Channel transformation has become a necessary choice for the new energy vehicle era.

1.Distributors were prevalent during the era of fossil fuels, but new energy channels urgently require transformation

The glorious moment of distributors has passed, and there is an urgent need to find new breakthroughs

In the fuel car era, the dealership model in the form of 4S shops has developed into a mainstream sales channel that balances efficiency and cost. 29,318 domestic passenger car dealers were in operation in 2021, up 3.9% year-on-year, accounting for around 90% of vehicle sales and remaining the mainstream channel for domestic vehicle sales. Dealership revenue is mainly derived from new vehicle sales, while profits are mainly derived from after-sales and other sources. The business of traditional 4S dealers mainly includes new car sales, after-sales service, finance and insurance, used cars, etc. The new car sales business refers to dealers selling cars wholesale from OEMs to customers, earning a price difference and receiving rebates from the OEMs when sales and customer satisfaction reach or exceed the targets set by the OEMs. After-sales business usually includes the repair and maintenance of cars. Finance and insurance refers to the provision of loans, finance leases or insurance by dealers to customers when new cars are sold. The used car business usually includes the wholesale and retail sale of used cars. The new car sales business is the main source of revenue, but the gross profit margin is low, while the after-sales business accounts for a small percentage of revenue, but a higher percentage of profit.

The profitability of dealers is affected by the fluctuations and changes in the industry cycle. 2017 was a normal year for the dealership industry with a loss of only about 10%. 2018-2019 saw a significant decline in the profitability of the dealership industry due to the decline in industry demand and increased inventory pressure during the National VI switchover period, with the number of dealers losing more than 40% in 2019. With the bottoming out of industry demand and the easing of inventory pressure in 2020-2021, the profitability of dealers will improve to a certain extent, but about 20% of dealers are still under loss-making pressure.

According to the "Dealership Survival Survey Report", only 27.3% of car dealers made a profit in the first half of 2022, while 53.6% made a profit and 19.1% made a loss. Among luxury brands, 52.6 per cent of dealers made a profit, while only 11.5 per cent of dealers of joint venture brands made a profit, 60.8 per cent made a flat profit and 27.7 per cent made a loss. Among the listed dealership groups, seven dealership groups including Zhongsheng Holdings, Guanghui Automobile, Yongda Automobile, Huge Group, Harmony Automobile, Xinfengtai and Baideli Holdings all experienced a decline in both revenue and net profit, accounting for more than half of the statistics.

Traditional dealers are seeking breakthroughs in new energy vehicle sales. With the increasing penetration of new energy and the emergence of various new sales models, dealer groups have also started to actively establish cooperation with new energy vehicle brands. As of the first half of 2022, for example, the total number of independent new energy brands authorised was close to 70, covering a variety of types including superstore showrooms, independent after-sales service, delivery service centres and comprehensive 4S shops.

Dealers are actively expanding their cooperation in the new energy after-sales business. The aftersales revenue of major domestic dealerships has been growing steadily during the fuel vehicle era, but with the increasing scale of new energy vehicles, there is less demand for aftersales services. In order to achieve stable revenue generation, some dealers have started to cooperate with directly managed brands of new energy vehicles in order to gain more revenue sources.

1.2. fuel car era distribution model prevails, channel structure has quietly changed

The car dealership model was prevalent in the fuel car era. China's auto sales channels have experienced various models such as planned distribution, dual-track system, factory direct operation and affiliation, as well as general agency for imported vehicles. With the opportunity of China's rapid economic development and market policy dividends, auto dealers have achieved rapid growth in business scale and operational volume, giving birth to a number of 10 billion and even 100 billion dealership groups, and becoming the most important sales method in the fuel car era. The dealership model has gradually become the choice of OEMs to balance cost and efficiency. The cost of investing in shop construction and daily management can be transferred to dealers, who can achieve full coverage of the regional market and recover the car payment at the same time as the wholesale to dealers, making the capital more efficient and allowing more capital and energy to be focused on brand building and product development. There are also potential risks and problems with the dealership model. Dealers have the power to set the retail price of cars, and while they offer promotional benefits to attract customers, they have also been guilty of unreasonable pricing, such as raising prices when the state offers tax incentives or when demand for some models exceeds supply, which is also a factor in reducing customer satisfaction. In addition, as the gross profit from new car sales is low and the gross profit from finance and insurance is high, dealers may sell cars with hidden mandatory tied-up consumption, which is not conducive to the maintenance of the car brand image.                                              

