a steering wheel.

The first prototype will supposedly be shipped to the US before end of the year, however there is not yet a timetable for when it’ll be introduced into commercial use.

In conclusion…

There was a lot to take in at the event. When I took time to reflect at the end of the day at my hotel, I found myself really impressed with ZEEKR’s overall strategy, design and engineering. If ZEEKR’s came to the US today, It has the potential to become the #3 selling EV brand behind Tesla and Rivian. Its products are that good. Their supply chain advantage is also quite real. However, geopolitics likely makes market entry into US impossible in the short term.

Europe as a whole is just as big as the US market, but vehicle preference and taste there are very different. For example, it’ll be quite difficult to park the 001 or 009 in the streets of Paris. This is likely where the ZEEKR X comes in (unfortunately I did not get a chance to drive it this time around).

After driving its 2 vehicles, I can see why in just 2 short years, ZEEKR have established themselves as a premier EV brand in China’s premium segment.

Of course, there is still a long road ahead for ZEEKR to realize its vision as a global top 3 EV brand. The transition to sustainable transportation is a marathon, not a sprint. Without a doubt though, they are off to a stellar start. I can’t wait to see what comes next for the brand.

However, chinks are starting to form on Tesla’s armor. Tesla’s overall product lineup is aging. The Model 3/Y really hasn’t changed since first introduced back in 2017/19. Promised new products like the Cybertruck, Roadster, and even the Semi have seen delay after delay. The model 3 is 6 years old and is just seeing its first mid-cycle refresh. Traditional automakers typically do a major re-design every 6 years. In a competitive market like China, these mid-cycle refreshes happen every 18 months and major redesigns every 3 years.

The end result is that Tesla’s only lever to drive volume growth for the past year have been price. Its base models have seen price decline of ~15%. Its top of the line models have seen drop of 25%. For a company that prides itself in product innovation, the predicament they are in is rather ironic.

These price actions are hurting them financially as well. Despite growing delivery volume by 30% YoY, Q3 2023 revenue was flat and operating profit dropped by 52%. If you compared Q2-23 numbers (not impacted by factory shutdown) with Q3-22, delivery volume grew by 36%, but operating profit was 35% lower YoY.

History never repeats, but it often rhymes. Tesla today is in the same position as Ford back in the early 1920s. Both companies have built a disruptive product. The Model T at the time commanded 60%+ market share in the nascent auto industry. Tesla’s EV market share in the US is also similar.

A Quick Look Back At History

Model T was the undisputed champ in the nascent automobile industry. The Model T was first introduced in 1908, and Ford's market share surged from 9 percent to 62% percent in 1923, when it sold over 2M units/year.

At that time, I'm sure Ford and the general public all felt like the company was invincible.

The key to its success at the time was standardization. Henry Ford famously said, "Any customer can have a car painted any color that he wants, so long as it is black."

By keeping the cars highly standardized and offering limited options and interchangeable parts, Ford’s revolutionary assembly line replaced skilled craftsmen with ordinary unskilled laborers who worked one small task faster and more efficiently. This cut the labor hours by 60 percent. With lower costs, Ford was able to charge a price that was accessible to the mass market. In fact, between 1909 and 1925, Ford was able to cut the price of the Model T by a whopping 80%, while improving the performance of the product.

However...just 4 years after hitting peak volume, Ford had to end production of the model T, despite continuing to lower prices.

As the U.S. entered the Roaring Twenties, consumer tastes shifted towards more luxury, comfort, and style in cars. GM was quicker to respond to these preferences.

Under Alfred Sloan, GM began to emphasize car design, styling, and annual model changes, which attracted customers who wanted the latest features and styles. They introduced different brands catering to different income levels (e.g., Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac). This approach allowed GM to cater to a broader customer base with specific models for various needs and desires.

In contrast, due to Ford's initial success, the company was somewhat resistant to significant changes. As a result, Model T remained largely unchanged for almost two decades.

Ford eventually recognized the need for change, and introduced the Model A in 1927. However, to make the switch, Ford had to shut down production for several months, allowing competitors like GM to gain market share. While the product was still a success, Ford was no longer able to gain back its dominant position it held onto during the earlier part of the decade.

In short, I think the lessons learned during this period are:

1. Consumer’s basic needs are the same. But beyond that, consumer preferences vary dramatically.

2. Automobiles, while serving the basic need of efficient transportation, also have serve many higher level wants in the Maslow’s hierarchy.

3. Consumer preferences also change with time. A recipe that may have worked during one time wouldn’t necessarily work in another. For auto manufacturers with long investment horizon and product lifecycle, this is a massive challenge.

What does all this mean for Tesla?

Is Tesla doomed? Of course not. Ford’s subsequent Model A was still a commercial success. Today, Tesla is still the undisputed #1 EV brand globally. Its product, despite being 6 years old, are still very competitive. Their supercharging network is a massive moat that other companies do not have. They also have a very strong balance sheet and very little debt.

However, I believe people need to re-rate Tesla’s auto business. Without dramatic changes in its product strategy, its days of growing 50% YoY are over. The “operating leverage” narrative has also played out. The idea that they will have “Apple” like margin is imo a pipe dream. Going forward, their margin profile will look a lot more like GM’s than Apple’s.

All evidence points to them continuing to be a successful and influential auto manufacturer on the global stage. But at the end of the day, they are still an auto manufacturer. They are subject to the same market forces and will have to learn to deal with the challenges that all the other OEMs have learned to navigate over the years.

I believe the automobile industry saw an inflection point this past week, though majority of the world didn’t think much of it. 2 days ago, Audi and China's state-owned automaker SAIC Motor have confirmed they reached an agreement to partner together on Audi’s next-gen EV platform in the Chinese market (link)

In 1978, Germany's Volkswagen signed a contract with SAIC to introduce advanced technology and develop the automobile industry. In 2023, VW’s Audi just signed a contract with SAIC to introduce advanced technology and develop the automobile industry. However, 45 years later, it is the Chinese who lead in technology.

Audi's strategic decision to source SAIC's EV platform for its next-gen product is not just a significant pivot in its portfolio but, more critically, an admission that in the fast changing electric vehicles market, the company simply doesn’t have a competitive product lineup today and can’t navigate it alone anymore going forward.

The data backs this up. Since 2020, foreign OEMs have seen a decline in market share to their domestic counterparts, propelled by BYD's growth and a surge in Chinese EV startups (market share shifting from 35% to 49%). The sectors most affected were Japanese economy brands (with market share dipping from 24% to 17%) and German luxury brands (declining from 25% to 21%). In the NEV segments, their market shares are even less.

I believe 2 years from now, we’ll look back to this time as a watershed moment for the industry. Here’s why I think the implication of this deal is so important and what I think might happen over the next 12 months.

Legitimization of Chinese EV Technology

Audi, a brand historically synonymous with quality, innovation, and German engineering, making a significant pivot to collaborate with SAIC on its next-gen platform. This sends a profound message to consumers, especially in China. Not too long ago, Audi was the vehicle of choice for many political leaders and important diplomats within the country.

For decades, Western brands like Audi have been perceived as superior in terms of technology, innovation, and quality. By partnering with SAIC on EVs, Audi has placed a significant vote of confidence in Chinese technology.

