Shulou(Shulou.com)11/24 Report--

"cars, in the final analysis, are consumer goods." this is the recent statement of Li Bin, chairman of Lulai Automobile.

Compared with fuel vehicles, the "consumer goods" attribute of new energy vehicles is stronger. Many car owners said that the devaluation of new energy vehicles is very fast, and second-hand new energy vehicles are more difficult to sell. The "2022 China Automobile value retention rate Research report" released by 58 Automobile and J.D. Power a few days ago made it clear that the value preservation rate of pure electric vehicles is lower than that of fuel vehicles.

In this case, as consumers, buying a new energy car is not as cost-effective as renting a car.

In Europe and the United States, the car rental market is particularly developed, and the "Car Lease" model of rental and sale is very popular. About 30% of new car sales are completed by "Car Lease" car rental companies, and in the bus field, this proportion is more than 50%. According to Guangming, the car rental industry, including the "Car Lease" model, has supported a market size of hundreds of billions of dollars and its business has soared during the epidemic.

When domestic new energy vehicles enter Europe and the United States, they have to "do as the Romans do" and adopt the "Car Lease" mode. Wei recently entered Europe and adopted a subscription model similar to "Car Lease". Other car companies, such as LinkedIn, BYD, Aichi and so on, also use this model.

This paper attempts to answer three questions:

1. What about the "Car Lease" model in Europe and the United States?

two。 What is the opportunity for China's new energy to go to Europe to develop the "Car Lease" model?

3. How is the development of the "Car Lease" model in China?

"Car Lease" in Europe and the United States, "Car Lease" belongs to the category of auto finance, which is a special financial service provided to car buyers.

Under this model, consumers do not need to buy the new car they want, but only need to sign a lease contract with the dealer, negotiate the ratio of down payment, monthly payment and final payment, and determine the lease cycle (at least 1 year, the longest 5 years). You can get the car and drive it, avoiding troubles such as registration and insurance after car purchase. Moreover, the car in the factory warranty period, consumers do not have to worry about car repair.

During the lease period, although the ownership of the new car belongs to the dealer, consumers get the full right to use the car. At the end of the lease period, consumers can choose to pay for the car, or they can choose not to pay the final payment and return the car to the dealer. In addition, consumers can also choose to switch to another new car and replace the old car with a new one in a second.

Nowadays, with the rapid development of science and technology, new technologies are constantly emerging, and new cars are constantly updated. If consumers choose to buy a car, within a few years, the vehicle they buy will be out of date, and it will be more troublesome to sell second-hand cars; if you choose "Car Lease" mode, after a few years of driving, you can change into a new car with new technology and new configuration, and you can always drive a new car and enjoy the latest fashion and the latest technology.

A major feature of the "Car Lease" model is that it is cost-effective. The total rent paid by consumers, including down payment and monthly payment, is much lower than the purchase price of the whole car, accounting for only about 50 per cent of the total car price.

The high performance-to-price ratio is due to the maturity and perfection of the car rental industry in Europe and the United States after nearly a hundred years of development. Moreover, since 2002, the vast majority of the car rental market in Europe and the United States has been occupied by several super-large car rental companies, and large-scale operation has reduced the cost of operation and management, thus benefiting consumers.

(historical map of the car rental industry in Europe and the United States: Boston Consulting Company, Yihi Travel Research Institute) the "Car Lease" model is also a good business for dealers. In addition to getting monthly rent, but also because of its own used car valuation system and convenient sales channels, even if consumers return their cars after the expiration of the lease period, they can make another profit in used car sales.

At present, this model has become a mainstream consumption mode in the European automobile market. Li Bin, CEO of Xilai, said that only 20 per cent of users in Germany, the Netherlands, Sweden and Denmark were willing to buy a car, while 80 per cent preferred to subscribe, or "Car Lease" mode. This model is favored not only by individual consumers, but also by a large number of enterprise users. According to the 21st Century Economics report, about 35 per cent of the "sales" of new cars in Europe belong to the "Car Lease" model, and the proportion is more than 50 per cent in the field of corporate cars.

