Editor View

On July 30, 2020, Beijing time, the new domestic automakers represented Ideal Motors successfully landing on Nasdaq, the stock code is “LI”, the issue price is US$11.5 per share, the total amount of funds raised is nearly US$1.5 billion, and the total market value is nearly 100 One hundred million U.S. dollars. Liu Yiran, the founding partner of Yuanjing Capital, appeared at the ceremony. He did not conceal his excitement at all. Today, people who drank the celebration wine and wrote about the Spring and Autumn with enthusiasm were joyful and rushed to tell each other that they are an empowerment for the future.

Liu Yiran said to Li Xiang and then to Li Tie, seeing Qin Zhi, Huang Mingming, and Ren Quan, his face was full of spring breeze, and the first sentence of his fist must be, warm congratulations on the successful landing of Ideal Car on Nasdaq. Never tire of listening. Ideal Auto is the second IPO project of Yuanjing Capital this year. From 2016 to 2017, Yuanjing Capital continuously invested in Ideal Auto’s Series A and Series A+ financing. Earlier, he said in an interview with the media that it only took less than 2 months from meeting with Li Xiang to finally deciding to invest. He said, “We talked very happily, and the efficiency is high. The idea fits well”.

On the occasion of the listing of Ideal Auto, Liu Yiran personally wrote the article “From Xiaomi to Ideal, Ten Billions of New Species Thinking”, sharing his experience of investing in ideal cars and his insights and thoughts on new species. The following is the full text of “From Xiaomi to Ideal, Ten Billions of New Species Thinking”. Long Yuxuan, the executive editor of “CEO Search Engine”, reposted this article with the approval and authorization of Yuan Jing Capital’s founding partner Liu Yiran. The founders are welcome to pay attention to “Yuanjing Capital” to help the vision and explore the future.

Like their respective benchmarking targets, Xiaomi and Ideal also chose a vertical integration, software and hardware integration solution

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On July 30, Ideal Auto was listed on the Nasdaq in the United States. Calculated according to the IPO pricing, the valuation is nearly 10 billion U.S. dollars. This is the third company I have invested in with a valuation of tens of billions of dollars. The first two are Xiaomi and Meituan Dianping. When reviewing the investment history of these three companies, I found that there is an interesting connection between the three: Xiaomi and Ideal can both be called “new species”, and their development has many similarities; while Meituan Dianping Two investment in the ideal car. In addition to feelings, I would like to write a little about the commonalities of new species.

The storm is back, seemingly familiar

If we look back, we will find that the development of domestic electric vehicles and smart phones actually has a clear target. When Xiaomi was founded in 2010, Apple iPhone 4 took the world by storm. When Li Xiang founded Chehejia in 2015, the electric vehicle industry driven by Tesla also began to surge.

Like their respective benchmarking targets, Xiaomi and Ideal also chose a vertical integration, software and hardware integration solution, and invariably adopted a single-point approach and the strategy of creating explosive models, and solidly completed the first product from scratch.

It has to be said that the innovators of smart phones and smart cars have amazing similarities in their paths. But behind this coincidence, there is also a profound industrial logic.

The innovation of the mobile phone industry is inseparable from the mature software and hardware of touch screens, chips, and App ecology. For the automotive industry, the continuous increase in battery density and the maturity of new technologies such as ADAS and lidar have given cars new power and perception. But for these new things, there are still many immature experiences, and many functions are not defined. Therefore, if you want to take the lead in creating a leapfrog user experience, you must closely integrate the latest hardware and software, fully optimize, and personally complete all aspects of the product.

A new company has the best chance to make the best new experience without the burden of history. It is precisely because of this that it can obtain a greater start-up advantage than traditional companies.

When we invested in Xiaomi in 2011, many traditional mobile phone manufacturers chose to cooperate with major Internet manufacturers in order to learn from each other’s strengths. BAT and even Facebook have tried similarly, but this loose form of cooperation did not work well, and the results were not very successful. . The reason is that the two genes shirk or refuse to give each other.

At that time, I realized that the emergence of a new species requires the fusion of multiple genes, so as to truly create a new product integrating software and hardware, as well as a sufficiently differentiated user experience. This is a new species. It’s what it should be.

From this perspective, major auto industry countries like Germany and Japan are not necessarily Internet giants, and it remains to be seen what their in-car experience will look like. China is a big country of manufacturing and the Internet, so it is reasonable for smart electric vehicles to sprout in China.

Regarding the creation of a new car species, I saw the determination and advantages of Li Xiang and his team back then. Just like the Internet + hardware gene established by Mr. Lei in the early days of Xiaomi, although Li Xiang came from the Internet background of the car home, he is familiar with the automotive industry, and the team he formed also has a composite background in software, supply chain, and technology. Model specifications, in-car experience, charging environment, assisted driving and many other plans are very clear.

