The light of "sweeping grass" has faded, and Ecovacs has "revealed its true colors"

Recently, Ecovacs, a leading domestic company in the field of intelligent sweeping robots, celebrated its 25th birthday. Ecovacs is clearly serious about focusing on one thing for 25 years. However, the development of Ecovacs, which has already passed its 20th birthday, has not been a smooth journey over the past 20 years.

Although in terms of scale, Ecovacs' position as the number one in the sweeping robot industry is currently unshakable. However, the information revealed in its latest financial report is not optimistic. The financial report shows that in the first three quarters of 2022, Ecovacs achieved revenue of 10.12 billion yuan, a year-on-year increase of 22.81%; and achieved a net profit attributable to shareholders of 1.122 billion yuan, a year-on-year decrease of 15.65%.

In the third quarter, its net profit plummeted by 48.94% year-on-year, which is a 50% drop. Although the annual report has not yet been released, industry insiders predict that the year-on-year decline in net profit attributable to the parent company will also exceed double digits.

There are signs that Ecovacs' once high-speed growth momentum is in a sharp turn, and even its profitability is in doubt. Corresponding to the capital market, Ecovacs's stock price has also been "falling" since 2023. The shaken investor confidence is enough to show that Ecovacs's position as the industry leader may have long been in name only.

1 "Leading" the price involution, Ecovacs may find it difficult to win the "price war"

Some netizens joked that other industries engage in "price wars" to see who has the lowest price, but the robot vacuum cleaner industry is just the opposite, not to see who is better, but to see who is more expensive. Compared with the price level of robot vacuum cleaners in recent years, the price increase of this type of product can indeed be called involution, and even few companies can compete with it.

For example, the CR4 index, which measures the industry concentration, shows that the leading companies in the sweeping robot industry are Ecovacs, Roborock, Whale Cloud, and Dreame, accounting for more than 90% of the market share. At the same time, the overall price of the industry continues to rise, but sales volume seems to be approaching a growth bottleneck soon.

According to research data from securities institutions, the average price of domestic sweeping robots will be 1,687 yuan, 2,424 yuan, and 3,175 yuan respectively from 2020 to 2022. This shows that in about three years, the average price of sweeping robots has risen by about 50%.

It is worth mentioning that Ecovacs has the highest price involution. According to statistics from Aowei Cloud Network, the average price of Ecovacs in 2022 is about 4,000 yuan, of which the offline and online average prices have increased by 1,531 yuan and 848 yuan respectively. From the perspective of price range, in the mid-to-high-end price range of 3,500-6,000 yuan, Ecovacs' sales market share in 2021 was 41.3%, and in 2020 it was 5.1%, which can be said to be a significant increase.

However, the cruel reality is that the sweeping robot industry has not seen a simultaneous increase in sales due to the continuous increase in product prices. On the contrary, terminal sales reached a turning point in 2022. There was even an embarrassing situation where retail sales increased slightly by 3.4%, but sales fell sharply by more than 20% year-on-year. It is not difficult to see that the terminal market's price acceptance of sweeping robots has reached a critical point.

This also means that the sweeping robot industry will no longer be able to gain market growth through price increases. Moreover, the price of sweeping robots has been rising year by year, which has turned away many consumers who are eager to try because of their high experience threshold and high trial and error costs. As a new "species" in recent years, it will become extremely difficult for them to strengthen their market penetration.

The reason why the robot vacuum cleaner industry is in its current predicament is obviously related to the direction of competition among leading companies. However, although Ecovacs leads in sales and prices, it has not yet fully exerted its profitability.

According to Ecovacs' financial report data, from the second and third quarters of 2022, Ecovacs' net profit growth turned from positive to negative, at -12.34% and -48.94%. It can be seen that relying on price involution to lock in the so-called high-end market may be a false proposition for Ecovacs. In the face of embarrassing financial data, it is obviously difficult for Ecovacs to justify its capital story of making a high-end sweeping robot.

2 The stock price has been like a roller coaster ride, and has become an "abandoned child" of capital

The smart technology industry has never lacked capital myths, and the hot sweeping robot track is no exception. As a sweeping robot player favored by capital, Ecovacs is also the biggest beneficiary of capital dividends.

However, when Ecovacs successfully landed on the capital market, a dramatic side appeared. Since March 2020, Ecovacs' market value has increased 15 times in 14 months, from less than 10 billion to more than 140 billion, so it has also been dubbed the "sweeping Mao" halo.

However, during the same period, Ecovacs' market value collapsed and fell all the way, with its share price falling by more than half. Even today, its market value is still hovering below 50 billion yuan.

Image source: Baidu Stock Market

The ups and downs of Ecovacs' stock price may be related to its consistent business strategy. For example, the name Ecovacs alone has attracted a lot of doubts. What is puzzling to the market is that a company whose products do not have much technical content and whose R&D investment is also very questionable has a very fashionable brand name.

It is understood that the Ecovacs sweeper was named "Dibao" in its early years. It was widely promoted as a high-tech sweeper robot because of its novel functions such as dancing and singing. Moreover, "Dibao" has been iterated many times. Because of its first-mover advantage in the market, it quickly occupied the leading position in the industry and its market share also ranked first in the industry.

According to statistics from Aowei Cloud Network, Ecovacs' online channel market share was 41% in 2020, while its offline channels showed a first-mover advantage. Due to its early layout and rich channels, its market share is as high as 80%. However, it is worth noting that compared with brands such as Roborock and Dreame, the founding team of Ecovacs has a technical background.

Qian Dongqi, the founder of Ecovacs, is not from a technical background. He majored in philosophy in college and gradually transformed from a trading and manufacturing company before founding Ecovacs. Therefore, since its establishment, Ecovacs has always relied on marketing to win, and has a strong offensive in conquering the market.

