The $5,000 electric car
The champion for the hottest electric car model this year-to-date is still the Tesla Model 3, but a tiny two-door four-seater hatchback has been a close second and even outsold Model 3’s global sales by more than 22,000 units in January and February of this year. This is the Hongguang Mini EV, manufactured under a joint venture between General Motors, Wuling Motors, and China’s state-owned OEM SAIC Motors. The Mini EV went on the market only in July 2020 and sales took off, selling 119,255 vehicles in the remaining six months of 2020, compared to the Tesla Model 3, which sold 365,240 units in all of 2020.
How did it become so popular?
The “irresistible” price.
There are three variants of the Mini EV:
75 mi battery range without air conditioning — $4,500
75 mi range with air conditioning — $5,000
100 mi range with air conditioning — $5,500
Consumers in China don’t necessarily need a car, but they do need it at this price. And to some extent, due to the low price, the Mini EV has been separated from the market of automobiles and is seen more like a daily consumer product such as an electric moped or scooter, making the buying decision much easier.
Here comes a real opportunity to disrupt the automotive industry.
The Mini EV is a perfect example of the concept in the last blog post on Lean Startup and getting an imperfect minimum viable product (MVP) into the hands of customers as soon as possible. It has many shortcomings, such as not going above 62 mph and lacking basic features including airbags, reversing camera, air conditioning, and fast charging. However, it still has attracted thousands of consumers because it solves the #1 key pain point for consumers who want to adopt electric vehicles: the cost.
Even though the cost of EVs is generally coming down and there are government incentives to offset the costly purchase price, standard EVs are still prohibitively expensive for most average-earners. The high cost, combined with the unknowns of owning an EV (will charging be convenient? is it safe? how much will charging cost?) become a barrier to adoption.
Then the Mini EV came along and asked the consumers: If you can buy an EV that has only the transportation utility with the most basic experience at the lowest cost, would you do it?
They said YES.
At this price, consumers are highly forgiving of the lack of features. And as it turns out, Chinese consumers like it because it’s convenient to park, easy to charge, and is a step-change improvement compared to the motorcycle they used to ride. Furthermore, for many Chinese families, the only car in the family is generally used by the husband, while other members of the family—the wife, older children, the elderly —still need to use the car for short trips to get groceries, run errands, pick up kids, but due to various reasons, these needs cannot always be met. The Mini EV, with its low price and compact body, gives families the opportunity to purchase a second car and gives family members whose need for cars has been “suppressed” newfound hope.
Although the low-cost strategy can get the Mini EV ahead in the short term, the strategy by itself is unable to sustain market leadership, as this model can be easily copied by other competitor OEMs. But what will help the Mini EV stay ahead is their brand loyalty and continuous innovation to be a step ahead of the competition. SAIC-GM-Wuling has been positioning the Mini EV brand as a fashion product, with high penetration among the younger generation. There’s even a big community of owners who are transforming the interior and exterior of their vehicles based on their own imagination, making driving in the vehicle just a bit more curious and adventurous. And to continuously innovate, in April, SAIC-GM-Wuling introduced a newer model, the Mini EV Macaron (named inspired by the dessert), which includes more features such as an airbag, reversing camera, pedestrian monitoring, and more, at $5,600.
Key questions from the success of the Mini EV:
Is the miniature, cheap, low-range EV a desirable form factor in places other than China?
In the ’60s, Volkswagen (in German means “People’s car”) aimed to make a cheap car that the average German can afford. They came out with the Beetle—a $1500 mass-market vehicle with limited features that sold wildly.
The Mini EV is an electric version of that, and we’ll likely see more players enter the market in China and also export to other countries in Asia, Europe, and Africa where there is good product-market-fit—mostly urban centers with limited parking, high demand for short-distance trips, and high utilization of motorcycles.
The mini EV can be an emerging product in the US as well. In places like Delray Beach, Florida, locals and visitors drive around in golf carts to explore the city or simply run errands in a more laid-back vehicle. This is quite a similar use case and form factor as the mini EV.
Who in the marketplace will the mini EV disrupt? Where is the entry point?
Will it disrupt luxury electric vehicles and delivers 80% of the utility at 20% of the cost?
Will it disrupt personal motorcycles and give drivers and riders the advantage of weather protection and storage?
Will it disrupt commercial fleet vehicles used for ridehailing and deliveries in cities? In fact, Uber and Lyft have both made moves to increase the number of EVs on their app. And Didi Rideshare says it has “about 1 million” electric cars on its platform today. The entry point for this type of vehicle may end up being fleets, rather than direct-to-consumer.
From a sustainability and congestion standpoint, is this a net positive?
Does the promotion and adoption of very inexpensive vehicles lead to more traffic and congestion, by driving consumers away from mopeds and buses? Probably. On the other hand, it also replaces an internal combustion engine vehicle and eliminates tailpipe emissions. Plus, more adoption of these low- and mid-tier EVs will lead to more private and public efforts in building out the infrastructure, allowing us to reach the tipping point for EV adoption faster. Overall, I think this is a net positive.