Matters:

Ideal Auto Renewal's delivery volume forecast for the first quarter of 2024. The announcement said that due to orders falling short of expectations, the company expects to deliver 76,000 to 78,000 vehicles in the first quarter of 2024. Previously, the company gave a delivery guideline of 100,000 to 103,000 units for the first quarter.

Ping An's point of view:

Lower MEGA sales expectations and return to healthy growth. The company's previous sales expectations for MEGA were high, but the final terminal order level did not meet the company's previous expectations. In the announcement, the company reviewed the rhythm of Ideal MEGA, saying that it mistakenly treated the 0 to 1 stage (commercial verification period) of Ideal MEGA as a stage of operation from 1 to 10 (stage of rapid development), while paying too much attention to sales volume and competition issues, which led to a significant decline in user value and operating efficiency. The company said it will operate Ideal MEGA according to the rhythm of 0 to 1, focus on core user groups, focus on cities with strong consumption capacity for high-end pure electricity, and at the same time reduce sales expectations and return to healthy growth.

MEGA's primary mission is to increase the influence of ideals on the all-electric circuit, rather than assume high sales expectations. In our previous research report “New Guochao Series | Thinking about Pure Electric Vehicles from MEGA”, we believe that MEGA products are strong, and even if their sales volume falls short of expectations, it does not mean failure. As the core competitor, Gekrypton 009 sells 1500-2000 units in a single month. MEGA is an ideal brand flagship, which can enhance the brand influence ideal on the pure electric circuit and warm up the new pure electric products launched in the second half of 2024; in addition, MEGA is equipped with a number of new ideal technologies that will be released for the first time in 2024 and Get ready for the launch of pure electric models in 2025.

Through the process of reviewing Ideal MEGA's launch so far, we believe that the parts that need to be improved in the future are: 1) Management of sales volume and price expectations. The monthly delivery guide given by the company in the early stages of MEGA's listing was the highest in sales volume of 500,000 yuan or more (about 8,000 units sold per month). In addition, the price guide given by the company before MEGA was launched was 500,000 yuan or more. According to past new car warm-up practices, it is estimated that some blind users expected the starting price to be around 500,000 yuan, but in the end, MEGA sold for 559,800 yuan, which is a huge amount.

Furthermore, due to high sales prices, the number of orders was lower than the company's previous guidelines, leading to a significant decline in market value.

2) Elimination of negative public opinion: After MEGA went public, there was a large amount of negative public opinion about MEGA's shape on the Internet, which had a negative impact on MEGA's order conversion. It took some time for the company to eliminate this negative impact.

3) Resource reallocation: After MEGA's launch, the sales resources of MEGA terminals were heavily skewed towards MEGA, crowding out the sales resources of the L series, leading to a decline in L series order conversion. As mentioned by the company in the announcement, the company will operate the ideal MEGA according to the rhythm of 0 to 1, focus on core user groups, and focus on cities with strong high-end pure electricity consumption capacity. We also believe that the L series is expected to return to the previous level.

Ideal error correction is quick, and there is still plenty of room for maneuver:

1) Increase the layout of the overcharging network: Part of the reason the MEGA order did not meet expectations is that there are still few charging stations in the company's layout. For this reason, the company increased the layout of the supercharging network in 2024 and plans to build 700 high-speed charging stations and 2,000 urban overcharging stations (previously planned to have 700 high-speed overcharging stations and 1,300 urban overcharging stations).

2) Mega abandons a fully blossoming sales strategy, further focusing on core user groups, focusing on cities with strong consumption capacity for high-end pure electricity, concentrating on product experience and test drives in large retail centers in leading cities, and speeding up the construction of overcharging stations in these cities. After effectively completing the stage from 0 to 1, it is then promoted to more cities and larger user groups.

3) The L series expands the price range to cover the needs of more users. In response to users' demand that the 2024 L7\ L8 keep the non-air suspension model, the company quickly responded and provided a more affordable non-air suspension model. Ideal's recent series of adjustments have highlighted agile error correction capabilities. At the same time, we believe that the company has sufficient back-up preparations. Ideal L6, which is positioned in the 20-30,000 range, is expected to be launched in April, with monthly sales expected to reach 20,000 units. The four L series models have strong profitability, and will remain the company's sales base for 2024.

Profit forecast and investment advice: We insist that MEGA's product strength is strong. As negative public opinion weakens and MEGA operates in a more targeted manner, MEGA will reach potential customers more accurately, and Mega's monthly sales are still expected to reach 3,000-5,000 units. We have always believed that MEGA, as a pure electric flagship with a price of 500,000 or more, is to enhance the image of the ideal pure electric brand and display pure electric technology, rather than assume excessive sales targets.

The L series is the company's sales volume and profit base for 2024. With the adjustment of the company's sales resources, we believe that the L series is expected to get back on track. We keep the company's sales forecast of 650,000 units unchanged. Of these, the L series will account for more than 80% of the company's total sales. We maintain the company's net profit forecast for 2024 to 2025 at 14.56 billion/ 25.47 billion yuan/35.6 billion yuan. The company is quick to correct errors, and the revised delivery guidelines guarantee a steady quality of operation, and still maintains the company's “recommended” rating.

Risk warning: 1) MEGA's negative public opinion has been slow to be eliminated, which in turn affects the company's brand image and sales volume of subsequent models; 2) L series sales fall short of expectations, and the company may increase terminal discounts, leading to a decline in L series profits; 3) The company will also launch 3 pure electric models in the second half of the year, and sales may not meet expectations.