What’s interesting is that, just like Mr. Lei always used Apple in the early days of Xiaomi’s entrepreneurship, Li Xiang knew his Tesla car well in the early days of entrepreneurship. As the company’s super product manager, he not only has a deep knowledge of the Chinese market, but also earnestly understands benchmarking. Compared with traditional manufacturers, “China Tesla” has too many opportunities to redefine an innovative product suitable for the local market. We saw the focus and resilience of a team with Internet genes and efficiency to go all out to build products from scratch, so we did not hesitate to invest in cars and homes.

From 2011 to 2016, from smart phones to smart cars, the industry has blown through again. As an investor, everything I feel is so familiar. It really feels like deja vu.

New species, new efficiency

Before the ideal IPO, Li Xiangzeng firmly said: “The current smart car is the mobile phone market in 2011, and this market will be much bigger than mobile phones.” Data shows that China’s electric vehicle sales accounted for only about 5% in 2020, while the smartphone penetration rate in 2011 was 15%. It can be said that electric vehicles are still at an earlier stage.

Although electric vehicles are at an earlier stage than smartphones, if we compare the ideal ONE with Xiaomi’s products at the beginning of its business, we will still find many similarities.

The first is the ultimate price-performance ratio. The price of Xiaomi 1st generation of 1999 yuan and the price of the ideal ONE in the early of 300,000 yuan are both a gratifying price compared with their competitors. Supporting this pricing logic is not subsidies to burn money, but the industrial efficiency of a new species.

Looking at the ideal IPO prospectus, we can see that the ideal gross profit rate in the second quarter has exceeded double digits, quickly approaching the level of Xiaomi that year. We all know that it is very difficult to maintain a healthy product margin under such product pricing.

Although the size of these start-ups is still small, there is no scale advantage, but they concentrate all the investment and resources on the same product, which also ensures the efficiency optimization of the supply chain.

The next question may be of more concern to everyone. In the case of small initial sales and average gross profit, how can the company ensure financial health and not burn money on a large scale? Xiaomi’s ideal approach is to make full use of the power of new channels to demonstrate high efficiency in brand marketing. At the same time, the word-of-mouth effect of good products has gradually emerged.

Observing Xiaomi’s business figures, the proportion of sales and marketing expenses in revenue has remained below 5% for a long time (even almost negligible in the early stage of the business). Ideally, the answer delivered in 2020 is similar to that of Xiaomi, but this does not affect the company’s fastest time to reach the milestone of 10,000 vehicles delivery. At the same time, ideals limited the loss to a controllable range after the first car was launched, and the overall loss trend is gradually narrowing, and the cash flow has basically turned positive. At the same time, different from traditional car companies, Ideal has established a direct sales service system to directly face end consumers. This is similar to Xiaomi’s initial avoidance of distribution channels and the use of e-commerce to reach consumers directly. One difference is that, compared with mobile phones, car sales are much more dependent on offline experience than online, so the ideal is to actively build offline store channels from the beginning.

In addition to optimizing the efficiency of the supply chain and improving the efficiency of marketing word-of-mouth, the new species’ emphasis on efficiency is also reflected in the cost operation and management of the entire company.

In the early days of Xiaomi’s business, Mr. Lei had always insisted on taking economy class as the best example. And Li Xiang also sighed in a recent circle of friends: “Economy class must be purchased at the lowest discount, and economy hotels require two people of the same sex to live together… Such a difficult industry, you must train start-ups that climb from the 18th hell. Only by getting out of the ground can we have stronger competitiveness.” Ideally, the amount of financing during the entire entrepreneurial process is significantly lower than that of its peers. However, in the first half of 2020, product sales have come from behind and climbed to the second place in the new power, which is indispensable for the hard work of internal skills and cost efficiency.

It is worth mentioning that the financial performance in the ideal prospectus exceeds everyone’s expectations for some new car forces. Some optimists believe that Ideal will be the first company to see a breakeven path among new car companies. At the 2019 board of directors, when the company proposed such a financial budget, some investors were still skeptical. After all, the first prototype had just rolled off the assembly line at the time, and everything is unknown. This achievement one year later indeed showed the company’s strong execution ability.

After undergoing devil training, this is the vitality and efficiency that a new species should have.

Smart future, everything has just begun

Many people may forget that Xiaomi’s MI name was originally taken from the English of “Mobile Internet”. Smart ecological services are the future that Mr. Lei designed for Xiaomi on the first day, and it is also a wonderful part of the smartphone story. Today, in the automotive industry, the smart wave has swept across, and automobiles are regarded as the next smart terminal revolution after mobile phones. From this perspective, the auto industry is facing a major change that has happened in decades, and China’s “Tesla” is also gearing up.

