Tech Planet by Ren Xueyun After the rise of new energy vehicle companies like emerging forces in the automotive industry, car dealers have fallen from grace. In the traditional automotive market, car dealers hold the channels, serving as the communication bridge between consumers and automotive brands. However, starting from Tesla, new energy vehicle companies have adopted a direct sales model, targeting end consumers directly. Under this model, the influence of car dealers in front of automotive brands continues to weaken, making it difficult for them to survive. According to the latest “China Automobile Dealer Inventory Alert Index Survey” released by the China Automobile Circulation Association, in May 2024, the inventory alert index for Chinese car dealers was 58.2%, above the warning line, indicating significant inventory pressure for dealers. While car dealers are struggling with the downturn in the market, new energy vehicle brands like emerging forces have not benefited from direct sales, instead becoming a drag on brand gross profit margin. As a result, new energy vehicle companies are accelerating their transformation.
Under the leadership of Wang Fengying, the new car force Xiaopeng Motors launched the “Jupiter Plan” in September last year, gradually phasing out inefficient direct stores, and expanding the scale of dealer stores with significant results in just six months. The first quarter financial report for 2024 shows that its gross profit margin has increased significantly to 12.9%, compared to just 1.7% in the same period last year. This year, more and more new energy vehicle brands have abandoned pure direct sales. From Avita, Leapmotor, Xpeng, Farasis, Xiaomi Motors, to Jike, Weimar Lede, more and more new energy vehicle companies are choosing to reintroduce the dealer model and embrace dealers. The new car forces are retreating from the market. Most new energy vehicle brands under the direct sales system choose store locations in shopping malls and core business districts, which means they have to pay high rents and operating costs for these prime locations. Store rent, mall management fees, parking fees, electricity costs, personnel costs – each one is expensive. “In the core shopping malls of the East Fourth Ring Road, the rent for a 100-square-meter showroom ranges from 300,000 to 500,000 yuan (68720$),” said Chen Yu, a staff member of a new energy brand, to Tech Planet. A staff member of the Avita direct store in Beijing’s Chaoyang District also said that although the store is not in the busiest mall, the annual rent for the store is close to one million yuan. The rent for larger and more prominent experience centers is even more staggering. In April 2017, NIO’s first user center was located in Beijing’s Wangfujing Oriental Plaza, with a reported rent of 80 million yuan per year for the 3,000-square-meter offline experience store. New energy vehicle brands stationed in high-end malls undoubtedly have the opportunity for display and customer flow, but this does not mean that the brands can achieve higher sales figures. An employee who once worked at Jiyue said that despite the store being located in the bustling Sanlitun business district in Beijing, he still did not sell a single car during his tenure. The high operating costs have made the direct sales model a burden for most new energy vehicle companies. For example, NIO added nearly 150 new stores in 2023, with sales costs increasing by 8.4 billion yuan compared to the previous year. Operating expenses in the first quarter of this year reached 29.3 billion yuan, an increase of 30.9% year-on-year. The increase is due to higher sales staff salaries, expansion of sales network, and increased marketing expenses. At the same time, NIO’s sales volume showed a declining trend in the first quarter of this year, with a total of 30,053 new cars sold, a decrease of 3.2% year-on-year and a decrease of 39.9% month-on-month. It is undeniable that a new brand entering the market and opening direct stores in downtown areas can quickly increase brand awareness. In addition, the direct sales model is more transparent and can control prices uniformly. However, after accumulating users and shaping brand reputation, the high cost and low sales of the direct sales model have gradually become more prominent. “Previously, brands believed that direct stores could reduce intermediate links, but in recent years, it has been found that the cost of direct stores is much higher than the so-called dealer ‘cut’,” said Chen Yu. In fact, compared to domestic new energy vehicle brands, Tesla has clearly realized this earlier. As early as 2019, Tesla began to gradually close experience stores located in luxury locations in first and second-tier cities in China. In November 2019, Tesla’s two experience stores in Beijing Chaoyang Joy City and Shanghai Pudong Kerry Center were successively closed. The reduction of Tesla’s direct stores has quietly set a precedent for the current transformation of sales channels for new energy brands. “Areas like Liugonghui and Blue Harbor used to be gathering places for new energy vehicle brands, but now many brands have chosen to withdraw,” said Chen Yu. In a shopping mall in the southern Fourth Ring Road in Beijing, a person in charge of investment promotion also told Tech Planet that compared to the proactive attitude of new energy vehicle brands towards investment promotion in the past, now whether it is renewal or new recruitment, mall investment promotion personnel need to take the initiative to connect with the brands. Embracing dealers again. In September 2021, the Beijing Crab Island Tesla Center opened, including showrooms, reception areas, delivery centers, inspection