小米汽车，就是不能卖 20 万以下？为什么？

This article is from: Geek Park

At 7:00 pm on March 28th, Xiaomi's first car - Xiaomi SU7 is about to be officially launched, putting an end to the three-month price controversy.

One important reason for the price controversy of SU7 is Xiaomi's essence of "cost-effectiveness".

In 2010, the newly established Xiaomi company launched an advertisement slogan: the first mobile phone for young people. In August 2011, the first generation of Xiaomi phones was officially released at a price of 1999 yuan, winning the market with high cost-effectiveness. Subsequently, Xiaomi became the "pioneer" of popularizing smartphones, driving the prosperity of China's mobile internet.

It seems that the public generally expects Xiaomi's cars to continue its strategy in the smartphone field, providing young people with moderately priced, technologically advanced cars, becoming their "first car for young people" in their minds. Many people earnestly advise Lei Jun to set the starting price below 200,000 yuan, even 99,000 yuan.

However, Xiaomi should not set the car price below 200,000 yuan. Whether considering from the cost perspective or analyzing from the perspective of industry trends and mission of the times, the inevitability behind this judgment can be seen.

Pure price wars have no future

The reason why many people suggest Xiaomi to set the car price below 200,000 yuan is mainly because the current car market is witnessing intense price wars.

Since 2023, "price war" has been the keyword in the Chinese car market. Compared to last year, this year's price war has shown characteristics of a wide range and high discount levels. From micro pure electric cars costing tens of thousands of yuan to luxury models costing two to three hundred thousand yuan, all are involved. The price war has caused headaches for Chinese car companies, most of which can only grit their teeth and persist.

There are multiple reasons for this phenomenon, including relatively lower manufacturing costs, imbalanced market supply, and slowing demand growth.

It is understood that the price of lithium carbonate has dropped from nearly 600,000 yuan/ton at the end of 2022 to the current 100,000 yuan/ton, greatly reducing the cost of power batteries and becoming the opportunity for the current price war. In the cost of pure electric vehicle models, the price of power batteries accounts for about 40%, and for small A-class cars, the cost of power batteries may even account for around half.

At the same time, due to highly homogenized products and relatively weak domestic demand, competition in the automotive industry will be very intense. According to the China Association of Automobile Manufacturers' forecast, in 2024, China's automobile sales are expected to increase by 3% year-on-year, a growth rate far lower than the previous year's 12% Overcapacity is also a major issue in the current automotive market. The overall production capacity of China's passenger cars is close to 55 million vehicles, while the annual production is about 23 million vehicles, with a utilization rate of only 50%. Generally speaking, the normal standard for production capacity is 79% to 83%, and anything below 79% indicates overcapacity.

In addition, competitors positioning their prices in the same range as Xiaomi's SU7 gives a sense of "encirclement" for Xiaomi's automotive sector. Especially, Geely recently launched five models in the 150,000-300,000 price range, targeting a similar market segment as Xiaomi SU7, which undoubtedly puts pressure and challenges on Xiaomi's pricing.

However, simply lowering prices seems to have started to "fail", as price reductions do not necessarily lead to an increase in sales. A recent report from Autohome Research Institute shows that price reductions have different impacts on sales for different brands:

• Price reduction strategies for luxury top brands are effective, but sales and prices for second-tier luxury brands such as Cadillac and Lexus have not met expectations;
• The discount ratio for joint venture brands has increased to around 20%, but the growth in sales is still insufficient, especially for the three major Japanese brands.
• Price reduction strategies for most Chinese brands are effective, although the discount intensity is lower compared to luxury and joint venture brands, sales are increasing. Brands like Geely and Changan are boosting sales through discounts.

A price war is like a "lose-lose game", which in the long run is not beneficial to any party. Trying to gain market share by lowering prices may damage long-term profits, unless the price reduction can be offset by improved cost efficiency. Therefore, companies caught in a price war are like being stuck in the mud, as consumers become more discerning, the ultimate result is the industry falling into a "dung pit butterfly stroke" dilemma.

A McKinsey research report points out that the lively scene in the smart electric vehicle market is built on the severe overdraw of the profitability of car companies: China's car market size and profits account for about one-third of the global automotive industry, but the total profits of local car companies are less than 5% of the total profits of the global automotive industry, creating a contrast.

