June 11 (Xinhua) — After a near-death experience in 2019, Azera, which bet on a loyal customer base, has achieved partial success, according to an analysis published by foreign media on Thursday. What has allowed Azera to stand out in the competitive Chinese electric car market is having a loyal customer base. The following is a summary of the article.
At a dinner party in Shanghai, Li Bin, founder of Chinese electric car maker Azera, was mobbed. Li Bin could barely make it through the buffet line before being stopped for a selfie, handshake or hug. The big 46-year-old grinned happily and traded his usual jeans and T-shirt line for a custom-made gray suit and blue dress shirt.
Bin Li managed to spoon a small amount of fried rice and vegetables onto his plate, but he wasn’t here to eat. Over the next three hours, Li Bin took hundreds more photos and chatted with users of the electric car maker, which has only been around for six years. For Azera EV users, this has developed into a lifestyle – with a clubhouse, 24-hour battery charging service, even clothes, food and fitness equipment, all decorated with the Azera geometric logo. As Li Bin works in the room, a video background shows six performers in different colored Azera sweatshirts singing a self-composed song dedicated to the company. “Meet with Azera, we want to be a better version of ourselves,” the not-so-catchy song sings.
While other billionaire executives may be reluctant to spend their free time pleasing customers, for Bin Li, it’s central. Azera’s business model relies on creating a sense of loyalty among buyers and then convincing friends and family to spread the word about its electric cars. This strategy, called the “ripple model,” is like throwing a rock into a pond and triggering an ever-expanding circle, Li says. The Shanghai scenario is exactly what he’s aiming for: an enthusiastic customer base as loyal as Apple’s fans and a little personal admiration for Elon Musk.
That approach makes Azera Musk’s most obvious competitor in a country where Tesla rivals seem to spring up every other day. While other electric car makers may be launching more mass-market-oriented EVs, Azera is targeting the high-end buyers Musk needs. In an ambitious bid for global growth and long-term profitability, Tesla built its first overseas superfactory outside the U.S. in 2019 on the outskirts of Shanghai.
As the world’s largest auto market, China is already the world’s largest electric vehicle market. Sales of electric vehicles in China are reportedly set to reach 2 million this year and soar to 6.2 million by 2025, when they will account for a quarter of the country’s passenger car sales.
The gentle early adopters in China’s big cities have been at the heart of this shift and are the main targets for both Azera and Tesla. Azera’s high-end ES6 SUV competes head-to-head with Tesla’s Model Y, which began production in China last year. For Li Bin, it’s a battle front and center. In an interview with foreign media, he talked about how his eldest son, still just a first grader, wanted to follow in his footsteps. “He told me one day that he would study hard, work hard and help his dad beat Tesla when he grew up,” Li Bin said. “I was like, if that happens it’s too late.”
Duel to the death
Azera delivered more than 20,000 SUV electric vehicles in the first quarter at an average price of $68,000, while Tesla delivered about 17,000 Model Ys in China with a starting price of about $53,000. Kang Jun, an analyst at global data analyst firm LMC Automotive, said Azera, which has the second-largest share of the overall premium EV market in China after Tesla, is setting a “benchmark” for the broader EV segment, especially in terms of product and service innovation.
Tesla has also faced a series of recent setbacks in China. Last year, Tesla’s China revenue accounted for more than 20 percent of its total revenue. The increased scrutiny by Chinese regulators has coincided with growing opposition to Tesla and its electric cars in China, culminating in one owner climbing into a Model 3 at the Shanghai Auto Show, claiming the company had failed to fix her braking problems. The protests spread quickly in China, sparking a wave of complaints against Tesla’s customer service. Li Bin regularly responds to user queries on the Azera app and travels around China on weekends to meet with customers, and it’s this that sets Azera apart in the highly competitive electric car space.
But Tesla isn’t the only enemy Li Bin has to worry about. A “fight to the death” is brewing in China’s new energy vehicle market – battery-powered passenger car sales rose 10 percent last year to 1.11 million units despite the impact of the epidemic – a duel that will challenge both Azera and Tesla and set the stage for which company will dominate the global auto market in the future.
After years of waiting on the sidelines, the auto manufacturing giants are doubling down on their efforts to develop electric vehicles. Volkswagen will launch eight models of its ID line of electric vehicles in China by 2023; Toyota has launched a new EV platform; and premium automakers like BMW are aiming for EV sales to account for a quarter of total sales in China. Meanwhile, big tech companies are eyeing the sector, lured by the possibilities of technology. Since the start of the year, Chinese search engine giant Baidu, smartphone maker Xiaomi, and Huawei, among others, have committed nearly $19 billion to invest in electric vehicles and autonomous driving.