Compared with fuel vehicles, electric vehicles adopt the "Car Lease" mode, which is more cost-effective for consumers, because the value preservation rate of electric vehicles is not only lower than that of fuel vehicles, but also the residual value rate is significantly lower than that of fuel vehicles. According to a report by Boston Consulting Company and Yihi Travel Research Institute, taking a second-hand car in Shanghai that has been driving 50,000 kilometers for three years and without traffic accidents as an example, the SUV residual rate of a fuel vehicle is 76%, while that of an electric vehicle is 53%.

Since 2020, the car rental industry in Europe and the United States is gradually realizing the transformation from traditional models to electric vehicles. Among them, electric vehicles made in China are very competitive. Baldassari, an executive at European car rental company Eurocar, said that European and American automakers have been in the lead in history, but now the situation is changing as car rental companies become electrified. Electric cars made in China and other Asian countries can compete with European and American manufacturers in quality, but the price is more advantageous.

According to the research report of Boston Consulting, Europe may become the largest "Car Lease" market in the world in the future.

It is under this background that Chinese new energy vehicle companies have landed in Europe one after another. According to incomplete statistics, in the past year, more than a dozen Chinese automobile brands, such as SAIC, BYD, Xilai, Xiaopeng, Aichi, Linke, Lantu, Euler, and WEY, have clearly defined their plans to go to Europe.

BYD went out to Europe through cooperation with the "Car Lease" car rental company.

BYD is working with SIXT, an established car rental company. According to the agreement between the two sides, SIXT will purchase at least 100000 new energy vehicles from BYD in the next six years for delivery in the fourth quarter of 2022. The first phase of the cooperation market includes Germany, the United Kingdom, France and the Netherlands.

Aichi, another domestic new energy car company, also signed a strategic cooperation agreement with German car subscription service company finn.auto in 2021 to carry out "monthly payment, annual rental" fixed monthly car rental business, which also belongs to the "Car Lease" model.

Compared with the "stay out of business" cooperation mode of local brands in China, Lectra, which is of European origin, personally started the "Car Lease" mode of "mobile subscription" service in Europe as early as September 2020. In this mode, consumers can use the "subscription + purchase" way to obtain Lectra 01 PHEV. Wei Silan, CEO of Lectra, has said that at present, the promotion of Lectra's subscription model in the European market is relatively smooth, and the revenue of the subscription model already accounts for 90% to 95% of the retail sales of Lectra in Europe.

At present, China's local brands, which are still in the hot spot of public opinion, have come to sea in Europe, which is similar to LinkedIn and ends in person.

Weilai's "Car Lease" subscription model has its own innovation, that is, to rent instead of sell, but only rent not sell. In the Weilai subscription model, users do not get ownership of the car, and there are only three options: return the vehicle, change the model or renew the lease when the lease contract expires.

The model of Wei Lai is not so much selling cars as selling services. And Weilai's service for car owners "can be understood to be all-inclusive except for electricity charges", including not only insurance, repair and other services, but also a full range of services such as recharging, maintenance and tire replacement. Compared with the traditional "Car Lease" model, most of the contracts are multi-year contracts, and the subscription period of Weilai vehicles is not only a long rent from December to 60 months, but also a monthly rent, so consumers' choices are more flexible.

Weilai is very confident in his service. Li Bin once said proudly: "it is one of the three points in the world to strive to seize BBA market share within five years."

In order to provide good service, Weilai has invested heavily in Europe. In 2021, the first NIO House in Europe opened in Oslo, Norway, with a total area of 2100 square meters. This year, Weilai plans to build a number of NIO House in Hamburg, Frankfurt, Dusseldorf and other places. By the end of this year, Xilai plans to deploy more than 20 exchange power stations in Europe; by the end of next year, the number will reach 120; by 2025, the number will reach 1000.

If the investment increases, the cost will naturally increase, but Li Bin said that he will not "lose money and make a cry" and that subscription pricing will consider a reasonable gross profit margin. This leads to high subscription rates in Europe for ET5, EL7 and ET7, which are priced at 1249 euros (about 9064 yuan), 1669 euros (about 12113 yuan) and 1549 euros (about 11242 yuan) respectively.