While this deal will likely help Audi put out a more competitive product in the short term, it’s not clear whether this helps or hurts them in the long run. The prevalent sentiment among Chinese consumers might become: "If Chinese EV technology is good enough for Audi & the Germans, then it should be good enough for me." Ironically, this sentiment might further accelerate the transition to domestic EV brands, as local consumers would now see those vehicles through a different lens – one that equates them with quality and reliability.

Ultimately, how the consumer perceive the brand will come from what value the legacy OEMs can bring to the ecosystem. But what’s clear is that the current status quo no longer works.

2. The Ripple Effect on Other OEMs

Beyond the storied BBA (BMW, Mercedes-Benz, Audi) trio, I believe there’s now a palpable urgency among other foreign legacy brands, especially ones that do not have a competitive EV portfolio of their own. In the tech world, the early bird doesn't just get the worm; it often gets the lion's share of the ecosystem's value.

Brands like Range Rover, Jaguar, Lexus, and Acura, while having distinct brand equities, operate in an ecosystem where platform integrations are becoming increasingly pivotal. The exclusivity inherent in these types of partnerships means that alliances, once formed, leave competitors scrambling. With SAIC now under the Audi/VW umbrella and firing the first shot, the race is on for these other brands to secure their platform partners, lest they be left behind in the next wave of EV evolution. I think we could see a reshuffling of alliances going forward.

3. The Geopolitical Supply Chain Implications

In tech, the supply chain has often been the unsung hero (or occasionally, the Achilles' heel). Audi's move potentially has broader ramifications for China's supply chain ambitions. By integrating with a revered global brand, China's supply chain ecosystem is poised to expand its influence internationally. If the China collaboration is successful, this could pave the way for more such collaborations and integrations abroad. If we were to look for successful template, the Volvo/Geely one is probably a good template.

Obviously this move can also have the opposite effect where protectionism takes over and the door to global markets get shut in China face. It’s too early to tell which way the pendulum will swing, but my hope is that these partnership will do more to tie these 2 economies together than to push them apart.

Conclusion

The lines between tech's platform dynamics and the automotive industry's value chains are increasingly blurring. Audi's strategic embrace of SAIC's EV platform might well be a precursor to a new automotive order, where platform control is the linchpin of value creation and aggregation. Those attuned to these shifts will be best placed to navigate and thrive in the EV era's evolving landscape.

Li Auto, known for its range extender vehicles, is venturing into the pure electric vehicle (EV) market with a focus on charging solutions. In a prior post, I posed the question whether Li Auto have the conviction to invest heavily into charging. Well, the answer they provided at the Shanghai Auto Show was a resounding yes.

China EV Hub

Navigating the Road Ahead: Can Li Auto Disrupt Themselves in 2023?

This is the 2nd part of a 3 part series where I take a look at the key upcoming challenges for the 3 Chinese EV startups (NIO, Li Auto, and Xpeng) Part 1 was about NIO, which you can read by clicking the link below. 2022 Recap 2022 was a banner year for Li Auto. Historically, they have always been relegated to 3rd place among the three Chinese EV startups …

Read more

3 years ago · 2 likes · Yilun Zhang

A key element of their strategy is an 800V supercharging solution, introduced by Li Auto's president and chief engineer, Ma Donghui. This innovative approach aims to deliver a 10-minute charge that provides 400km of range by combining a high-voltage electric drive system, a 4C charging-capable battery, a wide-temperature thermal management system, and a 4C supercharging network. These advancements are expected to greatly enhance charging speed and efficiency.

Li Auto plans to begin trial operations of its first 25 charging stations by May this year and expand to 300 high-speed supercharging stations by year's end. The goal is to have over 3,000 charging stations by 2025, covering 90% of China's national highways and major cities (tier 3 cities and above).

This strategy marks Li Auto’s entry into a new phase, focusing on both range-extended EVs and high-voltage BEVs. By 2025, they plan to offer a diverse lineup that includes one flagship model, five range-extended EV models, and five high-voltage pure EV models, targeting the market above 200,000 RMB and meeting the needs of family users.

Two main reasons had previously kept Li Auto from developing pure electric products: high battery costs and slow charging times. However, with battery costs decreasing and high voltage (800v) power electronics becoming more cost effective, now seems like the perfect time to enter the BEV market.

Today, let’s do a deep dive into their new BEV strategy.

01

High-Voltage (800V) Key Enabler For 500+ kW Charging

High-voltage (800V) architecture plays a pivotal role in enhancing charging and energy consumption efficiency in electric vehicles (EVs). By increasing the voltage level, the current required to transfer the same amount of power is reduced, resulting in minimized resistive losses and improved charging speeds. This means that EVs equipped with 800V systems can charge more quickly and with less heat generation, ultimately leading to longer battery life and reduced stress on the charging infrastructure.

In addition, the energy consumption of batteries can also be reduced through the design of efficient electric drive systems.

To accomplish this, Li Auto has developed its own 800V high-voltage platform, including the use of silicon carbide (SiC) in its power electronics. SiC components exhibit better thermal conductivity, allowing for better heat dissipation and enabling the module to handle higher current. As a result, they are particularly suitable for high-voltage electric vehicles, solving the efficiency problems.

Ma further explained that their 800V silicon carbide power module can support up to 480A of current output. Compared to other industry products with the same current capability, size of the module can be reduced by 50% while increasing the power density to as high as 62 kW/L. This reduces the volume and weight of the electric drive system, further optimizing the vehicle's space and energy consumption.

Unlike Tesla, which recently announced plans to reduce its use of SiC transistors by 75% due to high costs, Li Auto is fully committed to this technology. To address the cost concerns, Ma Donghui revealed that Li Auto would leverage in-house research, vertically-integrated production, and strategic joint ventures to drive down cost while ensuring supply and performance.

On the battery front, at the Shanghai Auto Show, Li Auto revealed its partnership with CATL for the development of its first pure electric vehicle. The car will be equipped with CATL's 4C Kirin battery, which boasts advanced technologies for fast charging capabilities and efficient cooling.

With these foundational upgrades, there should be no problem for Li Auto’s BEV to charge at the rated 500 kW speed.

02

Li Auto Going “All-in” On Charging Network

An electric vehicle's fast charging experience relies not only on the car's ability to accept high power input but also on the charging station's capacity to deliver it. In response, Li Auto has announced plans to construct a network of 4C supercharging stations:

• By the end of May this year, the first batch of 25 Ideal 4C supercharging stations will start trial operations.

• By the end of 2023, Li Auto aims to build over 300 high-speed supercharging stations, covering 70% of the highway mileage in China's four major economic zones.

• By 2025, they plan to have over 3,000 charging stations covering 90% of the national highway mileage and major cities.

These 4C supercharging stations are designed to be modular, adaptable, and equipped with smart sensors. In Ma’s view, the biggest advantage that Li Auto has compared to third-party charging stations is the ability to integrate the car, charging pile, and cloud together to provide a seamless customer experience while improving operational efficiency. Not only will users be able to access real-time station information through their car or smartphone app, each charging station will also report real-time metrics such as uptime, wait time, charging speed back to the company for further analysis and optimization as well.