The total number of dealers tends to be stable, but the number of withdrawn networks has increased and the structure has been adjusted. According to the China Association of Automobile Dealers, the number of 4S sales and service networks for passenger cars nationwide was 29,318 at the end of 2021, an increase of 3.9% year-on-year. Although the number of dealers has not changed significantly, the number of 4S shop cancellations from 2019 to 2021 will be 1,860, 1,783 and 1,944 respectively, showing a continuous upward trend. The increase in the number of dealers as a result of new energy companies expanding their shops or experimenting with the authorisation model will offset the withdrawal of some dealers due to poor business practices. The new dealers are mainly expanding the authorisation and agency channels for new energy vehicles, including BYD, Changan, Chery and Xiaopeng. A high proportion of the dealers that have withdrawn from the network are joint venture brands, including Beijing Hyundai, Buick, Dongfeng Peugeot, GAC Ficker and SAIC Skoda.

The number of channels and sales per shop varies by brand. As of December 2022, BYD had the largest number of dealers at over 2,800, followed by SAIC-GM with over 1,500 dealers, Great Wall and SAIC-GM-Wuling with nearly 1,200 dealers, followed by Geely with over 1,000 dealers, SAIC-VW and FAW-VW with over 800 dealers, and other mainstream automakers with more than 400-800 dealers. The number of dealerships for other mainstream automakers is basically in the range of 400-800. In terms of single-store sales in 2022, GAC Toyota has the highest sales volume, with over 2,000 units and high operating efficiency. Most of the other mainstream traditional automakers will sell more than 500 units per shop in 2022, with average sales of 700-1500 units per shop.

1.3. The traditional distribution model in the era of new energy vehicles has significant drawbacks and needs to be changed

The traditional dealership model is in need of change in the new energy vehicle era. At present, most traditional car brands, with the exception of Tesla and New Energy, are still mainly dealerships. In the era of new energy vehicles, consumer purchasing habits are gradually changing, and with the emergence of multiple sales channels, car companies and consumers are less dependent on traditional 4S dealerships. In addition, traditional dealers are unable to meet the new needs of consumers and car companies in the new energy vehicle era due to changes in geographic location, sales models and profit margins, and there are many drawbacks that make it imperative to change traditional brand sales channels in the new energy vehicle era. The dealership model is still the main sales channel for vehicle enterprises. As of June 2022, more than 90% of the automotive sales channels are still the 4S dealership model. 86.4% of the sales channels for new energy vehicles are still the dealership model, with less than 2,000 networks selling new energy vehicles through the direct mode, and most of the rest are still the 4S dealership channels.                                              

The profit margin of traditional 4S dealers has been reduced due to the reduced demand for after-sales services for new energy vehicles. As the overall intelligence of new energy vehicles has increased, some vehicle faults can be solved directly through remote software upgrades, and regular engine maintenance has been eliminated for purely electric vehicles. For dealers, after-sales service has a high gross margin, accounting for around 50% of profits in the fuel car era, so a significant reduction in after-sales service will have a significant impact on dealers' profit margins. The disadvantages of the traditional dealership model in the era of new energy vehicles have been highlighted. We have analysed the advantages and disadvantages of different forms of channels based on the investment body, geographical location, functional division, order placement and whether new energy vehicles are sold separately. The disadvantages of the traditional dealership model, such as suburban shops and co-sales of new energy vehicles and fuel vehicles, have been highlighted in the new energy vehicle era, making it difficult to adapt to the new habits and needs of consumers in the new energy vehicle era.

Traditional dealers are unable to meet the brand communication and effective traffic attraction functions. New energy vehicles are still at the stage of capturing the market and building their brand. Apart from selling cars, sales channels should also help companies build a good brand image and attract more consumers' attention, which is the shortcoming of the traditional dealership model. At the same time, the location of the traditional dealership does not meet the requirements of the vehicle manufacturers in terms of brand communication and the surrounding environment, making it difficult to attract consumers effectively. Traditional dealers have difficulty in adapting to the changes in consumer purchasing patterns and habits in the new energy era. In the new energy era, consumers are mostly young, aged 25-45, and are more willing to go to superstores to experience or try out new models than to go to 4S shops. In the era of new energy vehicles, consumers' information on brand awareness, features and prices is not only limited to on-site consultations in offline shops, but the information advantage of the traditional dealership model no longer exists. The experience of looking at and buying a car is generally poor. The disadvantages of traditional dealerships in terms of location, price transparency and service awareness are becoming increasingly apparent.

