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Pateo has lofty goals for smart car business

Freeman Shen took over as Pateo’s CEO in January. Since then, he has been focused on building up a globally competitive team for the company. Pateo chairman Ken Ying has decided on a new direction for Pateo’s future: smart cars. According to Ying’s plans, they will have a whole new business plan for selling these new products, and he sees the market value of their smart car division surpassing ¥600 billion ($95.7 billion). SAIC, the automaker with the largest market value in the country, is valued at just ¥200 billion.

Of course, Pateo will not be fighting to reach this goal alone. The company is currently in a fundraising period and Ying plans to raise funds on the order of ¥20 billion. However, to get this money, Pateo will need to put together a team that will wow investors.

 

 

Putting together a team

“Pateo is now focused on bringing in the best talent. With above-market salaries, options and stocks, we’ll be able to bring in the best team for the job,” said Ying.

Pateo entered the smart car market on the heels of SAIC, the automaker which paved the way for the smart car industry in China. Pateo has lots of tech talent, as well as the approval of the major players in the auto industry. However, the smart car industry is still a new venture, and Pateo’s current talent will not be able to keep up its rapid progress. And so, putting together an international team is crucial for the future of Pateo’s smart car business.

Ying sees Shen’s experience in building the Volvo China team with Li Shufu as an important advantage. “I’ve always wanted to work in the intersection between IT and the auto industry,” said Shen. Infiniti tried to bring him on its team after Shen left Volvo, but he did not want to keep working for a traditional automaker. 

Shen and Ying got along well quite soon after meeting, but another aspect which attracted Shen to Pateo was the growth potential in the connected vehicle market. Shen has said that he had been searching for an entry into this field, given that anyone doing so would have a chance at being a leader in a new market. “I wanted to find a partner who knows the auto market and has experience with connected vehicles.”

Shen met Ying at an IT summit in August. Just two months later he took up his post as CEO, becoming one of the six founders of Pateo.

Ying sees their personalities as supplementing each other: Ying is a person who sees long term. When he talks about products and his hopes for the future, he does so with a passionate energy. Shen, on the other hand, is much more stolid, and talks more pragmatically about how to execute their plans.

 

Tesla “not yet a success”

“If Ying had not had interest in surpassing Apple’s success, I wouldn’t have joined the team,” said Shen. To illustrate what motivates him, Shen listed six things: First, branding, mass-produceable products and a good business model. Second, the brands that have each of these: Tesla, Apple and Uber. 

Tesla is the prime example of an IT company being successful in the auto industry, but Ying does not see it that way. Contrasting the company with Apple, he said that without revolutionizing the industry, one cannot say that Tesla is a success. Tesla’s market capitalization is too low, he said. It sits at less than a tenth of a percent, and so it has little clout in the industry. All Tesla has done is create a brand. Apple’s capitalization, on the other hand, stands at 15 percent, and has a profit margin above 30 percent. Furthermore, Apple really did bring about a revolution in IT.

“Smart cars are the next big thing, and I hope that Pateo will be instrumental in creating an ‘Internet of Vehicles,’ said Shen. “I want it to be the benchmark of the industry.”

European and American manufacturers have already had a century to solidify their reputation in the traditional auto market. But, when it comes to smart cars, everyone is on a level playing field. This is an opportunity for a truly globalized industry, just like with NEVs. This could be a chance to change China’s ranking in the global auto industry, and make Pateo a company China can be proud of.

 

The importance of an innovative business model

Pateo will release its first smart car around the end of 2017 or the beginning of 2018, according to Ying’s plans. It will not take long for Pateo to realize the rest of the plans for its smart car business, as they are set to be done within five years.

The smart car industry is gaining traction. “A foreign investment group recently approached us. They were very interested in our smart car business,” said Ying. “We fully expect to raise funds on the order of ¥22 billion.”

Investors are not just interested in Pateo’s products, but also its business model. To become the auto industry’s “Apple,” a company cannot afford to just rely on the traditional way of doing things. Ying believes that to be successful with smart cars, Pateo will need to put a lot of effort into analyzing consumer patterns.

Uber is valued at $40 billion. This is higher than Tesla’s $30 billion market value, and higher than that of SAIC, China’s largest auto company. Uber’s product is of course nothing new, the innovation is in its business model. Travis Kalanick and his friends thought that having a ride come at the press of the button would have a wealthy “chic” factor for their customers. Uber is the predecessor of Chinese services like “Didi” and “Kuaidi.”

Pateo is working on just this sort of creative business model for its smart car. A part of this will be using data collection to make maintenance easier. Its vehicles will not just go to the shop periodically, based on mileage, but rather based on a nightly automatic self-inspection and repair. If there is anything the car itself cannot fix, a repair shop will be notified. The shop can then access the car’s system with a password, and repair software issues without requiring any time or energy from the driver.

It is this that has brought such praise on Pateo from investors. “Pateo is in an ideal position to make this work, but whether or not we succeed is still uncertain. In the end it’s up to fate to decide,” said Shen.

Pateo has a long way to go before it can bring this dream to a reality. Shen has told reporters that Pateo will be launching its consumer electronics, Internet of vehicles, and smart car business simultaneously. It plans to reach 750,000 customers with its connected vehicles by 2015, and three million in 2017. For its consumer electronics, the company’s goal is to eventually get one million users. Lastly, its goal for the smart cars is annual sales of several hundred thousand vehicles.

(Rewritten by Oliver Spiro based on author’s article in 21 Shiji Jingji Baodao or 21st Century Business Herald)

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