How many dealers does Smart have in Europe now and do you plan to maintain that footprint?
We will be going down roughly 30 percent in the investor structure (independent and Mercedes' own retailers) and roughly 50 percent in the point of sales. So, we will have roughly 160 partners in Europe and 300 points of sales. On the aftersales side, we will benefit fully from the current network, which is a combination of Smart and Mercedes dealerships. This is a huge advantage that Smart has over some of the newcomers that are entering Europe.
Smart is counting on a significant percentage of online sales. What will the digital buying process look like?
We have set up an e-commerce platform where the customer can do everything online. How are our agents involved? As a customer, you can decide if you want to stay online for each step, or you can go offline to get a consultation, a test drive, and obviously delivery at your local Smart partner -- but the partner already knows you because he's fully integrated into the online journey. Smart partners will not buy and sell vehicles in the future. It’s a direct sales model, so we are selling to the end customer. The partners are consulting and being intermediaries in the sales process.
Will this be a pure agency model, with no price negotiations, and partners will get a fee rather than a commission?
Will the ForTwo continue to be sold with a traditional retail model while the #1 is sold via the agency model?
The ForTwo will continue to be offered under Mercedes, and it is not part of our Smart Europe entity. I also have to say that the ForTwo electric is quite successful in Germany at the moment, with a wait time of roughly 12 months. It will be offered in parallel with the #1 for quite some time. Would it be tricky for customers if there is a salesman offering discounts on the ForTwo but not able to for the #1? We could see that, but nobody is discounting vehicles currently because demand is by far exceeding supply, so this is working in our favor. We don’t see a huge gap in terms of customer approach.
Geely has been a leader in the subscription model, with Care by Volvo and Lynk & CO. Is that an option for Smart?
Smart has always been a pioneer when it comes to new ownership models, for example with Car2Go (which used Smarts) as the first company to go into car-sharing. We foresee a huge portion of ownership of the #1 as operating leases, so that’s our main model for Europe. We will also have pilot subscription models, starting with Germany. That is a very, very interesting segment because it's somewhere in between short-term renting and an operating lease.
Once you have established the #1 in Europe, where do you plan to go from there? Recently some camouflaged photos of what reports say is the #2 have emerged that show a coupe-crossover design.
The SEA platform is very flexible and we can imagine a lot of vehicles on it. We could go back to where we have been with the ForTwo, and we could also go in the direction of a C-segment car.
The ForTwo is still very popular, especially in cities such as Paris, so clearly there is a demand for a very small, maneuverable, electric urban car. Would you consider a replacement with the same minicar footprint?
We get that request [to continue to offer a minicar] I would say weekly, from dealers. The ForTwo is loved by many of our urban customers. For now, we are focusing on the B-segment expansion of the brand, but we have that in the back of our minds, as you can imagine.
Do you see customers continuing to want SUVs and crossovers with the same enthusiasm, or are we heading into a mix of different body styles, including vehicles that are more aerodynamic to optimize range, and also to draw buyers who want to stand out?
If you look back six years, SUVs had a market share of about 25 percent in Europe. It’s almost 50 percent now. That means it’s still the way to go if you really want to do volume. And on top of that, the batteries take up a lot of space in a dedicated electric vehicle. So from a design perspective, the SUV is the perfect body type for an EV. The first car in our lineup will be an SUV, but that doesn’t mean that we will stick with them for our second, third, fourth and fifth cars.
So, you could envision a full lineup, where someone can walk into a Smart dealer and not walk away disappointed that they couldn't find the car they wanted?
There are obviously limits in relation to the Mercedes-Benz brand, so we would most likely not go into a super-luxury direction, because there are already cars in the showroom that cover that. But all other options are open.
How has your production in China been affected by the recent coronavirus shutdowns?
Our supplier base is in and around Shanghai all the way to Xi'an, where the factory is. The shutdown in that area affected us heavily. Nevertheless, the China launch took place successfully earlier this month. We have stopped taking orders in China because we are in a sold-out situation, and our 2022 production is already earmarked. The shutdowns affected us also because our suppliers’ workers were in lockdown. They couldn't go to the factories. It was a huge hit for us.
Do you have any clarity on when normal production levels will return?
We could already go back to a normal production level, depending on what you are willing to pay for chips. It's a combination of shortages and extremely high prices due to people now speculating on scarce parts. That is not only affecting us, of course, but you can imagine in the B-segment you are facing a different margin situation than in the Mercedes S-Class segment.
Is there any sort of prioritization within the various Geely brands in China as to which brands get chips or components that might be in short supply?
We reached out to both our parents -- Mercedes and Geely -- and asked for support in terms of procurement. Both were very active and very supportive. With us relaunching our brand in China as well as in Europe, that is a chance you only get once.
What chips are scarcest right now?
The main bottlenecks are for ADAS functionalities, but also even for headlights or ambient lighting. Onboard chargers are affected. So it's all over the place. But there is an underlying shortage, and part of it is that EVs need a lot more chips than an internal combustion vehicle. Both suppliers and automakers were surprised by the high demand for electric vehicles. So, it's a mix of different factors. It’s a perfect storm that is hitting not only us, but many others.