Why do new players still want to enter the highly competitive automotive industry?
A consensus in the automotive industry is that the industry is in a brutal reshuffle period, and there will only be five automobile companies in the future.
The goal of traditional automotive giants is to "survive". Star new - energy vehicle startups are on the verge of collapse, and once - glorious brands have successively gone bankrupt and been reorganized. At a time when existing automakers are busy struggling to survive, wave after wave of new players are making their debut against the trend.
Just this year, many brands from cross - industry entrants have frequently appeared in the public eye. In May, Jixiang Automobile, a brand under the parent company of Juneyao Airlines, launched its first pure - electric sedan, the Jixiang AIR. In July, Shengqi Automobile, invested in by Chaowei Battery, released its first photovoltaic - powered vehicle. In August, Dreame Technology, a maker of intelligent cleaning equipment, officially announced its entry into the automotive industry. Its first ultra - luxury pure - electric product is benchmarked against the Bugatti Veyron, and in September, it went to Germany to select a site for its factory...
"My bottom line is Lao Gan Ma making cars", "I think Nanfu making cars is where its advantage lies", "Even if we step back ten thousand steps, can't Mi Xue Bing Cheng make cars?"... These joking comments actually boil down to one question: Where is the threshold for making cars?
By referring to the financial reports and other information of four companies, NIO, XPeng, Li Auto, and Leapmotor, "Power Plant" tries to answer: How much capital does an outsider need to build a new automotive brand that can survive, starting from scratch? The answer is: at least 30 billion yuan.
The first step in making cars is R & D. The background and positioning of different companies determine the differences in R & D expenses. NIO takes a high - end approach, targeting the high - end new - energy market and pioneering the battery - swapping business in the early stage. Its R & D expenditure in the first full fiscal year reached as high as 1.465 billion yuan. Leapmotor, on the other hand, follows a cost - effective strategy. Relying on a mature cost - management system and the resource support of Dahua Technology, its R & D expenses disclosed for the first time in 2019 were only 358 million yuan. If we estimate a three - year R & D cycle, the R & D cost of the first new car is roughly around 2 billion yuan.
After R & D is completed, the problem of "manufacturing" needs to be solved. New brands generally lack production qualifications and usually choose contract manufacturing. Taking NIO as an example, it invested more than 220 million yuan in its contract manufacturer in 2018 to build a dedicated production line and supporting facilities. At this time, the new brand has its first model and a production line with an annual capacity of 100,000 units.
However, the real cost lies in parts. Taking the data disclosed by Leapmotor as an example, raw - material costs have accounted for more than 90% of its total costs for many years. For the convenience of calculation, "Power Plant" assumes the "production after order" model adopted by most new - energy vehicle startups, and this expenditure is not included in the initial - stage capital requirements for now. However, as the sales volume expands, the capital pressure will increase rapidly.
What's even more brutal is that having cars, capital to buy factories and materials does not guarantee mass production. Looking at the automotive - building history of the past decade, Byton, once listed as one of the "Four Little Dragons" among new - energy vehicle startups, raised 8.4 billion yuan in financing but collapsed before mass production due to poor management, misuse of funds, and strategic mistakes. Singulato Motors raised as much as 17 billion yuan, but its capital chain completely broke because it spread itself too thin and its three self - built factories had not even been established.
Assuming that a new brand has excellent management and successfully achieves mass production of its first car, the next step is sales. In terms of sales channels, there are three models: direct sales, distribution, and a hybrid model. The direct - sales model has the highest cost, with the annual operating cost of a single direct - sales store reaching 4 - 5 million yuan. The distribution model has the lowest cost, and the expenditure gap between different models is still huge. At this stage, the number of sales stores is generally more than 50, and the number of after - sales service centers fluctuates around this figure.
Promotion of the new brand is also crucial. Not every new player has a boss like Lei Jun, who has extremely high popularity. According to industry insiders' estimates, hosting a large - scale offline press conference inviting 200 media outlets costs approximately 5 - 10 million yuan. The more people are invited, the higher the cost. In addition to press conferences, there are also related expenditures such as public relations, advertising, auto shows, and owner operations. The marketing cost for launching a car generally ranges from 50 million yuan to 200 million yuan. Looking at the overall financial reports, the average sales and management expenses required to officially deliver the first car are about 3 billion yuan.
Therefore, without more than 5 billion yuan in capital, it is difficult for new - energy vehicle startups to complete the "R & D - manufacturing - sales" closed - loop and truly introduce the first car into the market.