In fact, Ecovacs is good at marketing, which is well known in the industry. It has even been questioned for its habitual use of vicious competition. For example, many media reported that a senior executive of smart home appliances revealed that his company's e-commerce store was maliciously reported and removed from the shelves. After tracing the cause, they analyzed that it was Ecovacs' sub-brand Tineco that did it. Although the outside world does not know the truth, the media's detailed reports are obviously not groundless.

Because industry competition incidents like this are not occasional and not the first. For example, Ecovacs has had disputes with Dyson, Bisheng and other companies in the industry many times before, and has been accused of using lawsuits to launch public opinion attacks on competing brands and markets, and has even been suspected of fraud.

What is even more fatal is that although Ecovacs claims to be a high-tech company, its investment in research and development is far less than the huge amount of money it has spent on marketing. For example, in the first half of 2022, Ecovacs' operating costs were 3.344 billion yuan, a year-on-year increase of 25.5%, which has reached about half of the company's revenue. Among them, sales expenses increased by more than 50% year-on-year, and marketing promotion and advertising expenses increased by 75% year-on-year.

It is not difficult to understand why such a large amount of money is frequently criticized by the outside world. In contrast, Ecovacs' R&D investment is less than one-fifth of its marketing investment, which also exposes Ecovacs' long-standing problem of "focusing on marketing and neglecting R&D".

Its financial data shows that between 2019 and 2021, Ecovacs' R&D investment accounted for an extremely low and declining proportion of total sales in the same period, at 5.22%, 4.67%, and 4.19%, respectively. During the same period, iRobot's R&D investment remained above 10%, and Stone Technology's R&D investment was above 8%. As one of the industry's strongest brands, Dyson's R&D investment has remained at around 40% for many years.

As the saying goes: True gold is not afraid of fire. Ecovacs' stock price has been on a roller coaster ride, which is obviously because investors have gradually seen the essence of the problem and have lost confidence in Ecovacs's prospects and future. The rational vote of shareholders on Ecovacs speaks for itself.

3 Industry competition is fierce, and the "IQ tax" is suspected

Although the robot vacuum cleaner industry is highly concentrated, about 10% of the market share is still left to latecomers in the industry. Moreover, Ecovacs did not establish an unbreakable competitive barrier in the early years because of its absolute advantage in market share.

Therefore, when Roborock, Xiaomi, Dreame, Whale Cloud, Midea, Haier and others joined the competition, Ecovacs' first-mover advantage was gradually weakened and its market share continued to decline. At the same time, market share data also shows that the sweeping robot industry is still a competitive industry.

For example, according to the online sales channel data of Aowei Cloud sweeping robots, the top five brands in terms of market share of sweeping robots were not stable in the first half of 2022. In April of that year, Roborock surpassed Ecovacs to become the first, and Xiaomi, Whale Cloud and Dreame ranked third to fifth respectively; it was not until May that Ecovacs regained the first place in market share.

It is understood that in 2021, although Ecovacs still ranked first in the online and offline market share of sweeping robots, its market share has dropped sharply to about 40%. In such a situation, compared with its former position at the top of the market, Ecovacs can be said to be very lonely now.

Looking at the long-term trend, it has been two years since then. Ecovacs' limited market share and remaining space have probably been eaten up by major competitors, and it may not be easy for it to maintain its position as the industry leader.

In addition to the difficulty in maintaining its position in the industry, Ecovacs is also facing a brand trust crisis due to frequent product quality issues and chaotic channel prices. For example, on Double 11 last year, while Ecovacs achieved a brilliant performance of 3.72 billion yuan in total channel sales, a year-on-year increase of 24%, it also suffered collective complaints from consumers. Disputes such as consumers demanding a refund of the price difference due to the chaotic price system still plague Ecovacs.

It is understood that consumers' doubts during this period focused on the fact that, in addition to the discrepancies in the minimum prices of goods advertised on different platforms, consumers even reported that the "88VIP" membership red envelopes they purchased on the platform were not fully returned by Ecovacs when they refunded the price difference of the goods.

At the same time, smart sweeping robots such as Ecovacs are often questioned for being a waste of money. Related sweeping robot products are also criticized for being fancy and useless.

Moreover, although the Ecovacs robot vacuum cleaner basically meets the expectations of users, there are still fatal problems in terms of product strength. For example, map loss, poor passing ability, disconnection, hair entanglement, "eating" small things such as socks and data cables, water stains when mopping the floor, quality control, after-sales service and other problems. It is worth mentioning that other brands of robot vacuum cleaners have not overcome these problems.

It can be seen from this that although Ecovacs has the highest market share, it does not have much obvious advantage compared with other brands. It is even still "disliked" by users due to product quality issues.

For example, on the Black Cat complaint platform, searching for "Ecovacs" will yield more than a thousand related complaint results. Most consumer complaints focus on the quality and design issues of Ecovacs' sweeping robot products. This also means that Ecovacs' product quality and design do not match its high-profile "black technology" marketing and the technological attributes it repeatedly emphasizes.

4 Conclusion

In summary, Ecovacs is frequently questioned for "taxing its IQ" for a reason. These practical problems facing Ecovacs are related to the fact that it is no longer "favored" by investors in the capital market, and its brand strategy of "focusing on marketing and neglecting R&D" and the company's genes. All of this may have been foreshadowed when it founded the brand.

Hopefully, Ecovacs can also discover this potential crisis and pull back from the brink as soon as possible. In this way, Ecovacs may still have a chance to stay in the leading camp and stabilize its position in the industry.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.