Interestingly, Li Auto's supercharging station is currently designed with a capacity of 640 kW, which obviously isn’t enough to feed multiple 4C (500 KW) charging piles. To this, Ma mentioned the following:

"As the number of vehicles capable of 4C fast charging continues to increase, our system also has the ability to connect to energy storage. This is largely a cost consideration."

When asked about possibility of a battery swapping service, Ma, denied any plans to deploy such service. He explained that battery swapping faces challenges with compatibility across various vehicle models and brands, which doesn't align with the company's efficiency-focused approach.

03

China’s NEV Market Is Entering The “Playoff”

During the Shanghai Auto Show, Li Xiang, the company’s founder, expressed that they are now entering a "three-year elimination game" (2023-2025) in the smart electric vehicle industry. He emphasized the importance of technology, product, and scale in order to remain competitive. His goal is to make Li Auto into one of the top 5 players in the market, making their entry into the pure electric segment essential.

While no new car was unveiled at the event, it's expected that Li Auto’s first pure electric vehicle, similar to an MPV, will be released by the end of 2023. Li Auto also stated that they will have "1 flagship model + 5 extended range electric models + 5 high-voltage pure electric models" by 2025 to satisfy the market for family users above 200,000 RMB.

With a strong foothold in the extended range market, Li Auto’s success in the pure electric race is far from guaranteed. But at the very least, their conviction is clear.

Share China EV Hub

Recently on the China EV 100 Forum, Huawei's Richard Yu (CEO of their consumer & automotive group) made an interesting comment that created a lot of stir and debate in the industry and on social media:

"We are currently being sanctioned as a tier-1 supplier, so OEMs from the US, Japan, and Germany will not use our solutions. For EV startups, Li Bin and Li Xiang are both here presenting today. They also have their own aspirations and will not use us. Legacy OEMs who are afraid of losing their souls also will not cooperate with us."

It was a rare moment of candor and peak inside the group's own challenges & frustrations in finding product market fit. Today, I want to do a bit of a deeper dive into Huawei’s challenges in the industry and how they are navigating the competitive dynamics.

In late March, internal disputes arose regarding Huawei's strategy for its automotive division. Initially, the company appeared to be angling for a more significant role in the sector, as evidenced by the early March launch of "HUAWEI AITO" branding.

However, during the annual report meeting on March 31, Huawei reasserted its decision not to manufacture cars and condemned such behavior as "brand abuse." This suggests differing viewpoints within the organization concerning the development of its automotive division.

While Yu remains committed to growing the automotive sector aggressively. Managing this internal division has proven to be challenging.

Huawei's initial entry into the automotive industry attracted considerable attention. On paper, it was a no brainer decision, considering its strong brand, industry know-hows in ICT, and the timely emergence of smart electric vehicles. Their Harmony OS, which they developed in-house, is impressive by all accounts.

However, things haven’t been smooth sailing with their OEM partners. To date, they have partnership agreements with 4 OEMs under the Huawei Inside (HI) model: Sere (via Aito), BAIC (via Arcfox), Changan (via AVATR) and GAC. Under this model, Huawei provides full stack solution with the OEM and participates in vehicle design, quality control, drive unit development, as well as vehicle software (including infotainment and semi-autonomous driving).

To date, Huawei have seen limited success here:

• AITO is the most successful to date (70k+ units sold in 2022), but sales have lagged behind leading players such as Li Auto, NIO, XPENG, and even ZEEKR.

• AVATR shows some early promise, but its first model AVATR 11 is likely not a volume driver

• Arcfox partnership have largely floundered and they have yet to launch anything with GAC.

So while Huawei is making steady progress, things have not progressed nearly as quickly as they would have hoped for. Today, I’d like to explore some of the Huawei’s challenges as well as how I expect them to navigate these choppy water.

Challenge 1: control over the "soul" of the car

One primary challenge that Huawei Harmony is encountering, mirroring Apple Carplay's experience, is persuading automakers to adopt the new technology in the first place. Top automakers have so far been hesitant to integrate Huawei’s third-party software into their vehicles.

The main reason is because they are worried about Huawei infringing on their own brand identity. Similar to the criticism Apple Carplay has received for supplanting the manufacturer's native infotainment system, Huawei's Harmony OS could be perceived as a threat to automakers' brands. If Harmony becomes overly dominant, it may obscure the distinction between the automaker and the technology provider, making it challenging for the automaker to set itself apart from competitors.

Two years ago, during a shareholder meeting, SAIC Group's chairman, Chen Hong, was asked whether the company would collaborate with Huawei on self-driving vehicles. Chen Hong declined, stating that such an outcome would be tantamount to SAIC losing its essence.

"If a company were to provide us with a comprehensive solution for autonomous driving, it would become the vehicle's essence, and SAIC would merely serve as the body. This is not an outcome that SAIC can accept. We must retain control of the essence."

This stance is not uncommon. In fact, GAC Aion made a similar decision recently to reclaim its "essence" from Huawei. On March 27, GAC announced that its AH8 project would no longer be a joint venture with Huawei. Instead, it would become an internal project with Huawei serving as a key supplier. As a result, the relationship between the two companies has been diminished from the HI (Huawei Inside) model—where Huawei participates as part of the core development team on communication architecture, intelligent cabin, and autonomous driving—to a more limited supplier role.

It’s not just the large state-owned electric vehicle enterprises reluctant to relinquish control of their own "essence," new EV startups also share this sentiment and are developing their technology independently.

At the moment, this really only leaves legacy OEMs that have neither the scale, know-how nor the ambition as potential viable partners. The problem here is that this is an incredibly small pool of players that fit this description.

Huawei is spending Billions of yuan to develop the technology and knowhow, but there simply aren’t enough partners in the pool to make this venture commercially viable in the short term.

Challenge 2: For OEMs, is Huawei a wolf in sheep clothing?

Huawei’s capabilities are both impressive. Upstream, Huawei can be a critical technology partner who is deeply integrated in OEM’s product planning, vehicle design, and software and hardware development process. They can help you develop anything from best in-class autonomous driving solutions to drive units and inverters.

Downstream, they can also simultaneously be the brand’s largest and most effective brand marketing and sales channel. They have more than 11,000 retail stores in China and is the largest consumer brand in China.

While impressive, these abilities are also simultaneously terrifying. Often an unequal relationship like this leaves very little room for the OEM to create and extract value. With Huawei's abilities, it’s not a stretch to say that the only thing preventing it from becoming an auto manufacturer is a contract with CATL and its willingness to get into the arena. It always feels like Huawei's path to become an auto manufacturer is just one official announcement away. The deep collaboration with AITO to date certainly doesn’t help dispel that rumor, despite what the company have repeatedly stated in public.

Challenge 3: How does Huawei auto business become commercially viable?

According to Richard Yu: "The automotive business has an annual investment of about 10 billion RMB, with over 7,000 direct R&D personnel and possibly more than 10,000 indirect Huawei platform personnel investment."