Long-term meager profits not only dampen investor enthusiasm but also hinder car companies from improving their technological capabilities and building long-term, sustainable competitiveness. For a mature tech company like Xiaomi, it is difficult to justify entering the market with this logic.

Changes in the cost-performance ratio formula bring new advantages

Chinese companies indeed have rich experience in cost-effective products, and Xiaomi was once a "grandmaster" in this aspect. However, with the development of the times and changes in corporate strength, the formula for cost-effectiveness also needs to be continuously adjusted.

Initially, Xiaomi attracted a large number of users by offering the highest performance at mid-low prices, and then generated profits through value-added services. By providing products with superior performance and affordable prices, Xiaomi quickly made a name for itself in the market. Within five years, Xiaomi surpassed old brands like Lenovo to become one of the top five internet companies in China.

However, with the rise of the "everyone makes phones" trend, over 100 brands entered the smartphone market, leading to crazy expansion, brutal reshuffling, and low profit margins. In contrast, in the fourth quarter of 2016, although Apple's market share was only 18%, its profits accounted for 92% of the entire industry. As the market begins to saturate, the focus of competition in the mobile phone industry has shifted from traditional hardware configurations and price wars to the user experience of the products themselves. The most obvious manifestation is that there are fewer and fewer "thousand-yuan phones" with the largest market share, while there are more and more flagship models.

During this period, Xiaomi began to enter the high-end market and explore a new formula for cost-effectiveness. In 2019, Xiaomi and the Redmi brand split, with Redmi, upgraded from Redmi, becoming an independent brand, taking over the label of ultimate cost-effectiveness, while Xiaomi phones are positioned to pursue ultimate technology and experience.

This year marks the fifth year of Xiaomi's high-end strategy. Due to the strong sales of the Xiaomi 14 series, Xiaomi's share in the global high-end smartphone market doubled last year. The financial report shows that in 2023, the average unit price of Xiaomi phones in the Chinese mainland smartphone market increased by over 19% year-on-year, reaching a historical high. In the smartphone market segment priced between 4000 yuan and 6000 yuan, Xiaomi's market share reached 16.9%, an increase of 9.2 percentage points year-on-year.

In the process of Xiaomi's push into the high-end market, there have been suggestions from Mi Fans to raise prices a bit, but Xiaomi still adheres to cost-effectiveness, with only a change in the formula. Lei Jun has mentioned many times that cost-effectiveness is not about discussing absolute prices, nor is it about low prices. Insisting on cost-effectiveness can also be high-priced and high-end. Cost-effectiveness is about comparative advantage, which means the best performance at the same price, and the lowest price for the same performance.

At the same time, for Xiaomi's car in 2024, its era responsibility is no longer to be the "pioneer" of popularizing new energy vehicles, but to pursue the ultimate experience, open up new fields, and define new products.

With the development of the Chinese automobile market, we are not only experiencing the transition from traditional cars to new energy vehicles, but also witnessing the shift from incremental to stock market. Compared to the incremental market, the play in the stock market is different: most car buyers are not buying a car for the first time, they have higher expectations for products and experiences, in addition to price, they pursue quality, craftsmanship, cutting-edge technology, and even higher-end brand image to showcase their taste.

Even in the field of new energy vehicles, it is no longer a blue ocean, and its market penetration rate has also reached close to 40%. In February 2024, the retail penetration rate of new energy vehicles in China reached 35.8%. Wang Chuanfu, Chairman and President of BYD, predicts that the monthly penetration rate of new energy vehicles this year will exceed 50%.

For Xiaomi's upcoming car, the key to success lies in brand building, product upgrades, and quality services to differentiate itself from competitors. This is Xiaomi's true mission and survival strategy. Abandoning differentiation and returning to the path of price wars is definitely not a viable choice for Xiaomi.

Therefore, Xiaomi's car should avoid getting into a price war, and the starting price of the SU7 must exceed 200,000 yuan. If we were to bet on a price range, 230,000 to 250,000 yuan may be more in line with Xiaomi's positioning and market demand