areas, etc., with a total area equivalent to 28 standard basketball courts. According to official information, this is the largest single delivery center for Tesla in Asia. According to public information, the Tesla Crab Island Delivery Center covers an area of 12,000 square meters, and more importantly, it is located in Jinzhan Township, Chaoyang District. Outside the Fifth Ring Road in Beijing, the Tesla Center is still directly operated, similar to traditional car 4S stores, it is located in a remote area and the rent is cheaper. As the penetration rate of new energy vehicles continues to rise, the scale of various new energy vehicle companies is also expanding. With the intensification of market competition, some new problems are beginning to emerge. A car dealer in Tianjin told Tech Planet that in addition to high costs, direct sales channels cannot effectively cover a wider range of potential customers. “Generally speaking, dealers can share the operating costs of the brand’s storefront and also have local customer resources.” Xiong Tianbo, general manager of the Fangebao division under BYD Auto, mentioned earlier that although Fangebao has reached an average of one store landing per day during the peak network coverage period, they still receive user feedback about too few stores and inconvenient experiences. She believes that the lack of channel points has already restricted the efficiency of Fangebao, a new brand, in reaching users. A comparable example is that Leapmotor has achieved rapid growth in stores and sales volume relying on a dealer-based model. Official data shows that in 2019, Leapmotor had only 49 stores. After introducing dealers, as of December 31, 2023, Leapmotor has a total of 560 stores, of which 85% are dealer models, covering 182 cities. In the third quarter of 2023, it achieved a positive gross profit margin. Under the apparent benefits of dealers, many new energy vehicle companies have chosen to follow suit. Jike Car launched a dealer recruitment plan in August last year, focusing on layout in first and second-tier cities. According to “Late Auto” report, in the first half of last year, NIO also proactively contacted a domestic leading dealer group to prepare for its sub-brand. In January of this year, Xiaomi Auto announced that its sales and service channels will prioritize covering the head market with a “1+N” model. Recently, Avita announced the transition to a dealership model, with BYD’s Tengshi and Formula Leopard car brands recruiting dealers to join. This means dealers will return to the car sales market. An employee of a previous Avita direct store chose to join Avita’s dealership store again. He told Tech Planet that Avita will launch multiple products this year, allowing dealers to open the market faster. In terms of profits, who will yield first? Embracing dealers does not mean giving up direct sales, but adopting a dual-channel model of direct sales and dealers. In the traditional car market, the 4S store model is mainly wholesale, with the manufacturer selling to dealers at wholesale prices, who then sell to consumers at retail prices. In this process, ownership of the car changes hands, meaning dealers can adjust retail prices on their own, with the manufacturer no longer controlling prices. Compared to the wholesale model of 4S stores, in order to avoid price confusion in the new energy car market, new energy car brands choose a dealer cooperation method that focuses on agency, where pricing rights remain with the manufacturer. Dealers entering the new energy car market sales system inevitably continue the sales logic of the traditional fuel market. In order to sell more cars in a competitive market, offering discounts is the only choice for dealers. A former store employee of Xiaopeng Motors told Tech Planet that there was no unified management between direct stores and authorized stores, leading to vicious competition for orders: dealers reduce prices through discounts, while direct stores offer more accessories and services. A car owner who wanted to buy a Xiaopeng P7 at the beginning of last year said that after ordering from a direct store, they received a call from an authorized store, claiming “bigger discounts, consider before making a decision.” In June of this year, a consumer also mentioned that the quotes from Xiaopeng’s authorized stores and direct stores were not consistent. Tech Planet consulted a salesperson from an authorized store in Tianjin, who said the prices were the same, but more detailed discounts could be discussed in person. When there is continuous price conflict between direct and distribution channels, most manufacturers tend to choose strict control over dealers.
In this way, despite actively embracing new energy vehicle brands, dealers are finding it increasingly difficult to make profits from selling new cars, and their relationships with manufacturers have become delicate. A traditional 4S store manager in Tianjin, Li Ming, told Tech Planet, “Even with the authorization from some top new energy companies, dealers are not doing well under the current commission model, and the maintenance income from new energy vehicles is extremely low.” Amid the booming trend of new energy vehicles, some dealers have chosen to join, such as Yongda Auto, which obtained authorization for 7 independent new energy brands like Xiaopeng Motors, Zhiji, and Xiaomi in 2023. However, some 4S stores are reluctant to lose their autonomy and have chosen to wait and see. But no matter what choice they make, dealers find it difficult to return to the peak of the era of fuel vehicles. “Working with new energy brands means being regulated by the brand and facing the risk of brand failure,” Li Ming lamented.