Meanwhile, the corresponding revenue for the intelligent automotive business is only 2.08 billion RMB. Incinerating more than 8 billion RMB ($1.1B+ USD) is a hard pill to swallow for any company, especially when there’s no clear timeline on when these investment can become viable in the future.

What’s next for Huawei

Based on the aforementioned reasons, if you play out the game theory, I think Huawei will eventually have to enter the automotive market on their own. They are placing massive investments in key EV technologies (motor, inverter, BMS, quality control, autonomous driving etc.) With growth stalled in all other areas due to economic sanctions abroad, Huawei has to make these auto investments payout. In this current situation, Huawei actually doesn’t control its own destiny, which is a very precarious place to be.

The industry changes quickly. In the medium term, there’ll likely be some consolidations in China’s automotive industry over the next 2-3 years. Maybe OEMs attitude will change in favor towards Huawei as some inevitably drop out of this technology arms race. Some might even go bankrupt or be placed on fire sale. At that time, Huawei can step in and soak up the idle industrial capacity, whether by acquiring those capacities outright or work out a deal similar to NIO’s partnership with JAC.

Share China EV Hub

On April 18, 2023, at the Shanghai Auto Show, NIO showcased its entire range of models, including the new ES6 and the recently launched 2023 ET7. Over the next three months, NIO will fully transition from its first-generation (NT1) platform to the second-generation (NT2) platform, marking a significant milestone amid intense competition in the domestic automotive market.

Following the auto show press conference, NIO's founder and CEO, William Li, and Vice President Shen Fei, participated in a group interview with the media. They discussed a wide range of topics, including autonomous driving, charging, and product roadmap. I previously shared the highlights of the interview, but today I wanted to add my own commentary on each of these aspects as well.

China EV Hub

A Check-in on NIO's Progress @ Shanghai Autoshow

The following is a summary of an interview with NIO's CEO Li Bin and Senior VP of Energy Shen Fei. The original content was posted by 不是郑小康 (original post) on Weibo, and is then translated and summarized by me for added context…

Read more

3 years ago · Yilun Zhang

01

Autonomous Driving: Subscription Model, Standardization, and Full-Stack Capabilities

Recently, advanced intelligent driving on open urban roads has become a controversial topic in the industry. The debate is divided into two camps. One, led by companies like XPeng and Huawei, believes that their technology is far ahead and holds high expectations for the future.

Richard Yu (Executive Director of Huawei’s Consumer Business) recently spoke at the Shanghai Auto Show about one of their partner brands, AVATR:

AVATR recently drove approximately 1,500 kilometers from Shenzhen to Shanghai, with only two interventions. We hope to achieve zero interventions in the future.

Compared to our competitors, including Tesla, our intelligent driving technology is far ahead.

We wouldn't boast if we couldn't achieve it, but now we can confidently say that we are indeed far ahead.

The other camp, led by Wang Chuanfu (Founder & CEO of BYD), argues that autonomous driving is nonsense and deceptive.

During the Shanghai Auto Show, both sides voiced their opinions. Although no names were mentioned, industry insiders understood the situation and paid close attention. In an interview, NIO's CEO, William Li, shared his own framework.

He emphasized that there is currently no common industry standard for evaluating autonomous driving, and everyone uses their own narratives. From his perspective, three aspects should be considered:

1. Hardware and compute power is crucial, as it determines the system's ceiling. Continuous software capabilities can only be achieved with solid hardware that is future-proof.

2. Standardization of autonomous driving hardware, such as chip computing power and sensor solutions, is necessary. While implementing different combinations on one platform might work short-term, it's not ideal for managing complexity and maintainability in the long run. It’s also difficult to form an effective closed-loop system for gathering and deploying training data. Data collection will have to be redone for each generation of hardware, slowing down progress.

3. Full-stack capabilities are essential, including software abilities from perception to regulation, data loop formation, subsequent iterations, and operational capabilities. Relying on a mix of in-house development and external providers is not a systematic approach.

On the product front, Li shared two important updates on the company's autonomous driving products: NOP+ (comparable to Tesla’s EAP) and the upcoming NAD system (similar to Tesla’s FSD). Firstly, NOP+ has been undergoing internal testing and is set to launch commercially on July 1st, with a monthly subscription fee of 380 yuan (around $60). Li believes this pricing is reasonable, offering good value for those who drive at least 10 hours a month compared to hiring a driver.

Secondly, Li also hopes to introduce a Beta version of the NAD autonomous driving system in Shanghai by June this year. However, NIO has yet to announce a specific timeline for its widespread commercial release.

Li also stressed that developing autonomous driving capabilities is really a long-term investment. It’s similar to building a skyscraper: the last 2-3 years were spent building a solid foundation, and very little progress can be observed from the outside. This phase is critical before construction can accelerate. He believes that NIO is now just above ground level and progress will accelerate from here.

02

Charging and Battery Swapping: The Future of Electric Vehicle Charging Solutions

The charging network and battery swap were also interesting points of discussion. The interview mainly revolved around the recent hot topics of 500 kW supercharging and 800V platforms. There was one particularly interesting comment that Shen Fei made during the interview:

I particularly dislike promoting the wattage of ultra-fast charging. Our charging pile has 500kW, but it can actually go higher. It can reach 1000V 660A, but there's no point, as no car can handle that. The charging speed of a charging pile depends on the weakest link between the power grid, charging pile, and the car.

Shen Fei, EVP Nio Charging Infrastructure

Shen Fei further explained that the deployment of supercharging stations should be considered based on different situations. While the national power grid can easily accommodate electric vehicles' total power consumption, local power grids might face challenges, such as deploying multiple supercharging stations in residential community parking garages.

Translating what he is saying here: With ultra-fast charging (500 kW+), the current key constraint lies in the grid and the car, rather than the charging pile. To enable this, the car will switch to an 800V architecture, which isn’t hard. As for the grid, it would require substantial investments to upgrade the infrastructure to handle the additional load. To put it in perspective, the typical power needs of a household are usually around 1-2 kW. This means a single 500 kW charging pile could potentially power up to 500 residential homes! The local power grid is simply not designed for such high-power applications.

This is where battery swap stations hold an advantage. With V3 swap stations, for the first time, they can be used as bi-directional energy storage facilities, offering not only charging efficiency but also the ability to balance charging costs by using the batteries as a buffer during peak demand periods. As a result, battery swapping has both significant business opportunities and social value.

To do some rough calculations, each V3 battery swap station has about 1.8 MWh of battery storage within. Assuming they deploy 1,000 V3 stations in 2023, they'll end up managing a 1.8 GWh distributed battery storage system. If they retrofit their existing battery swap stations to be bi-directional, that’s another approximately 1.4 GWh, bringing the total up to 3.2 GWh.

As far as what's been reported publicly, this would make it the largest battery storage project to date and by far the largest distributed one. The next largest one is the 1.4 GWh Crimson Energy Storage plant that came online in Riverside, California in late 2022 (link).

With that said, NIO doesn't view charging and battery swapping as mutually exclusive. Besides battery swap stations, they are also aiming to install 10,000 charging stations with varying power levels this year. These stations are primarily used to supplement other charging scenarios, allowing users to conveniently charge their vehicles in places like shopping malls and cinemas.

