smart lowers its annual targets: A dilemma in the product model of cross-border collaboration
Holding two aces: Mercedes-Benz's design and Geely's technology, smart has unexpectedly "failed" in the Chinese market.
We've learned that due to the poor sales of the #3 and #5 models, smart significantly lowered its annual sales target in the middle of this year. As a remedial strategy, smart will make its next new model "more Mercedes-Benz."
On its transformation journey, smart has abandoned small cars but not the element of playability. It hopes to create a series of products in the new energy market that can carry forward the brand concept without relying on small sizes. The positioning may not be wrong, but its cross-company collaboration model struggles to hit the mark in the Chinese new energy market, which especially tests the ability of agile iteration and rapid response.
01. smart Enters the Slow Lane
In the fourth quarter of this year, smart will launch a plug-in hybrid version of the #5 model. Like its all-electric version, the new car will be produced at Geely's Changxing Factory in Huzhou. As planned, mass production (SOP) of this car will start around the end of September.
This is smart's first plug-in hybrid model and an unavoidable make-up move. Its all-electric strategy, which it relies on for transformation, is facing challenges. From 2022 to 2024, smart maintained a rhythm of launching one all-electric new car per year, introducing the #1, #3, and #5 models respectively.
In the era of fuel vehicles, smart was a well-known premium small car brand under Mercedes-Benz. However, in the new energy market, smart has grown larger. There are two reasons for this. Limited by the battery size, it's difficult for all-electric cars to ensure excellent performance while being small. Smart hopes to take advantage of the transformation to enter the more mainstream passenger car market. Combining Mercedes-Benz's design and brand with Geely's intelligent technology and engineering capabilities, smart repositioned itself by integrating the high-quality resources of both shareholders to become a high-end brand in the new energy market.
Among the three all-electric smart cars that have been launched, the smallest one has the highest market acceptance. In July this year, the #1 model sold 2,071 units, while the #3 and #5 models sold 380 and 263 units respectively - the larger the size, the harder it is to boost sales.
The #5 model, launched in October 2024, is a mid-sized SUV and a vehicle targeting the most mainstream market. At the end of that year, smart's senior management said that this mid-sized SUV could achieve monthly sales of 10,000 units. However, in reality, since its launch, the highest monthly sales of this car have only reached 1,091 units, in December last year. In other months, the sales of the #5 model ranged between 200 and 300 units.
For two consecutive years, the #3 and #5 models, the two new products, have failed in terms of sales, and smart has not developed according to the planned rhythm. Last year, smart's sales target was 50,000 units, but it only achieved 33,000 units.
We've exclusively learned that at the beginning of this year, smart's internal sales target was 80,000 units. However, in the first seven months of this year, the total sales of smart's three models were only about 15,000 units. In the middle of this year, smart lowered this overly unrealistic sales target by more than 40%.
Tong Xiangbei, CEO of smart Global
With sales hitting a bottleneck, many aspects need to be readjusted. In April this year, smart's senior management revealed that the number of stores would be expanded to around 240 this year. However, we've learned that currently, the number of smart stores is only about 200. While new stores are being opened, some old ones are being phased out.
smart's transformation journey has not been as smooth as expected. Some people attribute the failure of the #3 and #5 models to their large sizes, believing that smart's hasty entry into the mainstream market failed to well inherit the brand value from the fuel vehicle era.
However, this is not the case. Smart has not given up on playability. Instead, it hopes to find another way to implement its brand concept in the new energy market, apart from small sizes.
02. A Big Toy in the Wrong Arena
A person close to the head of Geely Research Institute told us that the project of the plug-in hybrid #5 model was initiated last summer, after the development of its all-electric version was nearly completed. Thanks to the foundation laid by the all-electric version, the development cycle of the plug-in hybrid version was shortened. By the end of September this year, when mass production starts, the actual development cycle of the new car is only a little over a year.
In the new energy mid-sized SUV market, plug-in hybrid or extended-range vehicles have a much higher success rate than all-electric cars. However, smart did not choose to enter the market with a plug-in hybrid model. Instead, it added a plug-in hybrid version nearly a year after the launch of the all-electric model. Now, the plug-in hybrid #5 model will face a highly competitive market with many competitors, low prices, and larger sizes.
A person close to smart's management told us that the problem lies in the product, not the positioning. Smart originally positioned the #5 model as a "big toy" targeting young people in first-tier cities who love outdoor life and need a fun, delicate car without overemphasizing practicality.
Therefore, the #5 model has a boxy shape, which increases air resistance and power consumption but makes the appearance cooler. Its product attributes lean towards light off-road, equipped with many optional accessories such as a roof platform, side ladder, side steps, and a rear spare tire carrier, making it suitable for many outdoor scenarios like camping.
If the #5 model could achieve its product positioning, it would indeed be suitable as an all-electric car, mainly used for short trips around the city without the need to consider long-distance travel. However, the problem is that most of the users of this car are middle-aged men in second and third-tier cities, targeting the family car market. Many of the car's design features have instead become disadvantages for family use, including the decision to start with an all-electric version.
