Li Xiang on CHJ Automotive: Transforming Cities

A Transcript of the Keynote Speech by Mr. Li Xiang is as follows:

Thank you for this opportunity to share my observations with investors and entrepreneurs. I want to start by talking about three things.

First, we started to develop a car and found that the private capital market (meaning venture capital) had never invested in vehicles before. That is because all cars are from either mature, foreign companies that have existed for more than 50 years, or from state-owned enterprises.

Second, we are a real, car company. We conduct our own R&D, manufacturing, sales and services networks. We are not building cars on the Internet.

Third, many people talk about how complicated the auto industry is. Indeed that is true, but we are approaching everything in an uncomplicated and efficient way and doing what needs to be done.

I would like to share with you my understanding of the future of car development. Cars have been around for more than 120 years. Starting from Mercedes-Benz, a brand that everyone recognizes, the car market has opened two windows in the past 100 years. The first window is the assembly line. This window was basically opened to the entire United States, with the likes of Ford, GM, and so on. The second window was refinement, which is where Toyota, Honda, Nissan, and Hyundai, as well as Kia, came in. Essentially, the two windows that have been opened in the entire automotive market of the past are directly related to manufacturing.

In my opinion, the third window will be opened in the next ten years from 2015 to 2025, which is caused by changes in the overall consumer demand and changes in overall innovation. This window is very much like the evolution of smartphones a decade ago. At that time, consumers especially wanted to be able to access the Internet via mobile phones. The overall experience of early Internet access was very bad, but consumers just wanted to be able to use their mobile phones to access the Internet.

At the same time, three very important technologies emerged. The first technology is 3G, the second is mobile chips, and the third is applications. We can see that Nokia was acquired by Microsoft after a two- or three-year process in which they went from first in the market, to the last. The update cycle for mobile phones is one to two years. If products cannot keep up through two-generation cycles, it will collapse.

Among the top ten players in the mobile phone market, there may be more than five brands that have never developed mobile phones in the past. This is the previous opportunity we identified. Now, we have found the same opportunity in the auto industry.

What is the biggest change in consumer demand? It is the traffic jam. When there is no traffic, all we need to consider are its maneuverability and engine. This is not the case at all today. From CHJ data, we have seen early on that consumers no longer consider handling when purchasing cars. That is because no one is having fun driving. There is traffic and headaches every day. As such, consumer demand is gradually changing, and three core technologies are emerging.

The first is electrification, which brings us the greatest benefit. In addition to environmental protection, it offers the biggest opportunity to joining this market as a new brand. Why? Because the highest barriers for car manufacturers in the past include the transmission system, engine, gearbox, differential, and so on. In addition to being a technical barrier, it is also a long-term barrier. However, in the era of electrification, this has given us a very good opportunity. It is easy for us to build a car. It is just as good as Mercedes-Benz, BMW, and Audi. Why? Electrification itself is the physical advantage: the engine no longer vibrates, it is absolutely smooth, there is no noise, and everyone can make these great cars.

The second point, I think, is automated driving. While unmanned driving is still far away, automated driving is here. The autopilot function can liberate the driving experience very well. The city can be jammed, we can block an hour or an hour-and-a-half when we go to work, and use the car as a means of transportation from point A to point B. This process is irreplaceable. It is one thing to accept traffic jams, but please do not let me get stuck in the car with one foot constantly on the brake and forcing me to compete with the car next to me. I think we can turn the whole traffic process into a better experience. When you are in traffic jam, you let the car follow the flow. This is very easy, especially in the age of electronics. In about two years, these technologies will only cost several thousand yuan. Commuting could become the best time for us to read and learn. The car could then replace the toilet and become a mobile study.

The third point is the car network. The biggest role of the Internet of Vehicles is to change the business model of the entire vehicle. Why? With traditional cars, we can take look at any 4S shop (repair shop). In terms of their income and profits, the biggest share of its profit comes from after-sales maintenance. When entering the era of automated driving, the entire after-sales output value will drop dramatically, because electric vehicles basically do not require maintenance. Automated driving can also significantly reduce accident rates. Meanwhile, the existing 4S shop system is difficult to maintain.