NIO believes that the future of electric vehicle charging lies in integrating charging and battery swapping together so they can provide the most convenient charging solution in all possible scenarios.

03

Market Competition: NIO Focuses On Value Rather Than Price

In today's Chinese auto market, price and feature competitions are prevalent. Everyone (including myself) is curious whether NIO will feel the pressure to jump into the fray.

During this interview, Li essentially dismissed that approach outright. He said NIO should focus on creating value instead of competing on price (i.e., invest heavily in battery swap stations and charging stations, focus on customer service, etc.). As for the pricing of the new ES6, Li also said, "Don't expect us to set a particularly low price for the ES6. We won't do that."

This is in direct contrast to Tesla's approach in the past year, where they have dropped prices by as much as 30% to keep the factory running. On the earnings call, Elon basically said as much. Tesla is willing to effectively operate at 0% margin because FSD will bring in substantial revenue/profit once autonomous driving is fully realized.

While Li is confident about NIO's product competitiveness, he did concede that there are many issues the company has to work through and that others have done better. As an example, Li pointed out that the current ES6 test drive to order conversion rate appeared ordinary compared to traditional luxury brands like BBA (approximately 25%). In contrast, when the older ES8 model debuted, the conversion rate after test drives reached 80%-90%.

Part of this is undoubtedly due to ES6 being an aged platform coming to EOL and there are plenty of 5-seat SUV options that Chinese consumers can choose from today. But Li also believes that NIO's service has not kept up with its growth. Its reputation from the early days has masked many underlying issues. In his words, "We have deviated from our original intention of prioritizing our users and our service." He vowed to tackle those issues head-on this year.

04

Final Takeaway

The way I see it, NIO's strategy is simultaneously the correct one and the hardest to execute on. They will face substantial headwinds in the short term. NIO is a brand that needs to be experienced to be appreciated; however, today, consumers have an easier time ascribing value to tangible aspects like lower prices, bigger batteries, and wider screens, as opposed to service.

This level of competition, of course, unsustainable in the long run. Many of NIO's competitors are running at 0 or negative gross margin in hopes of gaining market share. But in order to see the bright future tomorrow, you have to first survive today. How well NIO executes in the next three months on their product launches and manufacturing ramp will set the tone for the rest of the year and largely determine whether they can hit their sales target for the year (240,000 units/year).

Share China EV Hub

The following is a summary of an interview with NIO's CEO Li Bin and Senior VP of Energy Shen Fei. The original content was posted by 不是郑小康 (original post) on Weibo, and is then translated and summarized by me for added context.

Product Roadmap

• NIO's lineup is expanding, with 8 new cars coming in July. These models should cover 80% of the market for cars priced above 300,000 RMB. No small sports cars or MPVs for now, but hey, as long as people are buying NIOs, that's cool with us.

• The electric vehicle market is a bit all over the place right now. People throw around big numbers, but we prefer to focus on unique advantages for each brand. I mean, even Wuling Hongguang can boast about having the largest space within 5 million RMB, right?

Production

• Getting to 20,000 vehicles a month for these 8 models is doable, especially since our two factories have got the capacity. It's all hands on deck to make it happen.

• Right now, our order-to-delivery time is 21 days, but we're aiming for 15.

Brand Identity & Principles

• NIO is a brand that needs to be experienced and appreciated, and while it may not satisfy everyone, the company is committed to doing the right thing over the long term. In terms of communication, NIO adheres to its principles but recognizes the need for more innovation. The company avoids certain terms and features, like the word "luxury" and large screens for the second row of seats, as they do not conform to NIO's values. Why would we let our children, and our users' children, watch a large screen in the second row? Staying true to its principles is essential for NIO's success.

Value and Quality Focus

• For our ES6, it's all about value – from the product and service to how it makes you feel. It's not realistic for one brand to cover every price point, so we're sticking to the 300,000 - 600,000 RMB range where we can offer the best value.

• Value over price wars, that's our motto. We're upping our service game with 1,000 battery swap stations and 10,000 charging piles. These also all have huge value.

• Why are Tesla Model S/X expensive? Because the specs are high. Same is true for us. For example, we have 23 speakers, so of course we will have longer cables and more wiring harness. We also have 1000 TOPS of computing power, and we've spent a lot of money on things you cannot see.

Managing Long-term Complexity and Innovation

• For areas that require long-term R&D and investment, we have high level of standardization. Autonomous driving is one example. People also ask why we don't offer a single motor version. The same goes for audio systems. We face some pressure when the car leaves the factory (in terms of cost), but in 5-6 years, people will appreciate the frequent updates and constant improvements. This is only possible when there’s high level of standardization in software.

• For things unrelated to software, like paint and interiors, we've got one-time complexities under control. We use a three-dimensional storage system in the paint shop and a dedicated AGV on the assembly line to keep things running smoothly without driving up costs.

• The ES6 will have loads of color options. We've thought it through, and we're sticking to our guns on long-term investments like autonomous driving and audio systems. Sure, there's some pressure when the car rolls out, but in 5-6 years, people will love the quality.

• We get lots of feedback, but we're confident in our choices and managing long-term complexity. It's all part of being a smart car company.

Charging Infrastructure and Energy Strategy

• Our highway charging network will come with standard battery swap stations, and nearby charging piles adjust dynamically based on capacity, rent, and user dwell time.

• We've got 1,356 battery swap stations, and we're planning for 2,300 by year's end. If not, you might see Shen Fei in a different role next year, but that's not my problem (just kidding!). Our energy team is on top of things, no worries there.

Redefining Luxury and Pricing Strategy

• Lexus is a respected brand with a loyal customer base, known for its excellent service. In today's market, redefining luxury means providing strong products, services, and community. In the past, we talked about performance and acceleration, but today anyone can achieve 0-100 km/h in 3s or 4s, right? The concept of luxury has evolved, and we have been continuously enriching our offerings since 2017.

• Each company has its own pricing strategy. NIO focuses on the user's interests, preferring a pay-per-use model, which is considered fairer and more in line with user interests. NIO will not have a car priced at 1 million RMB in the short term, but the company has invested in Lotus and other niche luxury markets.

Connected Technology

• The next version of NOP+ and NAD will be developed with the same technology stack. By the end of June, NAD service will be tested in a few cities, such as Shanghai, in collaboration with regulatory authorities. This involves dealing with complex issues, not just technical ones.

• If it is an AD service, we will definitely be responsible, but we cannot say unlimited responsibility. So this is not purely a technical issue; there are some complex things.

Smartphone

• We need to talk less about smartphones. Once we mention smartphones, people think we want to create an entire ecosystem, and companies that do ecosystems don't fare well. Our logic is simple: Apple's iPhone is not open enough, like UWB, which is strange. Several phone manufacturers in the Android camp are making cars, so cooperating with them becomes a bit awkward. But smartphones are definitely not our main business; our main business is cars. It's not easy for us to achieve fast, stable, and economical results. We're not gods who can do everything perfectly from the beginning. I can guarantee that it will be an Android flagship, with a decent design and excellent connectivity with NIO cars. I want to manage everyone's expectations.

