The automotive industry's "PDD" is making another move

The "Pinduoduo" of the automotive industry is stirring up trouble again.

On June 28th, Leapmotor entered the mid-to-large SUV market with its flagship C16. This large six-seater SUV is equipped with intelligent driving, the 8295 chip smart cockpit, a color TV, a large sofa, and 800V fast charging. The entry-level extended-range version starts at only 155,900 yuan, while the pure electric top-of-the-line version is priced at just 185,800 yuan.

It's worth noting that similar positioned models like the Aito M7 and Li Auto L8 start at nearly 250,000 yuan, and the former "legendary car" Toyota Highlander is priced as high as 300,000 yuan.

It is clear that Leapmotor wants to firmly hold onto its "price butcher" reputation, following the path of replacing luxury cars with affordability.

After the launch of the C16, many consumers have referred to it as the "half-priced Li Auto L8", which pleases Zhu Jiangming. In a post-event interview, he told Wall Street News, "Some users who are used to buying Chanel occasionally buy Uniqlo, and they might also buy the C16. After using it, they feel no difference, and at that point, they become loyal Leapmotor fans."

Zhu Jiangming even decided to follow Zhou Hongyi's example and auction off his three luxury cars - Mercedes-Benz S-Class, Porsche Cayenne, and Toyota Alphard - to buy a C16 as his daily driver.

Now, Leapmotor, focusing on the 100,000-150,000 yuan price range, has surged ahead of second-tier new forces. It achieved sales of 86,700 units in the first six months, with monthly sales exceeding 20,000 units for the first time in June.

In Zhu Jiangming's view, Leapmotor's ability to stand out in the fiercely competitive market lies in its focus.

He pointed out to Wall Street News that in the current industry landscape, where the situation is uncertain and everyone is fiercely competing for their market share, the battle lines cannot be drawn too long. Leapmotor has always been technology-oriented, with 60% self-developed components and extensive reuse of parts, which saves a lot of costs and allows for competitive pricing.

In other words, Leapmotor not only created the "half-priced Li Auto" but also started to learn the essence of Li Auto's product matrix - "nesting dolls".

Under Zhu Jiangming's plan, Leapmotor aims to increase its channel coverage in the lower-tier markets while leveraging the strength of the Stellantis partnership to break through the barriers to overseas expansion rapidly. Zhu Jiangming bluntly stated that this is the only way to become a top global car company and achieve annual sales of 3 million units.

Leapmotor has big ambitions, and even Zhou Hongyi, who invested in Nezha, once expressed regret for "missing out" on Leapmotor.

However, before becoming the next industry giant, Zhu Jiangming and Leapmotor have many hurdles to overcome. Achieving this year's target of 250,000 units in annual sales is not easy, especially with XPeng and Nio's sub-brand models already on the road, and the 150,000-200,000 yuan market segment is already showing signs of activity.

Nevertheless, Zhu Jiangming stated, "No matter how tempting or profitable it may be, Leapmotor will always insist on treating cars as consumer goods for the masses." The large order volume of 5,208 units within 48 hours of the C16's launch has given him a lot of confidence He believes that under internal and external efforts, Leapmotor may usher in a leap in the second half of the year.

The following is a transcript of the conversation with Zhu Jiangming, Chairman of Leapmotor, and Cao Li, Senior Vice President (edited):

Question: Is Leapmotor worried that some new consumers will use "replacing Li Auto" to describe Leapmotor?

Cao Li: I think it's a good thing that everyone has this idea. There's nothing wrong with replacing Li Auto.

The positioning of Li Auto's same-level cars is at least in the price range of 350,000 to 450,000, while ours is below 200,000. But it doesn't mean that below 200,000 can accept having all functions and performance worse than theirs, so we are definitely benchmarking the best functional experience and product quality in the industry.

For example, we use manually operated passenger screens, while theirs may have a better sense of ceremony with electric opening, but the cost is twice as much for manual and not worth it. Leapmotor's products must definitely approach excellent products infinitely in terms of performance and product strength, but the concept in terms of price is different. Being able to replace, it is definitely a good thing for Leapmotor.

Zhu Jiangming: For example, there may be some users who are used to buying Chanel occasionally buying Uniqlo, and they may also buy C16, but after using it, they feel no different. At this point, they are loyal fans of Leapmotor.

Question: Leapmotor says it wants to be the Uniqlo of the automotive industry, how can it achieve the balance of quality and price?

Zhu Jiangming: First, 60% of the components that account for the cost are self-developed and self-made, which can save some cost space for users. If components have a 10% gross margin, the entire vehicle has a 6% cost space.