There are still many particularly serious problems with electric vehicles. I think the first thing that needs to be solved is the problem of charging conditions, because charging stations are difficult to mass-promote and complete.

In January 2016, Beijing released more than 10,000 electric vehicle licenses. However, only a few hundred cars were purchased because everyone found that they had no means to buy electric vehicles. Some people said that they could use commercial or public charging stations. I cannot solve this problem. I think it is even harder to look at that now, because commercial charging stations by themselves do not have a business model. Any charging station depends on a fixed parking space. The parking space resources are even more scarce, and the electricity bill is extremely transparent. We see all the financial reports on commercial charging station companies. For the ones that are doing well, we can assume that for every one-hundred dollars in operating costs, it brings in a revenue of twenty or thirty dollars. I am talking about revenue, not profit. On the other hand, because of the lack of capital, all charging stations lack maintenance and management. As such, more than 80% of charging stations are abandoned or eventually occupied by fuel trucks.

If we make a future-based electric car, the most important first thing is to solve the problem of charging conditions. We will have a SEV that has the capability to travel a 30km radius in the city. I can build a very good charging network. The usage is very convenient. You can find a plug to charge it. You can charge the battery at home. It can be recharged at our distributed charging station, so the experience is more convenient than a gasoline car.

Our SUV is based on extended range power. Our consumers can drive purely electric in urban areas, which is enough for their use. It can run 150-200 kilometers in a pure electric mode. When they need to run long distances, we increase the range to meet 400 to 500 kilometers, so the cumulative journey can reach 600 to 700 kilometers, becoming an electric car that everyone can own.

Next, let’s talk about the concept of one of our products. Before the iPhone came out, how did the Nokia mobile phone do it? Nokia mobile phones range from a thousand dollars to RMB 80,000. But the iPhone only has a mobile phone, and what was the result? Wang Sicong uses the iPhone, and Faye Wong is also using the iPhone. A college graduate is buying the iPhone. We finally figured out that, in fact, two cars are enough to meet the needs of more than 90% of the consumers in the city: one is a small SEV, and the other is an SUV.

The core technologies and intellectual properties needed to solve these problems are mainly concentrated in three areas.

  • The first problem is that we must use an all-aluminum structure. This saves weight and battery power.
  • Secondly, our SEV has a detachable battery and its distributed charging network.
  • Our vehicle network is our final focus. We are the first dual-system solution for Linux plus Android, which guarantees security on the one hand, and ensures the best application and user experience on the other. We are very confident that we should be the first car brand in the world to truly build a car network system. Why? Because traditional car manufacturers cannot build a car network effectively, all the networking models have a core at the end, which is the account system. Only after this platform has been made can the entire car network be truly formed and functional.

The biggest benefit of the Internet of Vehicles is a revolution in the service model of the entire car. When I got the account system, our business model changed. We have only two models. Each car has only one configuration. It only provides the user with the best configuration. The user no longer needs to get entangled in this aspect. Our entire supply chain and the entire inventory will be completely different. We can very simply calculate our data and find how many cars or even colors we need at any store for the next day. This is very easy. Therefore, we are definitely a direct sales model.

If consumers buy a car from me, 100% of the business is my own, because more than 70% of our users will likely use financing to buy this car, and our car is risk-free. Further down, the insurance business, the car rental business, and the used car business will all become our own.

Service system ecology

Finally, as for the ecosystem of the entire service, we want to make ourselves the intelligent transportation service provider for cities. We have two car models that can meet 90% of urban demands. Why do we say that we are a city’s intelligent transportation service provider, rather than a simple provider that sells cars? First, we provide a convenient energy network for the entire city. Second, we will completely change our entire product portfolio. With two simple and effective products, we can meet the needs of the market. Lastly, we can completely change the entire service ecosystem, because the current 4S shop system and distribution method has no way of meeting the motorization and automated driving needs of the car ecosystem.

This is my sharing with you today. Thank you all.