The drawbacks of the oil/electric grid model in the sale of new energy vehicles are obvious. Depending on whether or not the new energy vehicle is sold separately from the fuel vehicle, there are two types of network: sole and shared. The sole network requires the investment of resources in the new energy vehicle to operate independently, creating a separate brand or dealership. Co-networking means that new energy and traditional fuel vehicles are sold together without the need for separate shops, and most traditional car companies use the co-networking model. The problem is that it does not fit the experience of new energy consumers, and the cost effectiveness of new energy vehicles, especially hybrids, is weak in the co-net state, and sales staff are not motivated to promote new energy vehicles.

2. Tesla and the new forces lead the trend of channel change

2.1. Askworld leads in number of stores, Tesla and Ideal have higher sales per store

The number of shops is far ahead. In terms of the number of shops, the Qizhang brand, which relies on Huawei's channel base, has around 1,000 shops, far ahead of the other new brands. The number of stores is close to 600, while the number of stores for Xiaopeng and Nezha is over 400, while the number of stores for Azera and RuiZha is between 300 and 400, and the number of stores for Tesla and Krypton is relatively small, between 200 and 300.                                              

In terms of the regional distribution of shops, Qizha, Zero Running, Nezha and Xiaopeng have a wide coverage in all tier cities, while Tesla, Weilai and RISO have a smaller presence in tier 4 and 5 cities and have not yet sunk their channels. Nezha and ZeroRun have more presence in lower tier cities than the others. In Tier 1, New Tier 1 and Tier 2 cities, Tesla, Azera, Xiaopeng, Ideal, Askworld and Zero Zha have a relatively high number of shops, while in Tier 3, Tier 4 and Tier 5 cities, Askworld, Zero Zha and Nezha have a relatively high number of shops, while the other new power brands have less presence in lower tier cities. Tesla, Ideal and Krypton led the way in terms of shop performance. In Tier 1, New Tier 1 and Tier 2 cities, Tesla had the highest sales, followed by Ideal, Azera and Link, while in Tier 3, Tier 4 and Tier 5 cities, Nezha had relatively good sales, followed by Zero Run and Asking World. In Tier 1, New Tier 1 and Tier 2 cities, Azera's sales were mainly concentrated in Tier 1, New Tier 1 and Tier 2 cities. The brand with the highest single-store sales was Tesla, which outperformed other brands in Tier 1, New Tier 1, Tier 2 and Tier 3 cities. The RISO and Jikrypton brands lead the new domestic brands in terms of shop performance, while the Askworld brand has lower average sales per shop due to the large number of shops and the fact that most of them are Huawei brand experience shops.

2.2. Tesla leads the new marketing model, channel sinking has not yet opened

Tesla adopts a sales model that combines online and offline direct experience shops. Tesla leads the way in online sales and directly operated experience shops, with online sales covering the entire process of online booking, order placement and after-sales. The offline experience shops are mainly responsible for pre-sales consultation, test drive and on-site experience, while the service centres are responsible for delivery and after-sales, and the functions of pre-sales and after-sales are separated. Tesla's shops are mainly located in mid- to high-level cities and have not yet started to sink into the channel. As of November 2022, Tesla had 270 directly-managed shops in China, mainly in Tier 1, New Tier 1 and Tier 2 cities, with nearly 90% of shops in these three categories of cities, and less in Tier 3 and Tier 4 cities.

Tesla is most popular in new Tier 1 cities, with fewer channels in Tier 4 and below. In terms of the regional structure of channels and unit sales, Tesla is most popular in the new Tier 1 cities, with the highest overall sales and average unit sales in this tier, while its promotion and sales in Tier 4 and below cities are weaker.