For comparison, take SIXT's subscription price as an example. Considering environmental subsidies and a series of preferential policies, its Mercedes-Benz EQB costs 464 euros (3382 yuan) per month, Ji Xing 2 costs 379 euros (2762 yuan), and Tesla Model Y costs 629 euros (4584 yuan). These brands are more well-known than Weilai, but the price is much lower than that of Weilai.

Li Bin attributed the high price to user service: "We want the product to return to the nature of the price." we are all-inclusive at one price, others are just simple car prices, and many prices need to be calculated separately. "

Opportunity at present, the performance of Xilai in the European market is not satisfactory.

According to JATO and eu-evs, 200vehicles will be delivered in Europe in 2021, a far cry from the 10949 vehicles delivered by Tesla Model3, which ranks first, and even compared with 4129 vehicles in 10th place. In 2022, according to the broadest statistical caliber, as of September, the cumulative delivery volume in Norway has just exceeded 900 vehicles.

(there are no top 10 electric vehicle deliveries in Europe in 2021, Tu Yuan: 21st Century Economics report.) not only Wei Lai, other new power car companies are not doing very well in the European market. In the two years before Xiaopeng went to sea, only 1006 cars were sold in Norway, and there was even news that "a number of senior executives in overseas operations had left", according to Cleantechnica. For the whole of 2021, Xiaopeng delivered only 474 vehicles in Europe and BYD delivered only 1247.

But this does not mean that domestic new energy car companies go to Europe, is a wrong path. On the contrary, this period of time is an important opportunity for domestic car companies.

First of all, by contrast, the European new energy vehicle market is developing rapidly and has a great prospect.

According to data cited in the new media article of Caijing, the penetration rates of new energy vehicles in Europe from January to August in 2020, 2021 and 2022 were 9.9%, 16.3% and 18.1% respectively, and those of pure electric vehicles were 5.4%, 8.7% and 10.4%, respectively. In less than three years, the permeability level nearly doubled.

On October 27th the European Union reached an agreement to ban the sale of new gasoline and diesel cars from 2035 to speed up the transition to electric cars, which will increase permeability. According to a research report by Shenwan Hongyuan Securities, the compound growth rate of electric vehicles in Europe is expected to exceed 15% in the next 14 years.

Therefore, going to Europe will bring a huge incremental market for Chinese new energy car companies.

Secondly, there is a window in the European new energy vehicle market.

The electric transformation of the established car companies in Europe is relatively slow. Moreover, affected by the epidemic and lack of cores, the supply chain level of European car companies has declined to a certain extent in the past two years, affecting production. According to auto industry data forecasting company AutoForecast Solutions, the cumulative production reduction in the global car market will climb to 3.8294 million vehicles by the end of this year, with Europe being the region with the largest production reduction.

The research report of CITIC Securities also believes that in the field of new energy vehicles, Chinese enterprises start early in research and development, have high efficiency of self-iteration, and are expected to achieve breakthroughs in Europe and other developed countries by virtue of their current product and technological strength. At present, this window can be used to fill the gap of insufficient supply in the European car market.

The current investment is more like laying the foundation for the future.

Chinese new energy car companies are less well-known in Europe, and entering Europe through the "Car Lease" model can attract local consumers who love to taste fresh to pay the bill and quickly expand the group of potential buyers. Cui Dongshu, secretary-general of the National passenger car Market Information Association, said that this can help Chinese car companies raise their awareness and lay the foundation for comprehensively seizing the European market in the future.

Qin Lihong, co-founder of Xilai Automobile, once said that the main goal at this stage is not the number of subscriptions, but whether people can vote on consumption through products and services to win a reasonable respect and reasonable market share. Lectra, which had an earlier layout in the European market, has initially obtained a "reasonable market share". Up to July this year, Lectra has delivered 11012 Lectra 01 PHEV in Europe, which can be used as an example and target for Ulay and other domestic car companies.