In response, Zhang Xiang, an automotive industry researcher at North China University of Technology in Beijing, said smaller electric vehicle makers such as U.S.-listed Azera, RISO and Xiaopeng Automotive will face more pressure as multinationals enter the EV market.
Azera has had a near-death experience. Car manufacturing is a typically capital-intensive business. But Li Bin seeks to build a brand that goes beyond the car, in what he describes as a “user-enterprise pursuit”. The most obvious manifestation of this is the Azera Center, a reception center for Azera customers in a prime location in a major Chinese city – even offering art and music classes for their children. This is accompanied by lavish marketing campaigns. The electric car maker hosts an annual Azera Day event, and in 2017 paid for airfare and a luxury hotel for the first time for every customer who ordered an electric car a year before production began. At the 2018 event, singer Bruno Mars had the lead role. When its public charging facilities are overwhelmed, Azure has a fleet of portable battery chargers available to users anywhere, anytime.
Such generosity, combined with a shift in subsidies for electric car purchases in China to support the charging network and a massive recall after an electric car caught fire, saw Azera suffer a $5 billion loss in its first four years of existence (it took Tesla about 15 years to reach that particular milestone). By the second quarter of 2019, the company was losing about $5 million a day.
“It was our darkest hour,” says Bin Li. A team met nightly to sort out expenses, from salaries to the cost of the Azure Center. It was easy to calculate how much money we could make from selling cars, he says, “but we had to consider everything to keep up operations. Every dollar counts.”
By October 2019, Azera was on the verge of bankruptcy. The company’s shares fell to a record low of $1.32 after posting a worse-than-expected quarterly loss. At its lowest point, Azera’s market capitalization was down more than 70 percent from its valuation of about $5 billion when it went public a year ago. Even a $200 million cash infusion from the sale of convertible bonds to subsidiaries of Li Bin and Tencent Holdings was not enough to support the company’s seemingly insatiable cash needs.
Trouble ensued. Azure was unable to make the final payment for the imported presses. To make matters worse, it had to sell the presses at a discount to Tesla, which immediately installed them in its new factory in Shanghai. Shortly after, a deal to invest up to 10 billion yuan ($1.6 billion) from a company backed by the local Beijing government fell through. Analysts began to publicly speculate that Azera could be delisted or taken over. According to Xiaopeng He, founder of Xiaopeng Auto, the situation was so dire that in late 2019, he had proposed a merger of the two struggling electric car makers. Xiaopeng Auto was in a tough position with only 3 billion yuan in cash. But Li Bin turned down the offer. “Azera was already in intensive care at the time, and Xiaopeng Auto was still waiting outside,” Li Bin recalled. “A merger would have buried both of our companies.”
Then the turnaround began to happen. in early 2020, the Hefei city government stepped in. Despite the outbreak of the new crown pneumonia pandemic that initially crippled car sales, the city struck a deal with Azera in which the Hefei government would inject RMB 10 billion into Azera, more than the company’s entire 2019 revenue. This comes a few months after Azera said it would not have enough money to continue operations for another year unless it received more funding.
For Azera, the quid pro quo was to support local industry. The company abandoned the idea of building a factory in Shanghai in early 2019, opting to do something different from Tesla and most traditional automakers – pay Hefei Jianghuai Automobile to build the cars. The agreement was extended last month for another three years, with JAC agreeing to double its monthly production capacity to 20,000 vehicles.
An Jin, former chairman of JAC Motors, said, “When Li Bin presented his proposal to us, most people thought it was fantasy for a Chinese automaker to plan to build a first-class smart electric car. I’m probably the person who understands best how Azera has grown, despite all the challenges and difficulties. In the most difficult times, Li Bin even invested his own money to solve problems. That’s how he fights for his dreams.”
At the ceremony to roll out the 100,000th Azera electric car on April 7, Li Bin said he would work with the Hefei city government to invest in a smart car production base, including a factory. Construction of the base began at the end of that month and is expected to eventually house manufacturing workshops, as well as other players in the electric vehicle supply chain.
Back from the dead
However, Li Bin also credits this to his loyal customer base. “We sold more than 8,000 electric vehicles in the fourth quarter of 2019, which is critical to our survival,” he said. “That’s why I always say our customers saved us. Even if we sold 500 or 1,000 fewer EVs, that could have triggered a total collapse.”