Ahead of the Shanghai Auto Show, XPeng unveiled their new vehicle architecture SEPA 2.0 In a post-launch interview with He Xiaopeng (Co-founder & CEO of XPeng), he discussed a series of wide ranging topics with various local media outlet. I personally don’t agree with everything that he says here, but it’s definitely a very candid discussion and worth reading.

Below are the key highlights:

• Last year, we ranked 10th (in China BEV sales), but we know we can do better. We only had a few car models, and we were still building our factories, supply chains, and after-sales service and charging network. Our goal is to improve on the basics and create more than 10 models by 2025 using our advanced intelligent technology.

• About assisted driving, we want to look at the big picture and see how we can turn it into reality. We've always focused on R&D, even when we were losing money. 2 years from now, we believe that autonomous driving will be a top priority for car buyers.

• We'll be using the new SEPA 2.0 architecture for all XPeng vehicles through 2025, which will help us reduce cost and improve user experience. We want to run fast without spending too much, thanks to our integrated approach.

• We'll still work hard on autonomous driving and even flying cars, but we're focusing more on standardization and cost optimization. We need to achieve a large scale, with millions of vehicles on the road eventually.

• The toughest time for us was in 2019 and early 2020 during the pandemic. I personally contributed half of the $400 million we raised. If XPeng didn't make it, I'd pay everyone's salary and suppliers first. Last year was tough, but we had enough resources to get through it.

• Now I'm overseeing all six R&D teams, so there's no doubt I'm involved in the products. Some features from our current tech will be added to the G6 through OTA updates, while others will be fully integrated from the start.

• We hope to break even by 2025, but if we need to scale up even more, we might push that date back. Large-scale production is our top priority, and we want the SEPA 2.0 architecture to bring standardized intelligent software capabilities to vehicles in different price points.

• In the highway NGP era, there's not a huge gap in capabilities. We're focusing on low-cost, fully autonomous NGP, and we believe it'll make a big difference. We're aiming for point-to-point semi-autonomous driving in most cities by first half of next year and even more significant improvements in the following years, marking the second critical development phase for autonomous driving. We want our products to be useful and standardized, unlike in the past when they were somewhat useful but pricey. We think the era of software changing the auto industry is almost here.

• I've realized the importance of thinking big and scaling up. Annual revenue of one to two hundred billion RMB might be okay in other industries, but it's not enough for the automotive industry. I've taken charge of many tasks myself and thought deeply about various products and ideas.

• As for my previous comment producing 3 million vehicles per year in order to survive, I think for us it should be closer to 5 million. If you're a mid-to-high-end brand, 3 million could be possible, but it's the minimum threshold.

• To excel in autonomous driving, you need persistence and a well-structured organization, not just a few strong individuals. XPeng's organizational structure wasn't great in the past, and I've learned that neglecting structure can lead to significant losses. After noticing some major issues with XPeng, I made significant adjustments. Now, with Wang Fengying on board, she is helping us improve our product planning process and efficiency. We're also learning from successful companies like Toyota and Volkswagen on best practices for cost control and org structure.

• We're far ahead in technology and market, but cost is a crucial capability. We'll launch the NGP with XNet in June, and the experience will be completely different.

• 800V isn't that difficult. I'm personally in charge of it, and I don't know why people keep asking about it. The key is getting the battery cells and vehicle right.

• Our semi-autonomous driving capabilities are leading in China. We're also exploring integrated die casting internally, but when considering the full lifecycle cost of die casting, just replacing the parts is both faster and cheaper.

• I'm confident comparing our XNGP compared to Tesla's FSD. Our experience in China this year will surpass FSD's in the US. However, cost is more important, so we'll wait until next year to compare with Tesla on that front.

• I’m not sure who will be part of the global top 8 brands. But I believe to become part of this elite group requires user-oriented innovation, global-scale sales & delivery network, and organizational management capabilities to integrate hardware and software together.

• Scaling up can reduce costs (from economies of scale), but innovation is needed for further reductions. With scale, maybe it’s possible to go from 100 RMB / part to 70 or 50 RMB / part. However, to reduce from 50 RMB to 10 RMB / part, innovation is definitely needed.

• In traditional automotive industry, new auto startups can't really compete with Volkswagen and Toyota. EV is also hard, but breakthrough is possible by combining the transformational power of battery technology and software. Using China's positioning method globally would cause problems.

• Tesla wasn't the first to develop assisted driving, but they achieved scale, which is impressive. We started focusing on it in 2014, and although we have some overlap with Tesla, our logic is mostly different. Today, all companies work based on Google's Transformer paper.

(Original content was posted by 不是郑小康 on Weibo, then translated and summarized by me)

XPENG, regarded as one of the top three Chinese EV startups, suffered the most in 2022. Although the P7 model was the top-selling vehicle among the three in the beginning of 2022, sales dropped sharply by the end of the year. The failed launch of the G9 also added salt to the wound. As a result, sales were surpassed by Li Auto and NIO, despite XPENG having the lowest ASP of the three.

XPENG’s trouble in 2022

The main reason for XPENG’s underperformance can be traced back to their disastrous G9 launch. The model was a highly anticipated one, especially coming off of the success of the P7. However, when launched, the interior was too bland, BOM cost was too high and the product SKU was too confusing. The root cause of these issues is a overall lack of understanding on who their customers are and what they want.

Let’s do a deep dive on each of these issues:

Interior

First, on interior, this one is a bit subjective, but you can see that the G9’s interior is a big departure from prior models. It’s a lot more mature and adorned with traditionally luxurious materials, since it’s a more expensive vehicle. While it’s not bad, it’s not what you’d call inspiring, particularly for a company that’s known to be tech forward.

This is especially apparent when compared to L9’s interior by Li Auto

BOM Cost

Second, on the cost side. XPENG actually didn’t skimp here. They genuinely wanted to make a great product with technological innovations. However, while these innovations are great engineering feats, they add very little values to customers’ day to day at this time. So it’s difficult for most people to justify the cost.

For example, XPENG is the first Chinese OEM to adopt the 800v architecture on the G9. This allows the vehicle to charge from 0 - 80% in just 15 minutes. However, while the vehicle is theoretically able to handle such charging speed, the charging stations that can output this kind of power are few and far in between (there are only 186 as of April 03, 2023).

The same is true for semi-autonomous driving as well. The G9 boasts impressive hardware (2 lidars, 14 cameras, 5 millimeter-wave radars, 12 ultrasonic sensors + 2x Nvidia DRIVE Orin chip). But the reality is, when evaluated on its current capabilities, it’s not that different from basic L2 functionalities. As a result, very few people are willing to pay a premium for this right now.

As a result, in Q4 2022, XPENG was only able to achieve an automotive gross margin of 5.66%. This is even lower than NIO's gross margin after accounting for the depreciation of their old models. No company can survive on this type of gross margin.

Product SKU

The last problem I want to highlight is G9’s complex SKU on launch. In many ways, this is most illustrative of the issues that XPENG is facing as an organization today.

Below is a configuration chart of the various trims and options at the time (Translation provided). Immediately you can see how confusing the whole thing is:

1. The G9 had 6 trims. That’s a lot and added significant complexity and confusion for their customers. The price points for the different trims were also not equally spaced out.