On the whole, Chinese new energy car companies have made some achievements in Europe. According to JATO Dynamics's calculation, Chinese cars accounted for 14.7% of European registrations in 2021, making it the second largest source of electric vehicles in Europe after Germany.

Moreover, Chinese new energy vehicles are growing rapidly in the European market. Before Inovev,2020, an European consultancy, the number of Chinese cars registered in Europe was only about 10,000, but it soared to 80,000 in 2021. Sales of Chinese-made cars are expected to reach 150000 for the whole of this year.

From a single point of view, according to the evaluation of the German Automobile Club Association ADAC and the famous magazine "Auto Motor Sport", Weilai ET7 has impressed the two media deeply in terms of replaceable battery, self-driving function under the blessing of Nvidia, and driving mileage. The final evaluation results agree that: Weilai ET7 has the ability to compete with Tesla Model S and Porsche Taycan.

The trend of domestic Chinese new energy vehicle brands to gain a foothold and take root in the European market is not only conducive to expanding the market of domestic cars in Europe, but also conveys a message. that is, the brand influence and product quality of domestic new energy vehicles have been fully recognized by overseas consumers and powerful markets in the automobile industry, which can boost domestic consumers' confidence in choosing domestic brands of new energy vehicles.

Compared with Europe, China's new energy vehicle market is more huge, which is also the largest market for domestic car companies.

According to Credit Suisse's latest report, China has become the largest new energy vehicle market in the world since the mid-2010s. in 2021, China's new energy vehicle market share accounts for 50% of the world. Sales of new energy vehicles have also increased from just 810000 in 2011 to 3.52 million in 2021, with a compound annual growth rate of 83 per cent over a decade.

The report also predicts that China's sales of new energy vehicles will reach 6.7 million this year, another all-time high. In 2023, sales will grow 40 per cent year-on-year to 9.4 million vehicles, continuing the strong growth momentum of 91 per cent in 2022 and 157 per cent in 2021. Moreover, from 2022 to 2030, the sales of new energy vehicles in China will achieve a compound annual growth rate of up to 14%.

In the face of the large domestic market, can the "Car Lease" model adopted by China's new energy vehicles in Europe "export to domestic sales"? What will be the effect if it is introduced into China?

From the consumer's point of view, compared with fuel vehicles, the renewal speed of new energy vehicles in China is fast, which often makes it difficult for consumers to choose, while factors such as battery attenuation make consumers have mileage anxiety and worry about the stability of car value preservation rate. Superimposed, the "Car Lease" model will become a low-risk way for consumers to experience new energy vehicles.

For domestic enterprises, the "Car Lease" model is very complex, and it has higher requirements for the operation system and the ability of the team, which is far less convenient and fast than selling cars directly. In the "Car Lease" mode, vehicle ownership is not transferred, which will bring great management costs to automobile manufacturers, and at the same time, automobile companies will also face the problem of product inventory depreciation. Moreover, the sales revenue recognition model of the "Car Lease" model and the challenge to cash flow are also troublesome. According to the accounting treatment, leases are not immediately recognized as sales revenue, which means that the cash cycle of the "Car Lease" model will be longer. At the same time, the investment to match the "Car Lease" pattern also poses a higher challenge to the company's gross margin level.

However, in the serious internal volume of the domestic new energy vehicle market, in order to sell cars, no matter how difficult the model will be adopted by car companies.

As early as 2021, Tesla launched a scheme similar to the "Car Lease" model. Compared with the European "Car Lease" model, this scheme has a lower threshold for "car purchase", which directly cancels the down payment, and consumers only need to pay on schedule. Although the programme was suspended shortly after its launch, there is no shortage of successors.

(Tu Yuan: Tesla) Weilai launched a similar model this year. Its ET7, ES8, ES6 and EC6 models have a minimum down payment of 0 yuan and offer a "car purchase" plan with an annualized rate of 3.29% for 36 periods and an annualized interest rate of about 6.21%. Xiaopeng also launched a low down payment scheme, with a minimum down payment of 10%. New energy car companies such as BYD, Geely, Great Wall, Nezha, ideal, Wuling and other new energy car companies have also launched similar "Car Lease" models without exception.