Nonetheless, the experience was painful. Azera laid off about a quarter of its workforce at the time, slowed down its self-driving efforts, delayed payroll for managers and divested some non-core businesses. While the launch of the costly Azure Center was put on hold for over a year, the strategy of placing Azure ownership at the center of the owner’s lifestyle and creating an atmosphere of exclusivity was not abandoned with the launch of the more modest Azure Space. Azure spaces are typically around 100-200 square meters and are located in cheaper rental areas and sometimes in smaller cities. They cost around $1 million to build, which is much cheaper than the Azure Center.
So far, it seems to have worked. Azure is still not profitable, but its sales have steadily increased since then, surpassing $1 billion for the first time in the fourth quarter ending Dec. 31, 2020. The company narrowed its net loss to CNY451 million in the first quarter of 2021, down from CNY1.69 billion in the year-earlier period and CNY1.39 billion in the fourth quarter of 2020. The Azera lifestyle brand business is also making money, contributing $1.1 billion in non-vehicle sales revenue last year, according to Azera’s annual report.
“It’s not easy to get into the automotive industry and survive,” said Gao Le, CEO of BMW China. “There are still some manufacturers that have disappeared. I’ve met Li Bin a few times and I have to say I’m impressed with what he’s accomplished. Azera has also created awareness in the electric vehicle market and having the right brand in the segment helps the market grow.”
The Hefei government’s investment also comes at the same time investors are starting to focus on the electric car revolution, which has sent Azera’s stock price soaring. Last year, the company soared more than 1,110 percent, outpacing even the rally that propelled Tesla into the Standard & Poor’s 500 index. As enthusiasm has waned, Azera shares have retreated, but still have a market cap of $70 billion, higher than Ford’s.
Li Bin graduated from Peking University. At the beginning of his career, he leased Internet servers and helped customers register domain names. The auto industry is where Bin Li has had the most success, as the three public companies he has founded in the last 20 years are all auto-related. His first auto pricing portal, eCar, was acquired by eCar last year for $2.8 billion, a deal that brought Li Bin’s personal fortune to $7 billion. It was followed by online auto finance platform Yixin, which went public in Hong Kong in late 2017.
Then there was Azera. In a 2016 internal presentation, Li Bin recalled how he decided to take steps to address China’s chronic pollution problem after seeing the heavily smogged skies of Beijing from his apartment window before the birth of his eldest son. He founded Azera in late 2014 with funding from a group of prominent investors, including Ideal Auto founder Li Xiang and Jingdong founder Liu Qiangdong. Xiaomi’s Lei Jun was also an early supporter of Azera.
When Li Bin isn’t eating with superfans, he has a full work schedule. On a recent Tuesday, he had a morning executive committee meeting at his headquarters in Shanghai and more back-to-back meetings in the afternoon with the company’s battery partners, designers and European customers. Azera recently announced plans to start selling electric cars in Norway.
While the company is on much firmer footing than it was 18 months ago, problems remain. Car manufacturing has big economies of scale,” said Robert Cowell, an equity analyst at Shanghai-based 86Research. With annual production of less than 100,000 units, Azera has not yet reached the volume to realize all those benefits.”
Cost concerns remain, with raw material prices for batteries, the most expensive component of electric vehicles, including lithium-ion compounds, soaring in recent months. Like most global automakers, Azera was affected by a chip shortage that led to a five-day suspension of production at the Hefei plant in late March. Despite increased competition in an industry characterized by technological advances and consumers attracted to the next shiny thing, Azera doesn’t plan to launch a new model until late this year or early 2022.
While Tesla is the main competitor, Li Bin sees future competitors as the biggest threat. “The final race won’t start until the tech giants join in,” he said. In March, Xiaomi unveiled plans to invest about $10 billion to build electric cars, while Huawei has already partnered to produce at least two electric vehicles and is developing self-driving technology. Hiding behind the scenes is the biggest tech giant of all, Apple, which has long harbored ambitions to build its own self-driving cars.
“I believe the determination, software development, smart capabilities and user connection of a company like Apple will be a completely different competition from traditional car companies,” Li Bin said. But like Musk and other electric car promoters, Li Bin is looking forward to the long race. “I’m very optimistic,” he said. “By 2030, 90 percent of the new locomotives coming to market will be electric, or even 95 percent.”
For the Azera fans who gathered in Shanghai on Sunday night, the future is already here. As the event drew to a close, owners posed for a large group photo, with Li Bin standing in the middle and everyone giving a thumbs-up. As the lights dimmed, Li Bin slipped out of the hall and into the night, his driver in a white Nio ES8 – waiting to take him home.
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