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No deadline for profitability

This interview was conducted by Diyi Caijing Ribao or China Business News (CBN) earlier last year before Qoros chairman Guo Qian was replaced by Chen Anning. Editor


CBN: After two years in business, Qoros currently has two models in the market, which are well received by the media abroad. However, despite the recognition from the auto industry, the sales have not been as successful. As the leader responsible for the Qoros’s eastern business, how do you rate Qoros’s performance? What’s your evaluation of the currently management team: chairman and CEO Guo Qian, vice chairman Volker Steinwascher and chief designer Gert Hildebrand?

Nir Gilad: People in fact tend to overlook two things. The first is the achievement. For example, a small company has made cars with quality measuring up to the international standard on its first try. The second is the challenge a new brand has to face to develop its popularity, interest and trust among consumers in order to sustain sales growth. We should not underestimate the importance of these two elements. What we should see is the exciting fact that Qoros has two models on sale. With our expansion of dealership network and marketing campaign, we will see more and more Qoros cars on the road. Every member of the Qoros senior management team will continue to work as hard as they can to drive the company forward.

CBN: In terms of technology, manufacturing and operation management, Chinese automotive joint ventures are mainly led by the foreign partners and the senior management team consists of both Chinese and foreigners. Qoros broke this tradition. Guo Qian, Qoros chairman and CEO, is the only representative from Chery in the JV. Vice Chairman Volker Steinwascher was hired by Israel Corp. for the new company. What was the thought behind setting up the structure of the company and its management team in this way? Was it Israel Corp.’s idea to start a new automotive brand? Israel Corp. does not have previous experiences in the automotive business. How do you exercise control over the JV company?

Nir Gilad: Our focus is to explore new business areas. The Chinese auto industry finally has a native brand capable of competing with foreign OEMs. Just like what you have pointed out, it was Israel Corp.’s idea, instead of experienced automotive senior managers, to create a new brand. The structure of the JV and its management model are both very stable. One of our two fundamental targets in making a Chinese car with international quality has been achieved. We are working on the other target: building a new brand from scratch and winning over trust from consumers and the market.

CBN: There are many challenges which a newly born auto company has to face in today’s fiercely competitive market. Qoros Auto has recently developed the second-stage marketing plan. The costs of R&D, HR and manufacturing are rising. Considering the current production efficiency, it would be long time before the company becomes profitable. Is the cost already higher than investors’ expectation now? Please comment on the finances of Qoros Auto. In addition, given many rumors about Qoros Auto’s financial status, can you provide some numbers such as the amount of the investment, debts and losses?

Nir Gilad: First, I’d like to point out that the investment in the auto industry is long term. Currently, both parties of the JV have invested $2.5 billion in total. For a mature auto OEM going for the same goal, $2.5 billion is only an insignificant number. Second, we have to realize that our company is trying to increase efficiency and reduce operating costs. Although we are not profitable yet plus more significant investment is needed, this has been within our expectation and planning. We will soon see the result of our effort. Qoros is expanding dealership networks and widening the product line. As a result, consumers start to accept the brand and more and more of our vehicles are driving on the road.

CBN: I have spoken with many customers who are considering buying a Qoros. They all like the new product, but know very little about the company. The most common question they ask is: “How long will this company exist? How would I service my car if the company goes out of business?” As an investor, what do you have to say to those potential customers? When do you estimate that Qoros will become profitable? When do you think Qoros will break even?

Nir Gilad: First, let’s review what we have achieved so far: Not only have we won many awards in China, we have won multiple prestigious prizes worldwide. This has left many mature OEMs envious. To name a few: the safest “small family” car of 2013 rated by Euro NCAP, the Red Dot design award and the “Best Telematics Product” and “Service Launch in Emerging Market” awards by Telematics Update. We did not win these prizes by luck. They are the results of our specific plan of creating “a new premium.” We are writing the history of the Qoros as we endeavor. Second, we will not set up a specific deadline for becoming profitable. We understand that it takes time to build a new brand. We are prepared and we are working hard to build a successful automotive brand with confidence.

CBN: We know everyone from Qoros is talented, but that does not mean that they are a well functioned team. The competitiveness of an automaker heavily depends on the efficiency of its corporate structure. How do you make sure that you have an effective company structure?

Nir Gilad:  If you look back at what Qoros has achieved so far, you will find we are very strong on product design and R&D. In terms of sales, there is no need to doubt the capability of our team because so far we have kept all of our promises with a relative small investment compared to mature OEMs. All we need now is time and patience.

CBN: It takes time to build a brand. Considering the history of other OEMs, Qoros may need more products and experience to be successful in the market. In other word, Qoros will have to be ready for deeper losses in the future. As an investor, how much longer can you tolerate losses in the business?

Nir Gilad: We are planning for a long-term development. It is unrealistic for anyone to expect returns in a short time in the automotive business. We like Qoros’s current business plan and we have also seen Qoros’s recent achievements. Therefore we have reasons to believe the company will be more successful in the future.

CBN: Although more and more consumers start to gradually accept the Qoros brand, they are still curious about the foreign investor. What are Israel Corp.’s businesses? What is its future investment strategy? Does Israel Corp. play a leading role in R&D or operation of the renewable energy industrial value chain? If yes, can Israel Corp.’s advantage in this field support Qoros Auto’s future development and operations? What does Israel Corp. gain from Qoros Auto?

Nir Gilad: Israel Corp. is a multinational industrial holding company. Its business covers a few key industry areas upon which the rapidly growing global market is depending, including chemistry, energy, transportation, automotive and so on. Israel Corp. includes Israel Chemicals, ICPower, Oil Refineries Ltd., Qoros, ZIM Integrated Shipping Services, TowerJazz and ICGreenEnergy. The corporation was established in 1968 and became public listed in 1982 at Tel Aviv Stock Exchange (TASE). Its market value is among the top 10 at TASE as of now.

(Rewritten by Kevin Wang based on author’s article published in CBN)

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