2. On their base model, It didn’t offer the necessary hardware that enabled even basic NGP (their semi-autonomous driving functionality). For their flagship model that’s supposed to be the halo vehicle for the entire brand, this choice was puzzling.

3. On the top end, the G9 offered a launch edition called the 650X. It also offered an option called “4C Fast Charging Pack” that allows the vehicle to fully leverage its 800V architecture and charge 200 KM of range in just 5 minutes. However, if you wanted the top of the line signature edition, this option is actually not available.

There are many more issues that I can go on and on about, but these 3 are the most egregious. When the G9 initially unveiled, I just couldn’t understand what the product planning team was thinking. It seemed like a set of configuration options created by a committee of engineers, each with his/her own agenda and nobody asked who their customers are or what they actually want. In many ways, it’s reflective of XPENG’s culture internally.

If I were to speculate, the misunderstanding likely stemmed from the initial success of the P7. XPENG thought people bought the P7 because of its software and intelligence. Its self-driving tech (NGP) and voice-controlled infotainment were certainly class leading at the time. But in reality, P7 simply sold well because it had a sexy design, long range, and more luxurious interiors than the Model 3 (its main rival). Most importantly, it was affordable (240,000+ RMB). Management thought people liked the P7 because of her brains, but in reality they liked her because of her pretty face, nice ass and approachability. This misjudgment ended up costing XPENG dearly. Sales of the G9 peaked just shy of 4000 units in December and then cratered like a rock since the new year.

In my opinion, XPENG G9 models should have been made into three trims:

• The entry-level trim should have a small battery and rear-wheel drive for the budget conscious

• The medium-equipped model should have a large battery and rear-wheel drive for people that want the longest range

• The high-end model should have a large battery and four-wheel drive for people that want max performance

Semi-autonomous hardware should come standard on all trims, but can be software enabled. Other features such as the 5D sound system, air suspension, and wheel hubs can be offered as optional upgrades.

XPENG’s Challenges in 2023

When compared to NIO and Li Auto, I think XPENG’s challenges are the most daunting to solve, because they are deep rooted and structural within the business. XPENG’s founder & CEO He Xiaopeng has publicly admitted their missteps and made some significant moves recently to restructure the org. However, we likely wouldn’t see the full effect of those decisions until the next-gen platform. This is because all products that are launching this year were defined and developed three years ago. It’s practically impossible to change direction drastically at this point.

For now, they have to endure and try their best to salvage the situation. The refresh of the P7 was a good start and have stopped the bleeding for now. While there’re no major visible changes to the vehicle, a lot of incremental improvements were made and the P7i today is a much more refined product than before.

In addition, XPENG still have a great brand, particularly when it comes to autonomous driving and smart cockpit. While the advantage isn’t as big as it was 2 years ago, people still associate XPENG with being technology forward, just like how people associate Li Auto with family and NIO with battery swap / white glove service. While customers may not be willing to pay a premium at the moment, it’s a core part of XPENG’s DNA and they cannot afford to lose that identity.

The work is cut out for them. XPENG has 2 new models launching this year, the G6 (mid-sized SUV) and the H93 (yet to be unveiled MPV). The G6 will likely sell between 250k - 350k RMB, so not only does it have to contend with the Model Y, but also a number of new competitors entering this market, (BYD Sea Lion and Deepal S7 are two of the most anticipated).

Not much is known about the H93 yet except that it’s an MPV. This segment is historically both a niche and competitive market. I’d be curious to see how XPENG plans to differentiate their product with others in this segment.

For this year, XPENG is need to stay above water and maintain scale. They have enough cash to survive this downturn (31B RMB at end of 2022), but they have to make sure sales doesn’t get worse. The automotive industry is a capital-intensive and scale-oriented industry. Once sales slow down and capacity utilization declines, everything will start to unravel. Key suppliers will participate more cautiously, and be less willing to invest with you. Some may even require "cash on delivery", further straining cashflow and balance sheet.

Darkest hour before dawn?

For XPENG, the current predicament may be its "darkest moment". To get a second wind, what they needs to do now is get back to the basics and continue iterating on their "Smart EV” products. Stay close to their customers, understand what they care about, and stay true to their values. They are certainly capable of turning this around, as we saw with the P7i refresh (orders saw a 30-40% MoM uptick since the revamp). They just have to find a way to replicate that magic elsewhere and show everyone that it’s not a fluke.

This is the 2nd part of a 3 part series where I take a look at the key upcoming challenges for the 3 Chinese EV startups (NIO, Li Auto, and Xpeng)

Part 1 was about NIO, which you can read by clicking the link below.

China EV Hub

Navigating the Road Ahead: A Look at Nio's Prospects in 2023

The first three months of 2023 have been very volatile for the automotive industry. Tesla kicked off the price war by announcing a sudden 15% price cut back in January. Then, on February 10th, BYD launched the Qin champion edition, a plug-in hybrid sedan priced just under 100k RMB (~15k USD). They are both launching full-on assault against ICE vehicles …

Read more

3 years ago · 2 likes · Yilun Zhang

2022 Recap

2022 was a banner year for Li Auto. Historically, they have always been relegated to 3rd place among the three Chinese EV startups (NIO, Li Auto, Xpeng). This is because Li Auto chose to exclusively focus on extended range technology early on instead of pure electric. Many viewed this as a technological dead end and investors did not put a high value on its future. However, Li Auto so far has proved all their doubters wrong, including myself.

Thanks to their precise product positioning (a do-everything vehicle for the modern Chinese family) and world-class execution navigating through Covid shutdown, Li Auto has surpassed both NIO and Xpeng in sales volume, revenue, and gross profit in Q4 of 2022. Additionally, Li Auto’s market value now exceeds that of NIO and Xpeng altogether.

In 2022, Li Auto also transitioned to their 2nd generation platform and expanded from one model (Li Auto One) to three (L9/8/7). Their new generation of vehicle is also more premium than before, with prices ranging from 328,000 RMB to over 450,000 RMB. In fact, Li Auto’s ASP is the highest among the 3 startups now. The average unit price of its vehicles also increased by 27%.

Despite the higher ASP, they achieved the highest monthly sales volume, and became the first EV startup to surpass 20,000 monthly sales in Q4.

Most importantly, they achieved quarterly profitability again in Q4 of 2022, with a profit of 257 million RMB.

Late last year, Li Xiang (Founder & CEO of Li Auto) posted on Weibo that Li Auto aims to achieve monthly revenue of over 10 billion RMB in 2022. When the L9 and L8 models are delivered at the same time, it will mark the end of seven years of loss-making operations. That milestone has been met with resounding success. With the introduction of the L7 5 seater SUV, it would not be surprising for sales to reach 30k units/month.

Li Auto’s Challenges in 2023

Looking ahead into 2023, Li Auto’s focus will shift to pure electric vehicles, starting with an family MPV. Their first product is a pure electric MPV, codenamed W01. How they choose to differentiate against their competitors in this segment and whether this sub-market is big enough for everyone are both big question marks. Currently, there are only five pure electric MPV products on the market priced over 250,000 yuan. Among these products, only Zeekr 009 is expected to sell at a meaningful volume. Sales of pure electric MPVs are much lower compared to their plug-in hybrid counterparts. For instance, since March, the insured vehicles for the pure electric version of the Denza D9 accounted for only 10.85% of all D9 sales.