Tesla's sales channel model is the industry benchmark. Tesla was the first to set up directly-managed shops in urban commercial centres, leading the way for customers to see cars and their habits. Tesla's sales channel construction and operation model has a certain exemplary effect in the industry and has become an object of imitation for many car companies. In the future, with the enrichment of its own products and the launch of more cost-effective models, the further sinking of channels may become a new direction for its channels to further develop.

2.3. rapid expansion of new power channels, direct mode dominates

2.3.1. The Azure channel is known for its service and has not yet penetrated into lower tier cities

The Azera brand is positioned as a premium brand, featuring a community culture and service. The Azera brand is positioned at the top end of the market and its channels are characterised by a community culture of owners and uncompromising service, all of which are directly operated. It has a comfortable and stress-free showroom in a supermarket, a content community where users can share their experiences with each other, and a rich social scene among car owners. The channel types include NIO Space and NIO House, which differ somewhat in terms of shop size and function. The distribution of channels and sales is mainly concentrated in developed urban areas. In terms of regional structure, Azure's channel is mainly located in Tier 1, New Tier 1 and Tier 2 cities, with no presence in Tier 5 cities and a relatively stable number of shops in each category. Of the new shops added from March to November 2022, eight were in new Tier 1 cities, eight in Tier 2 cities and nine in Tier 3 cities, while the number of shops in Tier 4 cities declined, a strategy related to its brand positioning. Sales were mainly in developed cities, with a decreasing trend as city ranking declined. In terms of single-store sales, first-tier and new first-tier shops are more efficient, while third-tier and fourth-tier cities have significantly lower single-store sales performance than the national average.                                              

2.3.2. Xiaopeng adopts a combination of multiple channel models and has a wide store coverage area

Peng adopts a direct + agent sales model. The "direct + agent" channel model allows for better control of upfront investment in individual shops and allows for a lighter and faster deployment in sunken markets by combining local resources. In Tier 1 and Tier 2 cities, for example, directly operated shops are the mainstay, while in Tier 3 cities and below, agents account for more than half of the shops and are gradually increasing, helping to save on channel construction costs by adopting different channel allocation models in different levels of cities. The channel is widely distributed and has been laid out to sink channels. As of November 2022, Xiaopeng had 439 shops nationwide, with shops in all tier cities and a wide regional distribution, with the most shops in new tier 1 cities and a sink channel in tier 5 cities. In terms of the regional structure of shop distribution, the proportion of first-tier cities is the highest, while the proportion of third, fourth and fifth-tier cities has increased. Single-store sales are the highest in Tier 1 cities, while those in lower-tier cities are weaker than those in developed regions, and consumers in Tier 1 and 2 cities have a higher recognition of Xiaopeng's products.

2.3.3. ideal positioning precision store efficiency is high, after-sales business to try new cooperation model

Ideal adopts a direct sales model, with shops located mainly in developed areas. All of the shops are directly operated, with pre-sales and post-sales services separated and located mainly in supermarkets in mainstream areas. The brand is positioned as a smart family car, with a large six-seater SUV as its main product, and has a precise market segmentation, with sales of individual products ahead of the new force. As of November 2022, the number of shops in first-tier cities, new first-tier cities and second-tier cities has increased significantly compared to the beginning of the year, while the number of shops in third and fourth-tier cities has decreased. In terms of shop structure, new tier 1 cities accounted for the largest share, followed by tier 2 cities and tier 1 cities, with no shops in tier 5 cities yet. The distribution of single-store sales was relatively balanced, with no shortcomings in regional performance. In terms of single-store sales, the performance of each region is relatively even, with single-store sales in cities at all levels above 20, with no obvious shortcomings in the regions. With the expansion of shops and the continuous reduction of product prices in the future, the sales performance of lower tier cities and the overall sales performance is expected to further improve. The after-sales business is experimenting with new cooperation models. The Company would like to open new retail shops and after-sales service centres as physical shops and authorise and cooperate with third-party sheet metal spraying centres to effectively expand the Company's service scope and reduce after-sales service costs.

2.3.4 Nezha adopts a direct + agency model, with a relatively leading layout of downstream channels

Nezha has adopted a multi-channel model and is laying out its downstream channels. The company is building a combination of online and offline channels, using a direct-operated plus agency model. As of November 2022, Nezha had 427 shops nationwide, an increase of nearly 80 stores compared to March, representing a rapid expansion rate. In terms of shop structure, Nezha has more shops in new Tier 1 and Tier 3 cities, and a comparable number of shops in Tier 1 and Tier 5 cities, making it a leading player among the new forces in terms of downstream channel layout. In terms of single-store sales, each region is relatively balanced, with second- and third-tier cities performing slightly better than other regions in terms of shop efficiency.

