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The direct sales model and dealership model seem to be separated by a "besieged city," where those outside want to get in, and those inside want to get out. This precisely stems from the fact that both models have their respective advantages and disadvantages, making it difficult for automakers to choose just one.

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Recently, media reports claimed that AITO's direct sales stores in Beijing will all switch to a dealership model, and AITO's self-operated after-sales service team was also laid off earlier this year, suggesting that AITO may abandon all direct sales stores and fully transition to the dealership model.

However, AITO subsequently responded through the media that rumors of abandoning the direct sales model were untrue, and that AITO is promoting a dual-track layout of both direct sales stores and dealer franchises.

In May this year, AITO initiated a channel transformation, converting 90% of its stores into dealerships, retaining the direct sales model only in core first-tier city stores. From these actions, it appears that even if AITO has not entirely abandoned direct sales, its sales focus has shifted.

In fact, many new energy automakers have actively moved closer to the dealership model since last year, including not only AITO but also NIO, XPeng, BYD's Tengshi and Fangchengbao, among others. Increasingly, new energy automakers are choosing to re-embrace dealers, but is the dealership model really the "panacea" for boosting sales?

1

The Unsustainable Direct Sales Model

The direct sales model in the automotive industry was first popularized by Tesla. In 2013, Tesla opened its first experience center in China at Parkview Green in Beijing. In an era when traditional gasoline-powered vehicles still dominated, Tesla's direct sales stores became a beautiful scenery in shopping malls.

Soon, Tesla's direct sales store model was adopted by emerging automakers, who set up offline experience centers in crowded shopping malls to meet brand promotion, vehicle sales, and consumer experience needs.

This model can quickly increase automakers' brand awareness, directly reach core consumer groups, shorten the car-buying process, and better serve consumers through self-operated teams. Elon Musk once stated that Tesla adopts a direct sales model to ensure customers can enjoy excellent products and services.

However, with the relentless price wars in the new energy vehicle industry in recent years, many automakers have had to "tighten their belts" by reducing costs to create room for price cuts, and the direct sales model has borne the brunt of these challenges.

On the one hand, most direct sales stores for new energy vehicles are located in shopping malls and core business districts, leading to high operating costs.

According to the City Express, the manager of a new energy vehicle brand's experience store revealed that a 200-square-meter exhibition hall alone costs around 150,000 yuan in rent, plus mall management fees, parking fees, and other expenses, totaling approximately 250,000 yuan per month. Together, monthly operating expenses reach 400,000 yuan, but average monthly sales are only around 20 vehicles, sometimes even single digits.

Calculating this way, the annual operating cost of a direct sales store can reach as high as 4-5 million yuan. Assuming the automaker wants to cover 200 to 250 major cities nationwide, with two stores in each city, the annual operating cost would be at least 1.6 billion yuan, a significant expense for automakers that have not yet turned a profit.

Take ZEEKR as an example. Its sales expense expenditures from 2021 to 2023 were 2.2 billion yuan, 4.245 billion yuan, and 6.92 billion yuan, respectively. If ZEEKR were to fully align with the number of direct sales stores of "NIO, XPeng, and Li Auto," store operating costs alone would account for a quarter of sales expenses.

On the other hand, while the advantage of the direct sales model is that it can quickly help automakers increase brand awareness, as the domestic penetration rate of new energy vehicles has surpassed 50%, making them mainstream in the automotive industry, consumers are no longer unfamiliar with them. Many automakers have also learned to attract traffic through different social platforms, weakening the promotional role of direct sales stores.

Finally, compared to promoting the brand, obviously "selling cars" is the primary task for new energy automakers at present. However, as mentioned above, direct sales stores in shopping malls primarily serve as "brand showcases" and struggle to significantly boost sales, especially as consumer shopping needs gradually saturate, making consumers more cautious about placing orders.

At the end of 2022, Tesla officially closed its first domestic experience store at Parkview Green in Beijing. Prior to this, Tesla had gradually closed experience stores in luxury locations in China's first- and second-tier cities. It now appears that domestic new energy automakers cannot escape the fate of "evacuating shopping malls."

2

Re-Embracing Dealers

For many new energy automakers, "evacuating shopping malls" can reduce sales costs to a certain extent, but the key now is how to increase sales.

At this point, the dealership model, once abandoned by emerging automakers, has once again become a "hot potato." The core lies in the customer resources possessed by dealers. Compared to setting up direct sales stores in shopping malls and "waiting for customers to come," taking the initiative can more effectively increase sales.

Taking Leapmotor as an example, it has been working simultaneously on both direct sales and dealerships since early on.

In 2019, Leapmotor had only 49 stores, but after introducing dealers, by December 31, 2023, it had 560 stores. Among them, dealer stores accounted for 85%, and dealers contributed far more to revenue than direct sales stores, which was one of the reasons Leapmotor achieved positive gross margins in the third quarter of last year.

Whether black cats or white cats, the ones that can "sell cars" are good cats, and so more and more new energy automakers are beginning to "open their arms" to dealers.