(similar to the "Car Lease" model launched by some new energy car companies)

The "Car Lease" model launched by these car companies is recognized as financial leasing in our country. According to the Financial Times, nine of the top 10 companies selling new energy vehicles in 2021 have set up financial leasing companies. Among them, BYD set up four financial leasing companies, Great Wall Motor set up two financial leasing companies, and the others set up one each.

In the financial leasing mode, consumers sign a long-term lease contract with the dealer and pay the rent on a monthly basis. After the lease expires, they can also choose to pay the balance to buy out the new car or return the vehicle or replace other models to continue to sign the contract.

Different from Europe and the United States, the license index of new cars in China's big cities is precious, so new cars "bought" through financial leasing in China will be registered in the names of consumers, but generally speaking, the ownership during the lease period still belongs to the dealer and the financial service provider.

Improvement is different from Europe and the United States, although Chinese car companies are keen to launch the "Car Lease" model (car financial leasing), but individual consumers do not accept it. At present, the customers of this model are mainly B-end customers such as enterprises and governments.

This is due to the support of national policies.

In 2015, a document entitled "guidance on speeding up the Development of Financial Leasing Industry" was issued, which mentioned encouraging the development of new energy vehicles and supporting facilities through financial leasing in the areas of buses, taxis and official vehicles.

In April 2020, 11 ministries and commissions jointly issued the Circular on several measures to stabilize and expand Automobile consumption, making it clear that they should make good use of automobile consumption finance and promote the development of new energy vehicle financial leasing market through the establishment of a product life cycle tracking and evaluation system.

In August this year, the Ministry of Commerce and other 17 departments jointly issued "some measures for invigorating Automobile Circulation and expanding Automobile consumption" (hereinafter referred to as "measures"), which emphatically pointed out: "develop automobile financial leasing in an orderly manner. Encourage automobile production enterprises, sales enterprises and financial leasing enterprises to strengthen cooperation and increase the supply of financial services." Once again, it makes clear the importance of financial leasing in providing automobile financial services, promoting automobile circulation and industrial development.

Therefore, in the field of buses, taxis, online car-hailing and official car use in China, the financial leasing model is developing rapidly. At present, business car rental accounts for about 70% of the car rental market in China, including financial leasing, according to Guanyanxian.

The reason for the low acceptance of the financial leasing model by individual consumers is that although the car financial leasing has the advantages of low down payment and flexibility, the overall cost is higher than the car credit; what is more important is the concept of domestic consumers, they have a strong preference for ownership, they think that cars are like houses and other assets, it is better to rent than to buy, and cannot accept that they can only get the right to use during the financial lease.

In 2015, Wei Silan said, "Chinese young people can quickly accept and warmly welcome new Internet consumption habits such as Didi, Uber and bike sharing, but when it comes to big consumption, such as real estate and cars, Chinese young people's thinking is still traditional-after all, the history of car ownership is obviously shorter than that in Europe and the United States. Even after 2000, the production and sales capacity of the Chinese auto market has obviously outperformed the global market, but the vast majority of people think that the concepts of 'subscription' and 'sharing private cars' are not only too advanced, but also full of offense. "

At present, this concept has changed. This is thanks to the growth of Generation Z (people born between 1995 and 2009). According to the National Bureau of Statistics, the number of "Generation Z" in China is about 260 million, accounting for about 19% of the country's total population. At present, it has become the main consumer force. Generation Z abandoned the cognition that "cars are assets", accepted the concept that "cars are consumer goods" mentioned by Li Bin, and changed their attitude towards cars from "owning" to "sharing." the tightening of license plate restrictions and traffic restrictions in many places has also accelerated the change of their consumption attitude.