3. Various channels coexist in multiple ways, and traditional car companies actively seek change

3.1. traditional car companies sales channel model is diversified development trend

Traditional vehicle enterprises rely on their existing resources to develop various channel models. Traditional vehicle enterprises have long formed close cooperative relationships with their dealer partners, and most of them consider relying on their existing dealer resources in the selection and establishment of channels. The dealership and agency models still require cooperation with dealers, relying on their existing resources to upgrade their shops and provide special training for sales staff. The direct model helps car companies to explore channel reform or to grasp data on user demand, and some newly established new energy brands tend to adopt the direct model.

Tesla's sales channel model is the industry benchmark. Tesla was the first to set up directly-managed shops in urban commercial centres, leading the way for customers to see cars and their habits. Tesla's sales channel construction and operation model has a certain exemplary effect in the industry and has become an object of imitation for many car companies. In the future, with the enrichment of its own products and the launch of more cost-effective models, the further sinking of channels may become a new direction for its channels to further develop.

2.3. rapid expansion of new power channels, direct mode dominates

2.3.1. The Azure channel is known for its service and has not yet penetrated into lower tier cities

The Azera brand is positioned as a premium brand, featuring a community culture and service. The Azera brand is positioned at the top end of the market and its channels are characterised by a community culture of owners and uncompromising service, all of which are directly operated. It has a comfortable and stress-free showroom in a supermarket, a content community where users can share their experiences with each other, and a rich social scene among car owners. The channel types include NIO Space and NIO House, which differ somewhat in terms of shop size and function. The distribution of channels and sales is mainly concentrated in developed urban areas. In terms of regional structure, Azure's channel is mainly located in Tier 1, New Tier 1 and Tier 2 cities, with no presence in Tier 5 cities and a relatively stable number of shops in each category. Of the new shops added from March to November 2022, eight were in new Tier 1 cities, eight in Tier 2 cities and nine in Tier 3 cities, while the number of shops in Tier 4 cities declined, a strategy related to its brand positioning. Sales were mainly in developed cities, with a decreasing trend as city ranking declined. In terms of single-store sales, first-tier and new first-tier shops are more efficient, while third-tier and fourth-tier cities have significantly lower single-store sales performance than the national average.                                              

2.3.2. Xiaopeng adopts a combination of multiple channel models and has a wide store coverage area

Peng adopts a direct + agent sales model. The "direct + agent" channel model allows for better control of upfront investment in individual shops and allows for a lighter and faster deployment in sunken markets by combining local resources. In Tier 1 and Tier 2 cities, for example, directly operated shops are the mainstay, while in Tier 3 cities and below, agents account for more than half of the shops and are gradually increasing, helping to save on channelconstruction costs by adopting different channel allocation models in different levels of cities. The channel is widely distributed and has been laid out to sink channels. As of November 2022, Xiaopeng had 439 shops nationwide, with shops in all tier cities and a wide regional distribution, with the most shops in new tier 1 cities and a sink channel in tier 5 cities. In terms of the regional structure of shop distribution, the proportion of first-tier cities is the highest, while the proportion of third, fourth and fifth-tier cities has increased. Single-store sales are the highest in Tier 1 cities, while those in lower-tier cities are weaker than those in developed regions, and consumers in Tier 1 and 2 cities have a higher recognition of Xiaopeng's products.

2.3.3. ideal positioning precision store efficiency is high, after-sales business to try new cooperation model