This is because to date, pure electric MPV are pre-dominantly used for fixed routes and point-to-point business trips, such as one-way or round-trip travel from the airport to a hotel. When it comes to family long distance road trips, range anxiety is still very real.

The only way to solve this long term is to build more charging stations. However, Li Auto has under-invested in this area to date, so they are probably 2-3 years behind their peers in terms of deployment. To catch up, there are 2 main challenges that Li Auto have to overcome:

1. Convenient locations for charging are finite, and both NIO and Xpeng have had a big head start compared to Li Auto.

2. DC fast chargers buildout will run into power capacity issues. Majority of sites today is only approved for about 630 kW of power. Increasing power output required to handle future 500 kW fast chargers will need significant capex (either in upgrading the grid or adding battery storage on-site). These issues add significant engineering complexity to the buildout.

To accomplish the above, it’s not only a big operational/engineering challenge, but also requires heavy capital investments. I estimate this amount to be ~10B RMB over the next 3 years alone. This alone is already 2x what they have spent in total CapEx for the previous 3 years.

In many ways, because Li Auto have been so successful to date with their EREV technology, they are now in a bit of an innovator’s dilemma of their own.

1. Should they spend the billions of dollars we need to build out this charging infrastructure?

2. Wouldn’t the $$$ not be better spent continuing to invest in making EREV technology even better? or to accelerate progress in autonomous driving, an area they are also lagging behind?

In my view, if Li Auto is serious about becoming a leader in the pure EV segment, they also have to get serious about charging. Can Li Auto push through the internal resistance and commit the capital and resources required to make this successful? That is still a question mark today. If they can successfully overcome these challenges, Li Auto will have a brighter future; otherwise, 2022 might be their 5 minutes of fame.

The first three months of 2023 have been very volatile for the automotive industry. Tesla kicked off the price war by announcing a sudden 15% price cut back in January. Then, on February 10th, BYD launched the Qin champion edition, a plug-in hybrid sedan priced just under 100k RMB (~15k USD). They are both launching full-on assault against ICE vehicles built by legacy automakers. EV startups like NIO, Li Auto, and Xpeng are also making massive investments into new models, technologies and infrastructure to ensure that they have a seat at the table as competition continues to level up.

The companies that are able to successfully navigate this critical juncture will become the primary beneficiaries as the industry inevitably consolidates over the next 2-3 years.

This is a 3 part series talking about the key challenges that NIO, Li Auto, and Xpeng have to overcome respectively. For today, we’ll start with NIO first.

2022 Recap

NIO didn’t have a bad year in the traditional sense. In 2022, they launched three new models based on NT2.0 platform (i.e. ET7, ES7, and ET5). NIO delivered a total of 122,500 vehicles in 2022, a year-on-year increase of 34%. However, they fell short of their own targets, and did not keep pace with the overall industry growth (NEV market grew 90% YoY)

While they were struggling with quality and supply chain issues, Li Auto kept racking up new sales record month after month. Li Auto ended up delivering 133,200 vehicles in 2022 and in Q4 and was the first EV startup to achieve 20k+ sales in a single month. Furthermore, while NIO's average unit price per delivery decreased to 368,500 yuan due to the delivery of ET5, Li Auto average unit price was 372,800 yuan in Q4 2022, surpassing NIO not only in deliveries but also in revenue and profit.

NIO's automotive gross profit margin in 2022 was 13.70%, compared to 20.06% in 2021, a year-on-year decline of 6.36 percentage points. In comparison, Li Auto’s annual automotive gross profit margin only decreased slightly from 20.57% to 19.09%

William Li (Founder & CEO of NIO) was candid in his "Internal Reflection Letter" on the first day of 2023:

"In 2022, we had both hard work and accomplished many things, but we need to be clear-headed and realize that many of our peers performed better than us during the same period."

He directly pointed out 8-9 key issues, mainly targeting the issues with early deliveries of ET7 and supply chain issues during ET5 deliveries. This not only affected the overall delivery cadence for 2022 but also impacted ET7’s reputation as the flagship model for NT 2.0. It also made it more difficult for ET5 to achieve its objective and surpass BMW 3 Series monthly sales.

Although William Li expressed confidence during the Q4 earnings call that NIO's vehicle gross margin would return to the 18-20% level, that’s really a baseline for an automotive OEM to be sustainable. The gross margin needs to be higher than traditional OEMs due to the additional sales & delivery expense the OEM have to digest by also being the dealer. Li Xiang (Founder & CEO of Li Auto) recently said the same thing on Weibo.

NIO’s challenge in 2023

NIO's biggest challenge in 2023 is the completion of their product refresh. The refresh of their aging “866” lineup is critical in order to return to growth. Sales for those 3 models have declined significantly starting in Q4 and only staying afloat in Q1 due to heavy discounts on existing inventory. Recently, there were multiple rumors that NIO is selling their older models through supplier channels at a 20% - 30% discount, indicating the enormous sales and pricing pressure that NIO is facing. This ASP and gross margin pressure will reach its peak in Q1 2023

The competition is also intensifying in the 300,000+ RMB segment as well. The same-sized iM LS7 is priced below 400,000 RMB. The new AVATR 11 single-motor variant is priced as low as 319,900 RMB and has bigger battery / better range. BYD is also launching their new Denza N7, which will compete directly in this segment. All these new models are highly competitive, and pose a significant challenge for the new ES6.

2023 is also the first year we’ll get a glimpse into how big of a moat is NIO’s battery swap network and premium brand/service for the company. They have indicated strongly they will not compete on price, but instead continue to invest in their battery swap and service network to give their customers a better experience.

This is very admirable and I respect them a ton for sticking to their values. However, the reality is in today’s environment, price is the most direct way to impact a customer’s purchase decision. Having worked in automotive retail, there are a lot more people who say they want great service/experience than there are people who is actually willing to pay up for it. ET7 and ES7 are good representations of this phenomenon. So far in 2023, sales for both models are down 50-75% QoQ, despite them being on the new NT 2.0 platform. I think what’s happening is that the number of people who is willing to pay a premium for NIO’s brand and service is finite, and for those people, they can enjoy the same service regardless of whether they buy the entry level model of the most expensive one. Therefore, you see a significant concentration of orders in the ET5.

I would expect things to get better once the new ES6 launches. I’ll be especially interested to see NIO’s pricing strategy for the new model next month given the new market environment. The old one currently starts at 386,000 RMB. Personally, I think that’s too high to hit their 10k monthly sales target. If NIO wants to reclaim the top spot in premium BEV sales, I think they have to lower the price to ~350,000 RMB, but that obviously has big implications from a gross margin standpoint so they’d also have to do a cost down exercise.

In 2023, both ASP and gross margin will likely trend downwards as lower priced variants ramp. It’ll be a serious problem if these reductions do not lead to an commensurate increase in sales volume and operating leverage. In a nutshell, that’s the homework that NIO have to ace this year.