In recent years, although the scale of China's "Car Lease" model, that is, automobile financial leasing model, is small (according to Roland Berger's prediction, the leakage rate of automobile financial leasing products in China will be about 7% in 2022), there is a big gap between China and Europe, but it has developed rapidly. Take Weilai as an example, in 2021, Weilai leasing business achieved operating income of 184 million yuan and a total profit of 23 million yuan, with year-on-year growth rates of 539.09% and 387.39% respectively. From January to March 2022, the profitability of Weilai leasing continued to expand, achieving operating income of 78 million yuan and a total profit of 8 million yuan.

After the epidemic, car rental consumption, including financial leasing, has developed rapidly. taking the data of a leading domestic OTA platform as an example, the number of domestic car rental orders in the first half of 2021 is nearly 30% higher than that in the first half of 2019. The report of Ctrip shows that this summer, the popularity of car rental search for Generation Z has increased by 80% compared with the same period last year.

(photo Source: head Leopard Research Institute) the PricewaterhouseCoopers report predicts the future development of China's "Car Lease" model:

From 2021 to 2030, the market size of car rental financial services for consumers in car consumption will rise from US $254 billion to US $675 billion, with a compound annual growth rate of 11.5%, only slightly lower than the loan car purchase model. Moreover, as car companies and financial service providers, the profit scale of "selling" cars through the leasing model has a compound annual growth rate of 13.7% from 2021 to 2030, which is higher than the profit growth rate of loans to buy cars.

(China Auto Financial Services value Pool scale and profit, Picture Source: PricewaterhouseCoopers) at present, there are also some problems with the "Car Lease" model in the form of financial leasing in China, such as short development time, unclear publicity, consumers are not familiar with, do not understand, practitioners are not standardized, so there are some disputes. In terms of black cat complaints, there are 392 complaints about "car financial leasing", and many of the complaints come from misunderstandings. For example, consumers understand financial leasing as buying cars by installments, while consumers apply for car loans but are treated as financial leases.

(photo Source: screenshot of Black Cat complaint) for car companies, going to Europe to participate in the "Car Lease" model is actually a process of learning, accumulating and improving experience. In an interview with the media, Li Bin said frankly that the "Car Lease" model accumulation, service network and supply chain system of European enterprises are better than us. "compared with them, we definitely belong to primary school students, and we are far behind," so we need to learn and catch up with them. Qin Lihong also said that Weilai is also constantly solving many pain points of the original "Car Lease" model in Europe, "making it more flexible and reasonable from the user's point of view."

If car companies introduce their experience from Europe and continuous improvement into China, and constantly improve the domestic "Car Lease" model, for example, conducting clear publicity and providing professional services, it can not only satisfy consumers' sense of experience, solve the "trouble" of license plate, purchase tax, insurance and other packages, but also provide fast and convenient personalized customization services, which can be regarded as a good way to "export to domestic sales".

In addition, for government departments, it is also necessary to issue professional and standardized policy documents according to the domestic "Car Lease" model.

In short, with the further support of policies, the gradual improvement of market-oriented operation, the promotion of consumer awareness and the change of consumption concepts, the future may be a decade of high integration and common take-off of the "Car Lease" model and new energy vehicles.

Full-text reference

[1] "the most complete Analysis of the Financial Leasing Model of China's New Energy vehicle Industry", Shenzhen Financial Leasing Industry Association

[2] "Policy warm wind frequently blows financial leasing to speed up driving into the new energy vehicle track", Financial Times-China Financial Information Network

[3] "car offset loan" signed "the annualized interest rate at the time of financial lease repayment is as high as 38.74%", the Daily Economic News

[4] "Chinese car companies enter Europe: there is still a long way to go", 21st Century Economic report

[5] "Why rent but not sell? Wei Lai is in charge of talking about European Strategy, Ika Motors

[6] "A new perspective with insight into the development trend of the car rental industry", Boston Consulting Company, Yihi Travel Research Institute

[7] "short report on China's High-end car Rental Industry in 2022", head Leopard Research Institute

[8] "China Automobile value Pool 2030", PricewaterhouseCoopers

This article comes from the official account of Wechat: che Bai think Tank (ID:EV100_Plus). Author: Chen Zhongshan.

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