What's wrong with me being a rich man?

Chapter 504 Pricing
Yu Xing spent three days inspecting and exchanging ideas with BYD before finalizing his return flight.

Compared to the internet conference in Shenzhen during this National Day holiday, he is more concerned about the new energy industry here.

As a secretary, Zhang Yangxu could notice this very clearly. He usually paid special attention to information and trends in the automotive industry, and after his breakup, he had a lot of time to think about it.

Seeing his boss finish reading the newspaper and gaze at the blue sky in the waiting room, he took the opportunity to say, "Mr. Yu, BYD's Tang will be at the Guangzhou Auto Show in November. At this stage, there's definitely not much that can be changed. I wonder if a better version can be launched next year. The national subsidies are indeed a great leverage. It would be a pity not to make good use of them."

Yu Xing glanced at Zhang Yangxu and smiled, "You look better lately, and your dark circles aren't as bad as before."

Zhang Yangxu chuckled. He had completely quit the part-time job he had been doing for several years. After his breakup, he was heartbroken and his ambition had grown even stronger.

Yu Xing overheard Liu Wanying mentioning in casual conversation that Shanfeng had lost an outer agent. He first folded the newspaper in his hand before saying, "President Wang understands my idea of ​​using subsidies as leverage to operate the Carbon Silicon Group. Since the Carbon Silicon Group has nothing, it's normal for BYD to take a steady and solid approach, as it has its own foundation."

“How could we be penniless… Oh, I understand.” Zhang Yangxu suddenly realized what his boss meant halfway through his sentence. Carbon Silicon Group was only making its first car, unlike BYD, which had multiple models on sale and various resources.

“Subsidies are indeed a good lever, but they come with preconditions,” Yu Xing explained. “First, there are time limits, and second, there are national and local subsidies. Unless Mr. Wang, or other teams interested in new energy, immediately go on a radical rampage, it will be difficult to handle the subsequent subsidy decline.”

Subsidies will decline; this is not a prediction, but something that is happening now, and there are explicit policy provisions regarding it.

Last year's joint notice from four departments extended the original pilot policy nationwide, clarifying the subsidy standards and the annual reduction mechanism for 2013-2015. In 2014, the subsidy was reduced by 10% based on the 2013 level, and in 2015, it was reduced by 20%.

Yu Xing had been urged by the leaders of Lingang before because of this, and he would also know about this situation when he went to meetings in the city.

National subsidies are fixed, but local subsidies can vary. Cities like Beijing, Shenzhen, and Shanghai can achieve a 1:1 ratio, but Tianjin only offers 0.8. The mandatory local standard is actually a lower limit of 0.5.

That is, the national subsidy for a vehicle is 3.15 yuan, and the local government will provide at least 1.575 yuan, for a total of at least 4.725 yuan and at most 6.3 yuan.

The information in Shanghai is quite accurate, and there are predictions and judgments about subsequent subsidies. At the very least, the local government will definitely reduce or change the way it supports subsidies, possibly starting with public facilities such as charging piles.

This means that the gold subsidy, which can play an effective leverage role, will probably only last for the next two or three years.

The clear policy was to extend the benefits until 2015. The continuation of the benefits in 2016 was still uncertain, but there was a high probability of significant reductions in 2017 and 2018.

If we start rushing into the market now, there won't be enough time. By the time the cars are built at any cost, most of the cash subsidies will be gone.

Currently, the only companies that can effectively leverage this strategy are probably the Silicon Carbon Group, BYD, and a few joint ventures with specific objectives. However, the only companies with the real motivation to do so are those in Lingang.

It's not that you can't build a good car without leverage, but rather that you can be a little more extravagant in terms of cost with leverage.

Because of subsidies, BYD's Tang can be priced lower than its cost. The current cost of a single "Jiuzhou" vehicle from the Silicon Carbon Group is approaching 32 yuan. Production capacity has not yet reached scale, there is a premium in the supply chain, and R&D costs cannot be amortized, resulting in considerable pressure.

With costs alone exceeding 30, how should the price be set?
The highest subsidy that can be confirmed next year is 5.6 yuan per vehicle. It is still unclear the year after next, but based on the current information, we can be optimistic that it will be around 5 yuan. However, if we cannot effectively reduce costs within two years, we may really lose money on every vehicle we sell.

As for how to effectively reduce costs, the direction lies precisely in this cost of 32. If it can attract many customers with sufficient materials and technology, it will naturally complete a virtuous cycle.