Second, in the direction of product platformization, Leapmotor strives for the highest purchase quantity for each component. Currently, the C series and the upcoming B series, except for non-generic parts such as styling, shell, body, share 88% of the components. The front and rear lights, dashboard, front seats, and chassis parts of the C16 and C10 are exactly the same, which is the platformization part.

In terms of innovation, we used a chip 8295 to achieve L2 level intelligent driving, 360-degree surround view, automatic parking, sound tuning, etc. Only Leapmotor can maximize the efficiency of a chip; our battery pack has no top cover, uses a full steel structure, but can achieve lighter weight and stronger structure than others' full aluminum structure battery packs, greatly improving cabin comfort.

Third, Leapmotor's products are cost-priced, utilizing our innovative technology, more than 60% of self-made components, and passing on the saved space to users. At the same time, we use many of the same suppliers as BBA, such as door panels, interior, and dashboard.

I am a technology-oriented manager with an engineering background, more inclined to use technological advantages to make products, so we have always said that we want to be the Uniqlo of the automotive industry, and will continue to adhere to this concept in the future.

Question: Leapmotor's significant advantage lies in the standardization of parts, but how to avoid internal competition between vehicle models?

Zhu Jiangming: Leapmotor has indeed done well in this regard. From April to June, after the launch of the C10, sales increased from 4,000 units to 6,000 units, indicating that the C10 has sufficient vitality, and user research data also reflects that the satisfaction of C10 buyers is very high Regardless of whether it is a user of low-end cars or BBA, they all believe that they are getting value for money, which is what allows our sales to keep rising.

At the same time, the C11 also achieved very good results, slightly ahead of the C10. So our 1+1 is at least greater than 1.5. The old products also have sufficient word of mouth and trust, continuing to flourish, and the new products can also achieve increasing sales.

Q: Why has Leapmotor achieved good results in such a competitive market?

Zhu Jiangming: I think people are more inclined towards rational consumption, so looking at the industry as a means of transportation may have more advantages in the long run. For example, in racing cars, costing 3 to 4 million RMB per vehicle, the cost is mainly composed of steel, rubber, leather, etc. And weight must be controlled and costs are not very high.

So no matter how tempting or profitable it may be, Leapmotor will always insist on making cars a consumer product for the masses. For Leapmotor, from January to May this year, sales have remained in the top three among new car makers. With the addition of the C16, I believe the ranking may move up, and the second half of the year should see even better performance.

Q: Leapmotor has already released 3 SUV models in the 150,000 to 200,000 RMB price range, why is there such a preference for this price range, and what are the expectations for the next steps?

Zhu Jiangming: We hope that the C series can fully penetrate the 150,000 RMB price range, capture a large market share, and strive to achieve monthly sales of 30,000 in this price range; next year, there will be 3 B series cars priced between 100,000 to 150,000 RMB. By 2026, we will focus on launching 3 products centered around the 200,000 RMB price range.

It is important to focus on customers in a specific price range, as well as the products and components in that price range. Otherwise, having products at both high and low ends, with different users and products, will lead to a long battle and a lack of competitive advantage.

Currently, everyone is very active because it is an uncertain stage, and everyone wants to use their abilities to secure their position and market share. Leapmotor still has a chance as long as we remain steady and focused.

Q: It was mentioned at the press conference that luxury cars will be auctioned, is there such a preparation?

Zhu Jiangming: I do want to use the C16 as my future commuting car, whether I drive it myself or have a driver.

I have had a Mercedes-Benz S for over ten years, but it still looks new because I don't use it much. When I first bought it, I had at least ten years of driving experience, but I felt very uneasy driving the Mercedes-Benz S because it was expensive and large, making it uncomfortable to drive such a big car. So bigger is not always better, it should be based on needs.

I also have a Porsche Cayenne that I bought for 1.9 million RMB, also over ten years old; and an Alfa Romeo for about six to seven years. I plan to auction off these three cars at the right time and focus on driving the C16 until the next Leapmotor D series 6-seater is released, using this car as my commuting vehicle.

Q: Currently, in the market for 6-seater mid-to-large SUVs, it seems that only Aito M7 and Li Auto L8 are prominent. Does the launch of the C16 at this time indicate a positive outlook for the future growth trend of the segmented market? Zhu Jiangming: Because the iconic 6-seater car in everyone's mind used to be the Toyota Highlander, back then you had to pay extra to buy one. I also bought one in 2011, hoping to travel and dine with my family without needing to take a taxi, just one car would be enough. There is indeed a strong demand for this, especially with the situation of having a second child now, the market size is definitely getting bigger.

The advantages of Leapmotor C16 are that it is easy to handle, has very good seating space, suitable for both business and family use, it is a very comprehensive car. In the past, I spent a lot of time in the GL8, everyone knows that the GL8 is a great car, but the seating experience in the second row of the Leapmotor C16 should surpass the GL8.

