On May 20th, Ideal Automobile released its first quarter financial report for 2024. The financial report shows that during the reporting period, the total revenue of Ideal Automobile was 25.6 billion yuan, an increase of 36.4% year-on-year and a decrease of 38.6% month on month.
Ideal Automobile stated that the month on month decline in total revenue was mainly affected by seasonal factors related to the Spring Festival holiday, as well as a decrease in vehicle delivery due to lower than expected sales orders in March. From the expectations for the second quarter, it is currently difficult for the pace adjustment of Ideal Automobile to achieve significant results in the short term. Ideal Automobile is expected to have a revenue of 29.9 billion to 31.4 billion yuan in the second quarter, lower than the market estimate of 38.63 billion yuan.
The gross profit margin has declined, and there are no plans to lower prices in the future
According to the financial report, the net profit attributable to shareholders of Ideal Automobile in the first quarter of 2024 was 593 million yuan, a year-on-year decrease of 36.26%, and a month on month drop of nearly 90%.
If the interest and investment income obtained during this stage are removed, the actual operating loss of Ideal Automobile in the first quarter is 584 million yuan. This is the second operating loss of Ideal Automobile after three quarters, with a loss amount higher than 413 million yuan in the first quarter of 2022.
Meanwhile, in terms of vehicle gross profit margin, Ideal Automobile has also shown a significant decline. The gross profit margin of Ideal Automobile in the first quarter was 19.3%; The comprehensive gross profit margin decreased by nearly 3 percentage points from 23.5% in the fourth quarter of last year to 20.6%.
Throughout 2023, the gross profit margin of Ideal Automobile's vehicles has been steadily increasing. From the beginning of the year to the end of the year, the gross profit margin of its vehicles was 19.76%, 21.05%, 21.2%, and 22.73%, respectively.
Since the beginning of this year, Ideal Automobile has launched multiple rounds of promotional discounts. In January, Ideal Automobile L7, L8, and L9 launched a promotional campaign for the 2023 model, with a price reduction of 33000-38000 yuan for different model versions; In mid March, Ideal Automobile once again lowered the entry threshold for the L7 and L8 series and launched the AIR version at a lower price than the PRO version. The newly launched Ideal L6 has also adopted a low price strategy. Liu Jie, Vice President of Ideal Automobile, once publicly stated that the L6 Pro version was originally priced at 259800 yuan, but after internal consideration, it was ultimately changed to 249800 yuan.
At the end of April this year, Ideal Automobile once again announced a price reduction across its entire lineup. The new price of Ideal MEGA is 529800 yuan, a decrease of 30000 yuan compared to before, making it the model with the largest decline; The price reduction for different versions of the L series ranges from 18000 to 20000 yuan.
Nevertheless, the sales of Ideal Automobile did not have any more highlights in the first three months. Ideal Automobile announced at the end of March that due to lower than expected sales orders, the delivery volume for the first quarter was reduced to 76000-78000 vehicles. Previously, Ideal Automobile was expected to deliver 100000 to 103000 vehicles in the first quarter. In the end, the delivery volume of Ideal Automobile in the first quarter was 80400 units.
How to strike a balance between gross profit margin and sales has become a challenge for the entire automotive industry. After continuous price adjustments, Li Xiang, Chairman of Ideal Automobile, stated in the Q1 2024 financial report conference call that the Ideal L6 has been widely recognized; Under the new pricing strategy, Ideal L9, L8, and L7 have also shown sustained improvement. "Overall, we are very optimistic about the upcoming monthly sales performance. After the price strategy adjustment, the order volume for L7, L8, and L9 continues to increase, and the company has no plans to lower prices in the future."
Delaying pure electric products and continuously adjusting organizational structure
For the second quarter of this year, the performance guidance provided by Ideal Automobile is: revenue is expected to be 29.9 billion to 31.4 billion yuan, and delivery volume is expected to be 105000 to 110000 vehicles. However, the market had previously estimated its delivery situation for the second quarter to be approximately 130700 vehicles.
In April this year, the delivery volume of Ideal cars was 25800 units. Even if calculated according to the minimum line of delivery guidelines, the average delivery volume of Ideal Automobile in the next two months will reach 39600 units, which is quite stressful.
In terms of ideals, it has been stated that under the dual effects of a new pricing system and a richer product portfolio, the order volume increased rapidly in late April. "As it will take some time for orders to be transmitted to the delivery volume, it is expected that there will be a better reflection on the delivery volume in May."
The ideal car of 2023 has been advancing rapidly, but this momentum has sharply declined before and after the release of the first pure electric vehicle model, the Ideal MEGA. Ideal Automobile has adjusted its annual sales target to 560000 to 640000 units, and the sales guide for Ideal MEGA has been lowered from monthly sales of 8000 units to 2000 units.
On March 21st, Li Xiang issued a letter to all employees, reflecting on the rhythm and sales issues of Ideal MEGA. At the same time, targeted adjustments were made to product management, distributors, charging network layout, and sales expectations. At this conference call, Li Xiang directly announced that the company will not release pure electric SUV products this year and will release them in the first half of next year.
In Li Xiang's view, one of the reasons for the strategic mistake of Ideal Pure Electric is that there are not enough self operated overcharging stations. "A sufficient number of self operated overcharging stations must reach a similar quantity to Tesla China's overcharging, which is the appropriate time."
At present, Ideal Automobile is accelerating the construction of its charging network, and the 400th station of Ideal Supercharger Station was officially launched on May 15th. According to the plan, Ideal Automobile aims to build over 2000 supercharging stations by the end of this year, and the number of charging stations will exceed 100000.
In addition, Li Xiang believes that Ideal Automobile also needs to upgrade and add more comprehensive stores and shopping malls with booths. "If we want to support a new car model to achieve monthly sales of over 10000 yuan, we will need to add 500-600 fixed booths nationwide, which is a problem that L8 has encountered in the past few months." Li Xiang said that having enough supercharging piles and adding enough storefront booths is the key to selling pure electric products.
Before announcing the postponement of pure electric SUV products, Ideal Automobile, which has always been adept at quickly adapting its organizational structure, has also taken measures to respond.
On April 3rd, Ideal Automobile issued an internal announcement to all employees, announcing an upgrade to the current matrix organization, involving organizational restructuring across multiple departments. The organizational change this time mainly focuses on the CEO office of Ideal Automobile, changing from the department that originally covered Brand Department, Product Department, Business Department, Strategy Department, and Supply Department to the "Product and Strategy Group". After this department change, it will weaken the supply chain and commercial sales functions, and instead focus on products and strategy, while no longer reporting to Li Xiang.
Meanwhile, there have been reports of significant layoffs at Ideal Automobile. According to the news, its overall optimization ratio exceeds 18%, and it is expected to involve more than 5600 employees. Regarding personnel adjustments, the Ideal official did not respond.
"The core change of our organizational restructuring this time is to establish a quality operations team. In order to focus our business on making high-quality decisions, there is no need to spend a lot of time on repetitive operational work to improve execution efficiency." Li Xiang said that organizational upgrades usually take 12 to 24 months to see significant results, "and it will be clearer by 2025."