The #5 model failed to attract its target users due to its high price, less-than-perfect design, and difficulty in reaching them through marketing channels. The price of this car ranges from 220,000 to 380,000 yuan. In terms of design implementation, there is a significant difference between the actual car and the design drawings, and the overall body posture is not retained.
Comparison of the #5 model's design before and after
The aforementioned smart official told us that a product similar to what the #5 model aims to achieve in the market is the iCar V23 by Chery. Although the price of this car is only half that of the #5 model, it has more prominent features in terms of styling and playability. Currently, the stable monthly sales of the V23 range from 4,000 to 6,000 units, more than ten times that of the #5 model.
The "big toy" product positioning is extremely challenging in terms of design. Many users believe that the #5 model is not well-executed. Although smart has strong resource backing and its design team is still led by Mercedes-Benz, the design director responsible for the #1 and #5 models is Kai Sieber, who has over 12 years of work experience in the Mercedes-Benz system.
However, for a car, design decisions are not always made solely by designers. They need to be discussed repeatedly with functions such as product planning, engineers, and production. But smart's design decision-making center is far in Germany, which reduces communication efficiency.
Although smart has departments such as product planning in China and has established a mechanism to collect feedback from Chinese users and improve products, the product design is handled by Mercedes-Benz's team in Germany, and engineering and manufacturing are the responsibility of Geely. The smart China team does not have much say. Under this long and complex cross-border collaboration mechanism, a new car ultimately requires the cooperation of teams from two different countries and companies.
Tong Xiangbei, CEO of smart Global, said publicly in the first half of this year that the brand aims for a sales ratio of 5:4:1 in the Chinese, European, and other markets respectively, with the Chinese market having the highest proportion.
However, smart's cross-border and cross-company collaboration model has always struggled to integrate into the Chinese market, which requires agile iteration and rapid response.
03. Optimizing Products and Marketing
The #1 model was smart's highlight product. In the first half of 2022, this car was launched as the first product after smart's brand transformation. After its launch, the monthly sales quickly climbed to over 4,000 units.
At that time, the monthly sales of all-electric cars were generally low. Even the star all-electric models from new car-making forces often had monthly sales of less than 5,000 units. The monthly sales of the #1 model were close to 6,000 units in March 2023, higher than most all-electric products from new car manufacturers at that time. Back then, the #1 model was still priced between 180,000 and 220,000 yuan.
Now, although the starting price of the #1 model has been lowered to the 150,000-yuan range, the monthly sales have dropped to just over 1,000 units. The number of competitors has increased. A person close to smart's sales system told us that products such as NIO Firefly and Lynk & Co Z20 have entered the competing small car market. Even Geely Xingyuan and BYD Yuan UP, at different price points, have diverted the user base of the #1 model.
If users can easily be lost, the problem usually lies in the brand and the product. Smart has started to rebuild its brand and focus on new products.
This year, smart will launch three BRABUS models. One is the performance version of the #5 model launched at the Shanghai Auto Show in April. The second was launched in July along with the new #3 model. At the Chengdu Auto Show at the end of this month, smart will also launch the BRABUS version of the new #1 model.
BRABUS is a world-renowned German car modification brand that has long-term cooperation with Mercedes-Benz and smart. They spare no expense in pursuing ultimate performance during modification, sometimes even replacing everything from the exhaust pipe to the original interior design. As a result, most BRABUS-modified cars are very expensive.
A person close to smart's management told us that the high-performance version of the #1 model is the "cheapest BRABUS." Launching the BRABUS version can enhance the brand image, which is what smart needs now. However, this is more like an emergency measure for the brand image rather than a fundamental solution to the product development system.
For the Chinese market, smart has also made many adjustments. For example, the smart # series sold in China will have a Mercedes-Benz star logo on the B-pillar, which is not the case in other markets around the world.
The Mercedes-Benz logo on the smart car
According to the previously disclosed plan, smart's next new energy vehicle, the #6 model, will be launched next year. This car is expected to be built on Geely's PMA 2+ platform, the same platform as Geely's ZEEKR 007 and other products.
Although smart has experienced the failure of the #3 and #5 models, it has not chosen to return to the small car market. Instead, it continues to work on product improvement.
A person close to smart's management told us that the #6 model will be the smart car with the highest "Mercedes-Benz" content to date. This is undoubtedly a major bet by smart to regain brand competitiveness and market confidence.
However, in the Chinese market, competitors are iterating functions and products on a monthly basis. Smart's long cross-border collaboration chain may still turn "Mercedes-Benz design" from an advantage into a burden. Rather than enhancing the competitiveness of the #6 model at its launch, smart needs to calm down and build a product R & D and decision-making system deeply rooted in the local market.
This article is from the WeChat official account "Automotive Pixel." Author: Xing Ruifang. Editor: Mao Shiyang. Republished by 36Kr with permission.