I prefer to call this change a smart car or a smart electric car, not just a new energy car. Because electrification is really just the beginning, intelligence is the long-term future.

The relationship between the two is that with the emergence of full vehicle electrification, many complex transmission equipment of the original fuel vehicle may be simplified, and the difficulty of manufacturing a vehicle theoretically begins to decrease. In short, the value of the hardware part accounts for The ratio will gradually decrease. At the same time, the electrification of the entire vehicle means that the entire vehicle control can be truly digitized. With the rapid development of mobile internet and AI technology, in-vehicle interaction and driving experience are rapidly changing, the proportion of the value of software is increasing, and users’ demand and stickiness for these new experiences are gradually increasing. The value of a car to users is being redefined.

Unlike smart phones, smart cars have a bigger future-autonomous driving.

At this point, Li Xiang is an out-and-out long-term optimist. Although Ideal ONE has taken the lead in implementing a small part of assisted driving functions, Li Xiang has long-term plans and preparations for this matter: As more ideal cars are on the road, machine learning will gradually deepen their understanding of road maps and driving conditions. . With the performance upgrade and cost reduction of key components of autonomous driving, the intelligent driving experience will gradually be realized. In this regard, Li wants to admire the “shadow mode” represented by Tesla, and believes that the machine’s learning of human drivers and actual road maps is a unique advantage that the new car factory has. One of the advantages of the car-making model is that it makes money by selling cars, makes blood autonomously, and at the same time learns the closed-loop data to usher in the ticket to autonomous driving. This point is almost the same as that of Xiaomi selling mobile phones to make profits and ushering in mobile Internet tickets.

Ideal Auto has publicly announced that it will achieve L3 level-like map-based assisted driving capabilities in 2021-2022, and implement hardware specifications that support L4 unmanned driving capabilities in 2023-2024, and finally get autonomous driving in 2025 Tickets. In this way of thinking, the ideal route coincides with Tesla. When this day emerges, the business model and data value of the automotive industry will undergo great changes. Ideally, it is also possible to complete the leap from product level to platform level. As an ideal early investor, we look forward to it very much. Although the door to IPO has been opened, the real potential may still be behind.

Who is China’s Tesla?

At the beginning of the article, I mentioned the fate of three tens of billions of dollars IPO companies. The above mainly compares Xiaomi and ideals. The last fate worth mentioning is Wang Xing and ideals.

From the launch of the travel business to the acquisition of Mobike, Wang Xing has always maintained close attention and keen interest in the travel field. With the offline of Ideal ONE, Wang Xing made three investments. First he led the C round investment, followed by the company led the D round and IPO subscription cornerstone investment. The cumulative investment was close to one billion US dollars. As peers and serial entrepreneurs, the two cannot be said to be sympathetic to each other. Wang Xing has also expressed his ideals on social media recently. He believes that new forces in car-making have entered five and three, and ideals can be ranked in the top three. He also believes that the potential of ideals is more than 100 billion US dollars.

Behind Wang Xing’s optimistic vision, there is actually a topic that people have been paying attention to: Among these new car-building forces, who is China’s Tesla?

I think that in order to discuss this issue, we cannot simply focus on the dispute over the charging mode, but should look at the nature of the issue. The success of Tesla in the United States is essentially the success of product innovation. It has found the charging habits and user experience that meet the national conditions of the United States, and delivered products in the most cost-effective manner through vertical integration.

And the so-called Chinese Tesla will definitely be a company that truly and efficiently solves the charging and in-car experience of Chinese users, and continues to maintain strong organizational capabilities and efficient delivery. In terms of conforming to the characteristics of the Chinese market and the habits of Chinese users, Tesla itself, as a global brand, is difficult to customize for China in its standard product strategy. We believe that Chinese local brands have strong advantages. We also have our own thinking about how to develop the charging infrastructure in China’s urban environment.

There have been many discussions in the industry regarding the ideal choice of extended programs. I have personally experienced all kinds of pains such as queuing up public charging piles, purchasing parking spaces in residential areas, and building charging piles. I think the charging environment in China’s urban environment needs a long time to improve, and the market opportunity window for extended range will exceed everyone. Expectations. Market data in May has shown that 2/3 of the ideal sales volume comes from the non-licensed market, which in itself indicates a greater market space.

In addition, the value of the capital market to Tesla also fully considers its future potential in autonomous driving. Therefore, the investment and deployment of several Chinese companies on the long-term track of autonomous driving will ultimately determine the ownership of long-term value. This will be a competition with extremely high product technology.

Returning to the original name of the ideal company, Che and Jia, also represents Li Xiang’s original intention. With the advent of the era of autonomous driving, the boundary between “car” and “home” will become blurred. When this day comes, many offline service industries