The "Jiuzhou" is currently available in two versions: a top-of-the-line model and a standard model. Within the Silicon Carbon Group, the standard model is priced above 36 yuan, with the aim of leaving at least a 12% gross profit margin so that even if subsidies decline, the business will not be too dismal.

However, the price of 36 is quite high in the market. Even considering the subsidies, the final price will exceed 30.

Therefore, the Silicon Carbon Group was in a dilemma. Whether it was the application of high-strength steel, the development of integrated die casting, the research and development of vehicle systems, or the investment in the three electric components, the cost was indeed that high, but the fact that the first car cost more than 30 yuan was a huge pressure.

29.9 often gives people the illusion of starting with 2, while 30.1 is a feeling on another level.

Even when Yu Xing discussed this issue internally, he encountered strong opposition. Everyone was worried that market feedback wouldn't generate effective economies of scale. If that happened, they wouldn't necessarily fail, but development would certainly be very difficult. Yu Xing talked with his secretary for a while, and once on the plane, he couldn't help but keep thinking about the pricing issue.

It sounds slow, but it's actually fast. The press conference will be held right after the Spring Festival, and the pricing will definitely be finalized before the holiday.

When the flight landed in Shanghai, Yu Xing said quietly to himself, "How about we keep it below 29?"

Zhang Yangxu naturally knew what the boss was talking about, and he was startled. The final price was below 29 yuan, and with the highest subsidy next year, the guide price was only 34.6 yuan, which was less than 3 yuan more than the cost.

In that case, the gross profit margin is less than 9%.

Companies like BYD, Geely, and Great Wall can achieve gross profit margins of 15%-18%, while Tesla's Model S boasts an even higher margin of 25%.

Zhang Yangxu hesitated for a few seconds: "President Yu, do you want me to persuade you?"

Yu Xing laughed and said, "Can you persuade them?"

Zhang Yangxu was naturally unmoved: "If this is really decided, the whole company will probably be banging on the table trying to dissuade us."

“No matter what, we should be able to reach 5 vehicles next year.” Yu Xing stood up. “Let’s build up our reputation first, and then we’ll make money the year after next.”

Zhang Yangxu took off his suitcase and followed behind his boss. He felt that 5 vehicles was a very stressful number. BYD's Tang was its breakthrough product, and this time he heard that their internal expectations did not exceed 5 per year, let alone Kyushu, which had an even higher threshold.

Once inside the company car, Zhang Yangxu, who was preoccupied with his thoughts, noticed that President Yu seemed to have moved on from the matter and couldn't help but admire his mindset.

Halfway there, Xiong Xiaoge called.

After listening for a few minutes, Yu Xing was puzzled when the other party introduced FountainVest Partners, which had been in contact with Douyin for financing: "Douyin has no shortage of institutions willing to invest money. Mr. Xiong, you should have introduced me to Silicon Carbon Group."

“Well, I’m doing this on someone’s behalf,” Xiong Xiaoge said thoughtfully. “This Fangyuan Capital, well, it has a pretty good relationship with Tencent, and they’ve implied they’re willing to invest heavily.”

Yu Xing was taken aback. Penguin had a good relationship with him and had invested heavily in him, so there was something else going on in his words.

His mind raced, and he asked, "Mr. Xiong, what do you mean?"

"It's hard to say." Xiong Xiaoge was also puzzled by the contact from Fountain Capital. "Mr. Yu, I can only say that when Tencent makes investments, it sometimes uses such institutions to hold shares on behalf of others or to make joint investments. I think his intentions are quite ambiguous."

The institution acts as the general partner (GP) to manage the fund, while the investor acts as the limited partner (LP), thus avoiding appearing on the shareholder list.

As for Tang Kui, the CEO of FountainVest Partners, he used to work at Goldman Sachs and has a very good relationship with Liu Chiping, the president of Tencent, who also came from Goldman Sachs.

Yu Xing thought for a while, but still couldn't figure it out, so he directly asked for the other party's opinion: "What's going on?"

"I was about to ask you what happened," Xiong Xiaoge said with amusement. "What did you do in Shenzhen?"

Yu Xing looked slightly bewildered: "I didn't do anything. I just teased them a bit and then went to look at cars. Penguin shouldn't be that lacking in self-control, right?"

Xiong Xiaoge didn't quite understand the situation of the mobile internet either. After much thought, he concluded that such contact was ultimately not a bad thing.

(End of this chapter)