Ideal adopts a direct sales model, with shops located mainly in developed areas. All of the shops are directly operated, with pre-sales and post-sales services separated and located mainly in supermarkets in mainstream areas. The brand is positioned as a smart family car, with a large six-seater SUV as its main product, and has a precise market segmentation, with sales of individual products ahead of the new force. As of November 2022, the number of shops in first-tier cities, new first-tier cities and second-tier cities has increased significantly compared to the beginning of the year, while the number of shops in third and fourth-tier cities has decreased. In terms of shop structure, new tier 1 cities accounted for the largest share, followed by tier 2 cities and tier 1 cities, with no shops in tier 5 cities yet. The distribution of single-store sales was relatively balanced, with no shortcomings in regional performance. In terms of single-store sales, the performance of each region is relatively even, with single-store sales in cities at all levels above 20, with no obvious shortcomings in the regions. With the expansion of shops and the continuous reduction of product prices in the future, the sales performance of lower tier cities and the overall sales performance is expected to further improve. The after-sales business is experimenting with new cooperation models. The Company would like to open new retail shops and after-sales service centres as physical shops and authorise and cooperate with third-party sheet metal spraying centres to effectively expand the Company's service scope and reduce after-sales service costs.                                              

2.3.4 Nezha adopts a direct + agency model, with a relatively leading layout of downstream channels

Nezha has adopted a multi-channel model and is laying out its downstream channels. The company is building a combination of online and offline channels, using a direct-operated plus agency model. As of November 2022, Nezha had 427 shops nationwide, an increase of nearly 80 stores compared to March, representing a rapid expansion rate. In terms of shop structure, Nezha has more shops in new Tier 1 and Tier 3 cities, and a comparable number of shops in Tier 1 and Tier 5 cities, making it a leading player among the new forces in terms of downstream channel layout. In terms of single-store sales, each region is relatively balanced, with second- and third-tier cities performing slightly better than other regions in terms of shop efficiency.

3. Various channels coexist in multiple ways, and traditional car companies actively seek change

3.1. traditional car companies sales channel model is diversified development trend

Traditional vehicle enterprises rely on their existing resources to develop various channel models. Traditional vehicle enterprises have long formed close cooperative relationships with their dealer partners, and most of them consider relying on their existing dealer resources in the selection and establishment of channels. The dealership and agency models still require cooperation with dealers, relying on their existing resources to upgrade their shops and provide special training for sales staff. The direct model helps car companies to explore channel reform or to grasp data on user demand, and some newly established new energy brands tend to adopt the direct model.

The direct marketing model helps traditional car companies grasp the real needs and feedback of their customers. The direct channel can effectively bundle the interests of car companies' brands and channels, as well as integrate data and resources from online and offline sources. In order to enhance brand awareness and communication, it is increasingly important for car companies to be hands-on from research and development to manufacturing and sales, and for the sales side to connect online and offline, while directly and effectively reaching out to users' actual needs and feedback. In the process of transitioning to new energy, it is becoming increasingly important to supplement and establish direct channels for traditional car companies. The agency model has become an option for traditional car enterprises to transform their channels. In the era of new energy vehicles, some joint ventures (e.g. Volkswagen ID series) or independent brands (e.g. Great Wall Motors, Geely Automobile, Chang'an Automobile, etc.) have started to experiment with the new energy vehicle sales agency model within their own dealer networks. This model maintains the relationship with existing dealers to a certain extent, and because dealers do not have to bear the pressure of inventory and new shops are built specifically for new energy vehicles, dealers are able to reform new energy sales channels with less capital cost and pressure, while maintaining the stability of the overall distribution network. The agency model also allows for a series of online and offline activities to grasp customer information and achieve a relatively uniform consumer experience and price stability. The agency model can meet the diverse needs of consumers compared to the original distribution model. The agency model is still operated by distributors, and there is still a gap between them and directly operated shops in terms of brand awareness and brand image maintenance.

Sales channels are expected to continue to diversify and co-exist. The model of automotive sales channels is still evolving and changing, and traditional car companies will continue to choose the direct or agency model for channel change in the process of transitioning to the new energy era. However, considering the long-established partnership between car companies and dealers, as well as the stable transition of car companies' own fuel vehicles and after-sales services, dealers have a strong willingness to cooperate with car companies in the transition to new energy or channel changes, and they still have their own unique advantages for the used car market and after-sales services. In addition, dealers still have their own unique advantages in the used car market and after-sales service business. It is expected that the coexistence of dealership, agency and direct sales models will continue in the future, with each vehicle company choosing its layout according to its own development stage, the current characteristics of the channel and the needs of consumers in different regions in terms of car purchase and channel. Pre-sales and after-sales are gradually separated, and after-sales dealers are being sought to cooperate. As consumers' habits and approaches to buying new energy vehicles change, the division of labour between pre-sales and after-sales professionals may become more refined in the future, and the gradual separation of pre-sales and after-sales is expected to become a trend. New energy vehicles, especially pure electric vehicles, require less maintenance and repairs, so separating pre-sales and after-sales services will help reduce costs and give more flexibility in choosing sales locations. However, as the scale of sales continues to expand, after-sales costs will continue to increase, and some new brands are beginning to seek authorisation or cooperation with dealers in the after-sales sector, and cooperation between OEMs and dealers in the after-sales sector is expected to gradually enrich.

