Behind Jia Yueting's car-making crisis: the race between "barbarians" and time

"The vision is beautiful, but making cars is not that easy. Regardless of whether Jia Yueting can survive the current crisis, at least LeTV has given a warning to the 'barbarians' entering the automotive industry." After LeTV's production suspension, the answers received from executives of traditional automobile companies were almost the same: the problems facing LeTV are more serious than they imagined.

Although Internet companies have strong resource integration capabilities in terms of capital, technology, talent, understanding of user psychology, etc., unlike the mobile phone industry, it is difficult to succeed in an automotive product with more than 20,000 parts without accumulation.

However, a senior executive of NIO told a reporter from 21st Century Business Herald on December 3: "Car manufacturing by companies with an Internet background can solve many fundamental problems in the traditional automotive industry."

For example, traditional car companies now say that selling cars is not profitable, and after-sales service is the main source of profit. However, this view is exactly the opposite for some car companies with Internet backgrounds. "The after-sales service market has high profits, but will the customer experience be good?" said the above person.

Encountering financial embarrassment

LeEco is a benchmark for Internet-based car manufacturing. It entered the automotive industry in a high-profile manner, claiming that "Internet + Car" will become a disruptor of the traditional automotive industry. In just over a year, it poached a large number of "bigwigs" in the automotive industry, including former SAIC Group Vice President Ding Lei and Zhang Hailiang.

At the same time, LeTV has also triggered the collective enthusiasm of Internet-based companies to build cars. Like LeTV, a group of emerging automobile companies, including NIO, WM Motor, Harmony Futeng, etc., have almost all "broken into" the automobile industry with a new model, using the "new energy + smart interconnection + sharing" model to create a new way of travel, hoping to become the winner in the future automobile market in the same way that Apple and Huawei subverted Nokia .

However, Faraday Future (FF), a startup invested by LeTV and a high-end electric car manufacturer, has recently been questioned about the suspension of its project in Nevada as it focuses on the US market.

LeTV's American Super Factory is known as the world's first ecological automobile super factory. The first phase of the factory project has an investment of 6 billion yuan, with an annual production capacity of 200,000 vehicles; the second phase is planned to start construction within two years after the first phase is put into production, with an expansion capacity of 200,000 vehicles and a project investment of 6 billion yuan. The business park supporting the park mainly includes administrative office areas, supporting facilities, etc., with an investment of 2 billion yuan.

Earlier, some media reported that LeEco's situation in China was even less optimistic. Zhejiang Deqing planned to invest 20 billion yuan in a super car factory, but there was no sign of construction; Tianjin Jixian planned to invest 40 billion yuan in an eco-city, but an official from the China Merchants Group said that the two sides had not officially signed a contract.

However, LeTV later announced that the Moganshan project in Zhejiang is progressing smoothly and will start construction before the end of the year. The Jixian project in Tianjin has already signed a letter of intent for cooperation with the local government, and related work still requires further negotiation between the two parties.

Jia Yueting also stated in an open letter that LeTV is indeed facing financial difficulties, and the company will bid farewell to its expansion and money-burning model and focus on its existing ecosystem.

There are more difficulties than imagined

Jia Yueting is not unaware of the investment required to build a car, and he has made some preparations in the early stages. In fact, when Ding Lei joined LeEco in September last year, people close to LeEco revealed to reporters that Ding Lei chose LeEco because, compared with traditional car companies, they have greater ambitions, greater investment, and less burden, which are all features that traditional car companies do not have when making Internet cars.

"Although traditional car companies are also developing Internet cars, most of them have invested tens of billions, and it is difficult to expand on this scale." The above-mentioned person believes that the main reason is that traditional car companies are unlikely to stir up existing vested interests for a still distant dream.

There are at least two reasons: first, the large investments made by traditional car companies in Internet cars will affect their existing profits; second, the basic consensus reached by Internet car companies is that the future operating model of cars must be shared through a time-sharing leasing model, which also means that instead of buying one car per person before, after sharing, an average of three or four people, or even more people, only need one car.

Traditional car companies are unwilling to actively promote such a market compression. In other words, for automotive executives, if they do not work in Internet companies to build future smart cars, their development is likely to be limited.

"It should be said that LeTV's tight capital chain is mainly due to two reasons: one is that the investment in the automobile industry has far exceeded LeTV's expectations; the second is that the financing method adopted by LeTV is not applicable to the automobile industry." An executive of a traditional car company who did not want to be named said in an interview.

Internet cars are also cars. Car manufacturing requires a platform. The construction of a platform alone cannot be completed without tens of billions of yuan. In addition, car manufacturing requires a large investment and a long time. For example, Qoros Auto invested more than 15 billion yuan in seven years. The same is true for Internet car manufacturing. In fact, although the plan is high-profile, not many companies with Internet backgrounds actually produce cars. In October this year, it was originally planned that Jia Yueting would personally drive LeSee to attend LeTV's San Francisco press conference, but the car did not appear in the end. Instead, it had a "car accident" on the way from Los Angeles to San Francisco.

"For automobile companies, the process costs required for a mass-produced car and a concept car on a booth are completely different," the above executive believes.

In addition, there is the source of funds. The automobile industry is a long-term investment, and investors value long-term interests rather than short-term behavior. However, LeTV's financing method through listed companies attracts short-term investors. This means that LeTV needs to constantly create topics to attract investors, and when LeTV is in crisis, investors may immediately liquidate their positions, which is also the main reason for LeTV's unstable capital chain.

The window period is only three or four years

"It is not impossible for LeTV to succeed. If it can overcome the capital chain crisis, it still has a chance of success. It is too early to make a rash judgment now." Several executives of traditional car companies interviewed expressed similar views.

However, an executive from an emerging auto company told reporters: "We don't want to be confused with LeEco. Because LeEco's crisis is only LeEco's own, not that the logic of Internet-based companies making cars is wrong."

Car companies with an Internet background pay more attention to customer experience. As long as they can provide users with a good experience, whether they buy a car or not, what will be left in the end is bound to be the model with the best user experience.

Since emerging companies with an Internet background are building cars and are not influenced by traditional businesses, they can be imaginative and adopt a completely new model centered around user experience.

However, executives of traditional car companies generally have reservations about this. "The car itself is very complex, and small batches are different from mass production. It's easy to make a show car, but it's different to actually put it on the road."

For example, the power performance of a car can reach the speed of a sports car, but the tires may not be able to bear it. To ultimately integrate these into a comprehensive capability requires not only resources but also time. This is why most automobile companies with an Internet background in recent years have been loud but not effective. Although there are some exhibition cars, they have not yet launched a mass-produced car.

"I believe that there will be many successful emerging companies, but traditional automakers are also transforming," said a manager of SAIC Group. In fact, in the auto industry, a large-scale transformation is underway from international giants such as Volkswagen and GM to traditional automakers with independent brands such as SAIC, FAW, and GAC, while traditional automakers are joining hands with Internet automakers to create a model of better customer experience, which is also in full swing.

"Compared with car companies with an Internet background, the 'car + Internet' model is more feasible and efficient." The above-mentioned person believes that from the current situation, the transformation products of traditional car companies will be concentrated in the next three to four years. This also means that for these emerging companies, if they cannot quickly bring products to the market and achieve breakthroughs, they will face greater challenges after the three to four years window period.

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.