Currently, automakers' efforts in the dealership model primarily involve recruiting dealers and alliance cooperation.

In January last year, former Great Wall Motor President Wang Fengying joined XPeng in a high-profile capacity and led a channel transformation program called "Jupiter Plan," aiming to gradually replace the previous direct sales model with a dealership model and recruit retail partners from across the industry.

In addition, ZEEKR also adjusted its channels last year, increasing the proportion of authorized dealer stores called "ZEEKR Home" and launching a dealer recruitment plan. "ZEEKR Home" adopts a managed direct sales model, where dealers bear the costs of opening and operating stores, while ZEEKR provides some subsidies and support, but requires these stores to maintain product pricing and design styles consistent with ZEEKR direct sales stores.

Xiaomi has firmly adopted a "direct sales + dealership" model from the beginning. In December last year, Xiaomi also reached a cooperation agreement with traditional auto dealer group Yuantong Automobile. Additionally, Yuantong Automobile has established agency partnerships with multiple new energy vehicle brands such as Leapmotor and AITO.

NIO also actively introduced dealers at the end of last year, but its intention was to "switch from after-sales to pre-sales," i.e., obtaining cooperative showrooms at low prices through after-sales authorization, but the sales team remains managed by NIO. This model allows both the manufacturer and dealers to "earn their keep" and achieve a win-win situation.

For new energy automakers, the benefits of choosing the dealership model are also obvious. On the one hand, dealers possess abundant channel resources and flexible funding for store construction, helping automakers reduce the burden of direct store construction, accelerate channel expansion, and retain outlets for brand promotion.

On the other hand, as traditional gasoline-powered vehicle sales continue to decline, many joint venture gasoline-powered vehicle dealers are choosing to withdraw from the network, providing a good opportunity for new energy automakers to "buy at the bottom," negotiate more favorable cooperation methods, and directly transfer existing customer resources.

3

A Contest of Sales Models

However, some new energy automakers still insist on adopting the "direct sales model." For example, Li Xiang, CEO of Li Auto, has stated that Li Auto will not authorize any agents or dealers, believing that the direct sales model can better and more quickly obtain consumer feedback on products, helping to improve and upgrade products while also more effectively controlling prices and profits.

Great Wall Motor, which has relied on dealers for car sales for many years, embraced the "direct sales model" in reverse this April, launching the service-oriented brand "GW Select" and planning to open around 200 retail centers by the end of this year. Great Wall Motor President Mu Feng said that this move is to focus on brand building rather than sales targets.

It is not difficult to see that the direct sales model and dealership model seem to be separated by a "besieged city," where those outside want to get in, and those inside want to get out. This precisely stems from the fact that both models have their respective advantages and disadvantages, making it difficult for automakers to choose just one.

The dealership model, which is believed to help automakers quickly expand channels and increase sales, is not without drawbacks for automakers.

Taking XPeng's "Jupiter Plan" as an example, according to the China Business Journal in June, the "Jupiter Plan" initially aimed to reduce operating costs and increase market coverage through the dealership model. However, XPeng's sales in early this year were lower than expected, prompting the headquarters to initiate a "wholesale mode" for dealers, requiring them to maintain inventory.

But for dealers, inventory pressure equates to increased cost pressure and sales risks. Due to internal concerns and dealer opposition, the "wholesale mode" has been temporarily shelved. However, Wang Fengying stated at XPeng's annual meeting earlier this year that if dealers do not have inventory pressure, they may not fully commit to selling XPeng vehicles.

It can be seen that XPeng's push for the "wholesale mode" is to further bind XPeng and dealers and increase their enthusiasm. However, for dealers, the current iteration speed of new energy vehicles is much faster than that of traditional gasoline-powered vehicles. The "inventory pressure" that was feasible in gasoline-powered vehicle sales may not be feasible in new energy vehicle sales.

In addition, amid the wave of price cuts in new energy vehicles, dealers' profits from selling new vehicles are increasingly thin. Moreover, traditional dealers mainly rely on vehicle maintenance and repairs to earn profits, but new energy vehicle maintenance and repairs have high thresholds and are mostly operated directly by manufacturers, making it difficult for dealers to profit, which can lead to other irregularities.

For example, dealers may continue the sales logic from the traditional gasoline-powered market, using price cuts and concessions to compete for sales, which can also lead to vicious competition between direct sales stores and authorized stores fighting for orders, disrupting new energy automakers' pricing systems.

In this light, for new energy automakers, the direct sales model and dealership model indeed have their respective pros and cons; for traditional dealers, joining the marketing system of new energy automakers is not a sure-fire way to profit, with thin commission earnings and limited maintenance and repair profits being reasons why many dealers choose to wait and see.

Even though many new energy automakers choose a two-pronged approach of "direct sales + dealership," where there are interests, there is competition, and no one can guarantee that contradictions will not arise between the two channels.

Therefore, rather than asking how new energy automakers should choose, it is more appropriate to ask how automakers should choose at different stages. Different automakers have different strategic approaches, and marketing strategies will also change over time. The key is how to balance the interests between the two channels to make good use of both.