Making cars is far from just about the first car. To survive, continuous capital injection is necessary: R & D needs to be iterated, stores need to be expanded, and factories need to be upgraded. Whether a new brand can survive largely depends on its financing ability. Referring to the growth trajectories of several companies, by the time of IPO, the cumulative financing amount generally exceeds 10 billion yuan.
However, this does not mean that listing is guaranteed. There are many brands that have raised more than 10 billion yuan in financing, achieved large - scale mass production, and even once topped the sales list among new - energy vehicle startups, but still failed to list successfully before falling apart.
Take Nezha Automobile as an example. When making cost - effective models, Nezha Automobile does not have the cost - management ability of Leapmotor, resulting in a cumulative net loss of 18.3 billion yuan from 2021 to 2023, and its profitability is not optimistic. When making high - end models, burdened by its image as a ride - hailing car and the lack of competitive technology, it not only had dismal sales but also dragged down the company's capital chain. In terms of brand differentiation, Nezha does not have a unique business deployment like NIO's battery - swapping service. To list, a new brand must convince the market that it can make money and will make more and more. Nezha failed.
Even after listing, a new brand cannot relax, because achieving break - even can only barely be regarded as "having the ability to survive". It took Leapmotor and Li Auto two years to reach this point, while NIO and XPeng have not yet achieved it.
During this period, the brand will enter a stage of rapid development. The employee team will expand rapidly. For example, Li Auto had 4,181 employees in 2020 when it went public, and by the fourth quarter of 2022, when it achieved quarterly profitability, the number had increased to 19,396. Correspondingly, the employee compensation expenses also increased from 1.03 billion yuan to about 6.67 billion yuan. Leapmotor's employee expansion was slightly smaller, but from 2022 to the fourth quarter of 2024, when it first achieved profitability, both the number of employees and employee compensation almost doubled.
R & D investment must also continue to grow. To turn losses into profits, a brand must launch products that can make money, either by reducing technology costs or by having products with sufficient appeal for consumers to pay a premium willingly. Li Auto's R & D investment increased from 1.11 billion yuan in 2020 to 6.78 billion yuan in 2022. Leapmotor's R & D expenditure increased from 1.411 billion yuan in 2022 to 2.896 billion yuan in 2024.
As sales volume increases, the annual production capacity of 100,000 units can no longer meet the demand, and the production line needs to be expanded. At this stage, the investment in factory construction and production equipment is basically 3 billion yuan. Similarly, the number of sales stores will expand to 300 - 700, and the number of supporting after - sales service centers will also increase to about 400.
Before revenue can cover costs, a brand needs to be able to cover its previous losses. Looking at the financial reports and past information, "Frugal Factory" Li Auto spent more than 40 billion yuan in total before turning a profit, with a loss of more than 6.4 billion yuan, and had 58.45 billion yuan in cash reserves at the end of 2022. Cost - conscious Leapmotor had a cumulative loss of 22 billion yuan before achieving profitability and had 6.378 billion yuan in cash reserves at the end of 2024. NIO and XPeng, which aim to turn a profit this year, have cumulative losses of more than 120 billion yuan and 40 billion yuan respectively. Before their net profits turned positive, the cumulative financing amounts of Li Auto and Leapmotor basically exceeded 30 billion yuan.
Based on the minimum standard, referring to the sum of Leapmotor's losses and cash reserves, as well as the cumulative financing amounts of Leapmotor and Li Auto, the entry ticket for supporting a new automotive brand from its establishment to achieving profitability is 30 billion yuan.
It can be seen that among the new automotive players who have emerged in the past two years, it is not without reason that only Xiaomi, which entered the market with 100 billion yuan in capital, remains in the game. After all, these new brands that vow to "invest billions" in making cars can neither shake the industry nor make a splash.
Some new brands have also realized this and do not enter the mainstream battlefield. Instead, they operate in niche markets such as super - cars, MPVs, and logistics vehicles. There are many brands with sincere dreams of making cars, but it cannot be denied that there are also stories like this:
Six years ago, Saleen Automotive, a new brand claiming to "help more people realize their super - car dreams", was high - profilely launched at the Bird's Nest. One year after its launch, Saleen burned through 5.7 billion yuan in funds, and its chairman fled to the United States under the accusation of "embezzling public funds". What was left were a factory up for judicial auction, a mess of debts, and a large number of low - quality vehicles in stock.
This article is from the WeChat official account "Power Plant". Author: Zhai Fangxue. Republished by 36Kr with permission.