Is Dependence on Low Prices for Sales a Sustainable Strategy for Electric Two-Wheelers?

In recent announcements, Yadi, a prominent player in the electric two-wheeler market, revealed a troubling forecast for its performance in 2024. The company anticipates a significant drop in net profits, projecting figures between 1.2 billion to 1.4 billion RMB, a staggering decline from 2.64 billion RMB recorded in the same period the previous yearRecent reports indicate that Yadi's total revenue for the first half of 2024 stood at 11.425 billion RMB, a decrease of 26.39 billion RMB, or 15.40%, compared to 17.04 billion RMB in 2023. This marks the sharpest decline in total revenue Yadi has experienced in nine yearsThe anticipated figures for 2024 suggest an alarming plunge in both sales volume and net profits.

In their official statements, Yadi attributed the decrease in performance to several factors

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One primary reason highlighted was the lower sales prices linked to the existing stock of electric two-wheelers, which were cleared out to adhere to changing national standardsMoreover, Yadi noted that distributors were in a process of reducing their inventories, impacting sales figuresHowever, the capital market responded with skepticism, leading to a noticeable drop in Yadi's stock prices following the forecast announcement.

On the day of the performance forecast release, Yadi's stock price stood at 13.50 HKD, plummeting to 11.78 HKD by January 13, 2025, reflecting a 13% declineOver the course of 2024, Yadi's stock continued to falter, opening the year at 13.01 HKD and closing its last trading day at 12.94 HKD, further underscoring the troubling trajectory the company was facing.

Data from consulting firm Frost & Sullivan indicates that Yadi has achieved cumulative global sales exceeding 100 million units by December 10, 2024. Meanwhile, statistics from iResearch suggest that China's total sales of electric two-wheelers in 2023 were around 55 million, with Yadi capturing approximately a third of that, translating to around 18 million units sold

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Given this substantial sales volume, questions arise regarding why Yadi finds itself in such a predicament with declining performance metrics.

What exactly has befallen Yadi, once celebrated as the top brand in the electric vehicle sector?

A Key Rival Looms: Niu Technologies

Interestingly, in Yadi's performance announcement regarding its significant downturn, there was no explicit mention of declining sales figuresYet, a closer examination reveals that the core issue is undeniably tied to the sales slumpThroughout the first half of 2024, Yadi reported total sales of 6.38 million units, a stark contrast to the 8.21 million units achieved in the same timeframe the previous year, indicating a decline of 22.26%. This decline resulted in a revenue drop of 15.40% and a net profit decline of 12.90% for the first half of 2024. Among the six publicly listed electric vehicle brands, only Yadi and Niu reported decreases in net profits, and just Yadi and Xinri saw revenue declines.

Despite Yadi experiencing improvements in gross profit margin (up from 16.87% to 18%) and net profit margin (from 6.96% to 7.17%), the substantial downturn in revenue and net profit can be traced back to faltering sales figures

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For instance, Aima, considered as the second major player in the industry, had revenue figures and net profit metrics that were inferior compared to Yadi's in the first half of 2024. Aima's income stood at 10.591 billion RMB, which lagged behind Yadi by 3.823 billion RMB, yet its net profit recorded at 0.951 billion RMB was merely 0.083 billion RMB lower than Yadi's.

The scenario is even more concerning when viewed within the context of Niu Technologies, whose net profit surged astonishingly by 167.82% during the first half of 2024. In contrast, Yadi's net profit is now under threat, with Niu's profits witnessing significant growth from a loss of 454.8 million RMB in 2019 to a profit of 598 million RMB by 2023. Furthermore, expectations suggest that if Niu maintains this growth trajectory, it could overtake Yadi in terms of net profit by the end of 2024.

Having previously held the title of global sales leader for eight consecutive years, Yadi's market position is progressively being challenged and weakened

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Additionally, it's worth noting that both profitability and market share are being encroached upon by Aima and other growing competitors, such as Niu.

Challenges in International Markets

Like many new energy vehicle manufacturers, Yadi is presently facing stagnation in new user growth within its domestic marketWhile striving toward overseas markets to mitigate the negative impacts of local competition, Yadi encountered setbacks when promoting drastic price reductions of approximately 30% across all vehicle modelsAlthough this strategy enhanced Yadi's market presence temporarily, it inadvertently cemented its image as a low-end brand in the eyes of consumersTransitioning to higher-end market offerings proves challenging amidst fiercely competitive mid- to low-tier markets.

Yadi's founder, Dong Jinggui, emphasized in 2020 the need for an aggressive expansion plan, striving for a market dominance target of at least 35%. This ambitious vision triggered the launch of Yadi's first international store in Milan in 2014 and the establishment of manufacturing capabilities in Vietnam as demand for electric two-wheelers surged.

As of the first half of 2024, Yadi has successfully expanded its distribution network to over 100 countries and regions globally, targeting markets in Europe, Southeast Asia, South America, and Central America

However, despite ambitious initiatives to boost overseas sales, this segment contributed less than 10% of the company's overall revenue and profits, with more than 90% still reliant on the domestic Chinese market.

The competitive landscape remains fierce, with rivals like Xinri pushing their products into nearly 100 countriesNew players like Niu, despite being relatively late in entering overseas markets, have swiftly established a footprint across 48 nationsEven Aima, a well-known domestic competitor, has launched factories in Indonesia, raising the stakes in the Southeast Asian market.

Investor Liu Bo pointed out that the low entry barrier for electric two-wheeler companies translates to heightened competitionEstablishing a robust localized supply chain in foreign markets is a time-consuming endeavor that demands significant resources, while the cost of after-sales service can further erode profit margins

As Yadi confronts growth limitations within its domestic market, the overseas venture could potentially prove pivotal in determining its future success or failure.

Inadequate R&D Investment and Technological Lag

While Yadi has previously promoted initiatives showcasing innovative features, the reality lies in a growing disparity in technological advancement compared to its rivalsConsumer sentiments reflect dissatisfaction, as many view Yadi's current offerings as lacking in essential smart features that enhance user experience.

For example, consumer Wang Ling noted that among its competitors, such as Niu and other rising brands, Yadi's significant advantage is solely tied to pricingHowever, it falls short in the realm of smart technology, leading to a perception of being outpaced in innovation

While competitors like Niu are integrating advanced safety features traditionally found in automobiles into electric bikes, Yadi is still perceived as approaching the market with a more traditional bicycle manufacturing mentality.

Yadi's overall R&D expenditure was around 1.192 billion RMB in 2023, accounting for merely 3.4% of its total revenuePrevious years show a concerning trend with R&D expenses percentages hovering around 3.5% for the past three fiscal yearsIn comparison, Niu Technologies dedicated roughly 6.03% of their revenue to R&D in 2023, consistently exceeding the 5% threshold in prior yearsSimilarly, even while maintaining less absolute expenditure compared to Yadi, Niu’s percentage contribution to R&D is on a steady ascent.

What remains troubling is Yadi's continued appearance on product quality blacklists while drawing consumer complaints amidst expanding competition