Faced with various challenges, Ideal Automobile is readjusting its strategy.
The reporter from China Business Daily learned that after the release of the first pure electric flagship model MEGA and experiencing setbacks. Recently, Li Xiang, CEO of Ideal Automobile, announced an important change in response to investor questions: no new pure electric models will be released this year, but will be rescheduled for the first half of next year.
It is understood that 2024 was originally an ideal year for pure electricity. According to its plan at the end of last year, MEGA will be released in March and three pure electric SUVs will be released in the second half of the year. Among them, M9 and M8 will be mass-produced within 2024, M7 is expected to be mass-produced in the first quarter of 2025. By the end of the year, Ideal Automobile will have four extended range electric vehicles and four high-voltage pure electric vehicle models on sale.
"Since the beginning of this year, we have indeed encountered multiple challenges from internal operations and external environmental changes. The performance of this quarter did not meet our expectations at the beginning of the year," Li Xiang said. "We have been facing many challenges since March, so the second quarter will be the most difficult for the company this year," said Ideal CFO Li Tie.
Increase income without increasing profit
Previously, Ideal Automobile released its 2023 financial report, which showed that the company's revenue exceeded 100 billion yuan and its profit exceeded 10 billion yuan. Ideal Automobile became the third new energy vehicle enterprise in the world to achieve profitability after Tesla and BYD.
However, in the first quarter of 2024, Ideal Automobile's performance fell short of expectations. Data shows that automobile sales amounted to 24.3 billion yuan, an increase of 32.3% from 18.3 billion yuan in the first quarter of 2023 and a decrease of 39.9% from 40.4 billion yuan in the fourth quarter of 2023. The automotive profit margin in the first quarter of 2024 was 19.3%, while in the first quarter of 2023 it was 19.8% and in the fourth quarter of 2023 it was 22.7%. The gross profit margin in the first quarter of 2024 was 20.6%, and in the fourth quarter of 2023 it was 23.5%. In addition, free cash flow has also shifted from positive to negative, decreasing from 14.6 billion yuan in the fourth quarter of 2023 to -5.1 billion yuan.
Why is there a slowdown in revenue growth and a significant decline in profits? Ideal Automobile stated in its financial report 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. At the same time, a change in pricing strategy in the first quarter of 2024 resulted in a decrease in average selling prices.
It is understood that Ideal MEGA was officially launched on March 1st, with a price of 559800 yuan. Since its launch, this car has become a hot topic of discussion online in terms of its design and price. However, Ideal MEGA did not meet expectations, selling 3229 units in the first month of launch and 1145 units in the second month.
In April, facing fierce price competition, Ideal Automobile also released new prices for the 2024 Ideal L7, Ideal L8, Ideal L9, and Ideal MEGA models. Among them, The price range of L7 is 301800 to 359800 yuan, The price range of L8 is 321800 to 379800 yuan, The price range of L9 is 409800 to 439800 yuan, The price of MEGA is 529800 yuan. Compared to the pre adjustment selling price, the price reduction for all models of Ideal Automobile this time is between 18000 and 30000 yuan.
In order to meet various challenges, Ideal set a radical annual sales target of 800000 vehicles at the beginning of the year, which has been lowered to 560000 to 640000 vehicles. In the first four months of this year, the total sales of Ideal Cars were 106000 units. Some analysts believe that this means that even if one wants to achieve the lowered annual KPI (Key Performance Indicator), the average monthly sales in the remaining 8 months should ideally reach at least 57000 units.
From "radical" to "pragmatic"
In order to solve the dilemma, Ideal Automobile is shifting from being radical to being more pragmatic.
Li Xiang stated that Ideal Automobile has not lost confidence due to short-term sales fluctuations. On the contrary, this is the result of the company's calm evaluation of the competitive environment and its own strength after experiencing market baptism. Simply relying on sales figures cannot fully reflect the company's competitiveness and market position. Therefore, Ideal Automobile should abandon its overly aggressive sales targets and instead focus more on enhancing user value and operational efficiency.
From Li Xiang's rare silence on social media, to admitting strategic mistakes in the first pure electric vehicle model, and to organizational changes, Ideal Automobile is undergoing a series of changes.
Faced with the problem, Ideal Automobile is actively and quickly making adjustments, fully launching and implementing organizational upgrades and process optimization. On April 3rd, Ideal Automobile announced an internal staff announcement to upgrade the current matrix organization. The organizational change this time mainly focuses on the CEO office of Ideal Automobile, changing from the original department covering Brand Department, Product Department, Business Department, Strategy Department, and Supply Department to the "Product and Strategy Group". The renamed product and strategy group consists of a "Product Line" department and a "Quality Operations" department.
At the first quarter financial report, Li Xiang mentioned that the most important change in organizational restructuring is the establishment of a new department called Quality Operations, which "enables business departments to truly focus on high-quality decision-making and operational efficiency, rather than processes.".
Li Tie revealed that in less than two months, Ideal Automobile quickly adjusted its resource allocation in various aspects based on its operational goals for this year. Ideal Automobile places great emphasis on operational efficiency internally, and it is expected that the impact of these adjustments on operational efficiency will gradually become apparent from the second quarter of this year.
In addition, Li Xiang believes that a sufficient number of supercharging piles and the addition of enough store booths are necessary conditions for selling pure electric SUVs, so pure electric products will not be released in 2024.
Li Xiang said, "Firstly, for the current sales of mid to high end pure electric SUVs, having enough self operated supercharging piles is a necessary condition. We believe that when the number of self operated supercharging piles reaches a similar number to Tesla China, it is the appropriate time for the product to be launched into the market. Secondly, we need to upgrade and increase the number of comprehensive and mall stores with more booths. The number of store booths is very important for our current sales of multiple models and price ranges. If we want to support a new model to achieve monthly sales of over 10000, we need to add about 500-600 fixed booths nationwide. Otherwise, there will be a problem of increasing product quantity without increasing sales. This is what the Ideal L8 has faced in the past few months." "So, a sufficient number of overcharged piles and the addition of enough store booths are necessary conditions for selling pure electric SUVs."
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.