3.2. traditional car companies actively seeking change, independent brands change before the joint venture

Traditional car companies are actively optimising and upgrading their sales channels in the new energy era. In the process of transitioning to new energy, traditional car companies have also made positive changes to their channels, with BYD, as a model of a fully transformed new energy vehicle, being the fastest to make adaptations to its channels and achieve continuous breakthroughs in sales. Other brands, such as Guangzhou Automobile, Changan Deep Blue, Great Wall Ora, Geely Geometry and Krypton, have all created new independent brands for the sale of pure electric new energy vehicles, and are actively exploring new channel models with a separate layout. Among the joint venture brands, only Volkswagen has set up a separate channel for its ID series of pure electric vehicles, while the other brands have not yet seen their channels set up specifically for new energy vehicles, with independent brands significantly ahead of the joint venture brands in terms of speed and process of change to new energy channels.

BYD is the first to achieve full brand and channel new energy. BYD, as the first car company to achieve full new energy, does not have the problems that other car companies face with oil and electricity network sales. The company's channel selection is based on distribution and agency cooperation, direct operation in some regions, timely upgrading of existing channels, and the rapid deployment of urban super shops, which has effectively established and disseminated the exclusive brand of new energy. The number of BYD sales channels has exceeded 3,000. In terms of regional distribution, BYD has a presence in all types of cities, with the largest number of third-tier cities, followed by new first-tier cities and second-tier cities. Sales are highest in new Tier 1 cities, with most sales in Tier 3 cities and above, and there is still potential to improve the recognition and acceptance of new energy vehicles in lower Tier cities. The number of sales per shop decreases as the city level decreases, with the highest sales per shop in Tier 1 cities and relatively low sales per shop in Tier 5 cities.

3.3. hybrid sales channels need urgent reform, the oil and electricity network is imperative

The new energy hybrid market is dominated by BYD. Since 2022, Great Wall Motor, Geely Automobile, Chery Automobile, Chang'an Automobile and other independent brands have launched new hybrid systems and models, but as of December 2022, the monthly sales of BYD's hybrid models have exceeded 120,000 units, while other brands' hybrid models are generally below 10,000 units. The sales gap is huge, and the current new energy hybrid market landscape is dominated by BYD. The sales channels of new energy hybrid models are not easy to scale up by adopting the original channels of the common network. The reason behind BYD's dominance in the hybrid market is its new energy brand strength and strong product power, as well as its comprehensive new energy channel advantage. After BYD stops selling fuel vehicles in March 2022, all vehicles sold in the channel will be new energy vehicles and there will be no competition and price comparison between fuel vehicles and new energy vehicles. While other car companies have already priced their hybrid models close to BYD's similar products, because their hybrid models are sold on the same network as similarly named but different types of fuel vehicles, consumers are likely to be concerned about the natural price difference between fuel and hybrid vehicles in the same range of models, and the widely perceived value-for-money advantage of hybrids will be significantly reduced, while sales staff will lack sufficient incentive to promote hybrid models. The natural price differential between fuel and hybrid models is significantly reduced. The co-existence of fuel and hybrid sales channels is not conducive to effective promotion and sales of hybrids.

Traditional vehicle channels are inevitably splitting up in the hybrid sector. As an important incremental part of the medium to long-term penetration of new energy vehicles, it is imperative that the sales channels for hybrids are changed and adjusted, and the separation of oil and electricity networks has become a necessary option for car companies to make a comprehensive push into the hybrid market. The new energy channel will prevent consumers from directly comparing prices with their own fuel-fired vehicles of the same series or class, thus effectively differentiating them from the original fuel-fired vehicles. It is expected that from Q2 2023 onwards, the new channel changes for hybrid models will gradually be implemented by Great Wall Motor and Geely Automobile.