Question: Since the launch of the C16, the product lineup has become more complete. How will you continue to strengthen channel construction in the second half of the year?

Zhu Jiangming: Our main task for channels this year is to adjust the structure, with the direction being "1+N". We will use more automobile cities in cities as the "1", where 4S stores serve as points for display, sales, delivery, and service. Around them, we will develop a circle of "N", which includes small automobile business districts or supermarkets.

We hope to reduce our investors, that is, the operating entities, and increase the model of automobile cities or automobile business districts. We aim to develop over 300 automobile cities by the end of this year.

We hope to increase the total number of outlets from the current approximately 500 to 800 by the end of the year, while also intensifying the expansion of outlets to cities without outlets yet and to fourth and fifth-tier cities with certain sales scales. The penetration rate has reached 52% now, and we need to accelerate the progress.

Question: Our R&D expenses in the first quarter were over 500 million, showing a decrease compared to the previous period. "Wei Xiao Li" and other competitors have higher R&D expenses, how do we ensure our technological competitiveness or leadership?

Zhu Jiangming: Looking at the financial reports, not only in Q1, the total R&D investment in previous years is very low compared to several competitors, mainly due to leveraging our existing accumulation, including our organizational capabilities and basic technological capabilities.

Because when we were founded in 2015, the founding team had a good foundation in software, technology, and R&D management, which saved us a lot of time and resources, avoiding detours, and completing a lot of technological reserves and accumulations in nine years. So, in terms of output efficiency, Leapmotor's R&D efficiency must be the highest.

Question: How will Leapmotor's future layout in the European market contribute to our performance in China, and what kind of driving effect will it have on the domestic market?

Cao Li: Currently, profits in Europe are better than in China, but in the long run, it will also become more competitive. Many European car companies have already started to become more competitive, whether in terms of pricing, technology, or products.

After we expand into Europe, especially after cooperating with Stellantis, if the sales volume of Leapmotor International can gradually meet our expectations, it will definitely contribute to the brand.

Question: There have been recent reports that Leapmotor has started trial production in Europe. If Leapmotor enters production in Europe in the future, what kind of model will it choose? Cao Li: Currently, the overseas expansion of Chinese vehicles is a very sensitive period, but Leapmotor has certain advantages. After our cooperation with Stellantis, its global manufacturing resources can be evaluated and utilized. As for overseas production, we are currently evaluating feasibility, including economic policies. Leapmotor International's current plan is still mainly focused on sales.

Question: Many Chinese car companies have further accelerated the speed of building factories overseas. How do you view the future development space of overseas factories and the current model of Leapmotor?

Zhu Jiangming: I think as a car company, ultimately, to stand firm, it must be globalized. The top ten global car companies basically need to achieve annual sales of over 3 million vehicles, with at least 50% of the market overseas, in order to easily achieve a scale of over 3 million.

Our cooperation with Stellantis is mainly to accelerate the pace of entering overseas markets, whether it is the construction of outlets, the establishment of service systems, or the impact of geopolitical factors on tariff trade barriers. We also hope to use this cooperation to enter overseas markets faster than other domestic car companies in the next three years.

Question: Has the trend of price wars already bottomed out?

Zhu Jiangming: The entire process of new energy vehicles will basically be completed in three years, and traditional fuel vehicles will shrink to within 10% after three years, with more emphasis on hybrid, plug-in hybrid, or pure electric vehicles. Leapmotor is still following its steady path, and we hope that every product released in the future will have full competitiveness like the C16.

Question: What strategic position will Leapmotor place intelligent driving in internally? How much stimulating effect will intelligent driving under the price range of below 200,000 RMB have on sales?

Zhu Jiangming: Leapmotor, in terms of intelligent driving, adopted more of a follow-up strategy in the previous stage. Even the performance of the first-tier intelligent driving products is not very satisfactory now, only assisting in driving, making it difficult to open up a significant gap.

In the next 3-5 years, I think intelligent driving will become more mature, so we have invested more manpower in the entire intelligent driving field since last year, with a team of over 400 people currently. The static BEV will be available in July, and the dynamic BEV will also be available in October or November. The overall technological capabilities have gradually approached the first-tier.

In the next one or two years, everyone can see that Leapmotor's progress in intelligent driving capabilities should accelerate. Our B-series cars in the 100-150,000 RMB range next year may come with high-end configurations including lidar and high-performance intelligent driving chips. We believe that intelligent driving will definitely be a major direction in the future, and even entry-level vehicles must have it. At the French auto show in October this year, the first car of the B-series (SUV) will be exhibited