Brian Gu of XPENG Motors: Why China’s EV Market Excites Me

Hans Tung: Hi there. Welcome to the show, where we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

Zara Zhang: My name is Zara Zhang. I’m the marketing manager at GGV Capital and a former journalist. I highly recommend joining our listeners’ WeChat groups and Slack channel, where you can connect with like-minded people interested in tech in China. We organize regular offline events across the world for our followers. You can join these by visiting https://nextbn.ggvc.com/engage/

Hans Tung: On the show today, we have Brian Gu or Gu Hongdi (顾宏地) in Chinese. He’s the vice chairman and president of XPENG Motors, also known as Xiaopeng Motors (小鹏汽车) in Chinese. It is a Chinese electric vehicle company and a GGV portfolio. The company designs and manufactures what it calls “Internet cars” which has AI technology integrated into the vehicles. Prior to joining XPENG Motors in March 2018, Brian was the Chairman of Asia Pacific Investment Banking at J. P. Morgan. He joined J. P. Morgan in 2004 and has held a variety of leadership roles instrumental in building J. P. Morgan’s franchise in Asia Pacific region. In his 14 years at J. P. Morgan, Gu led his team in a range of sizeable fundraising deals for Chinese tech giants, including most notably Alibaba’s $25 billion US IPO in 2014.

Zara Zhang: Before joining J.P. Morgan, Brian worked in the Global M&A and Global Healthcare practice of Lehman Brothers in New York from 1998 to 2004. Before working on Wall Street, he was the Senior Research Scientist at the University of Washington Medical School. He holds an MBA from Yale University, a Ph.D. in Biochemistry from the University of Washington Medical School and a bachelor’s degree in Chemistry from the University of Oregon. At XPENG Motors, Brian leads the company’s global strategy, finance, fundraising, investments and international partnerships. Welcome to the show, Brian.

Brian Gu: Thank you. Pleasure to be here.

Zara Zhang: First question is, why did you join Xiaopeng Motors after 20 years in investment banking? What was the thinking behind joining a car company?

Brian Gu: I think after 20 years of banking, I definitely was looking for something different and more exciting to do. I think I was fortunate to witness the rise of Chinese industries. While I was at my tenure at J. P. Morgan in the last 14 years, I worked with a lot of leading companies, particularly a lot of entrepreneurs that built world-class companies. I think at the stage of my career, I would love to join a company that could also have the potential to be one of the global leaders and really experience the rapid growth inside the company and also during this entrepreneurial rise. Also, obviously joining XPENG is a decision I made looking at both the sector and also looking at the team and the company. I think the electric vehicle, combined with AI and also the autonomous driving phenomenon, is a huge game changer. I think it brings tremendous potential. I would say, from a timing perspective, we’re looking at an explosion happening at the moment. Also, obviously Xiaopeng himself is someone I’ve known for many years. I really identify with the way he thinks about the future and his capabilities as a leader.

Hans Tung: For our audience, who may not be as familiar with XPENG Motors, we’ll give you some background on the company. It was co-founded in 2014 by Henry Xia (夏珩) and He Tao (何涛), former senior executives at Guangzhou Auto. It’s named after its chairman, He Xiaopeng (何小鹏), a former Alibaba executive and the founder of UCWeb, which was also a GGV portfolio company. My partners, Jixun and Jenny backed UCWeb. Together, we have all known him for almost 10 years. UCWeb was a mobile browser company that was acquired by Alibaba for more than $3.8 billion in 2014, as was the largest M&A deal ever in the industry at that time. After acquisition, Xiaopeng became the president of Alibaba mobile business group, and later served as the president of Tudou and Ali Games. In August 2017, Xiaopeng left Alibaba and officially joined XPENG Motors on August 29th as CEO of the startup. A lot of that was urged on by my colleague, Jixun. XPENG Motors is headquartered in Guangzhou and has raised over $1.5 billion since its establishment in 2014. Its investors include Alibaba, Foxconn, Hillhouse, Primavera, Morningside, GGV, among others.

Zara Zhang: Brian, how did you first meet Xiaopeng? Did you think it made sense for him to join a car company full time as a former internet executive?

Brian Gu: Actually it was an interesting story, because I met Xiaopeng during an expedition in Iceland. It was actually a trip put together by a friend of ours, who is also a venture capitalist.

Zara Zhang: Matrix.

Brian Gu: I think they organized a trip for a number of entrepreneurs to experience the wilderness in Iceland. I was the only non entrepreneur in that group. But we spent 10 days in, I would say, sort of the wild in Iceland. We drove a jeep and stayed in cabins. We cooked barbecue. I think it gave me a chance to really get to know the individuals very well. Xiaopeng was one of these entrepreneurs I started forming a bond. Since that trip, that was probably 4 years ago, we’ve actually been in touch for a long time. He actually showed me his investment in XPENG Motors. I’ve also been following the progress all the way to 2017, where Xiaopeng himself decided to leave Alibaba and to join XPENG as the chairman/CEO full time. He actually came to my house. We had a drink on our roof in Hong Kong. He asked me whether I would be interested to join. It took me a few months to think about it. But the more I considered the opportunity and the more I thought about both the sector and the company and the individual, I feel this is a must-do opportunity for myself, so I joined in March last year.

Zara Zhang: We all know that China is the world’s largest EV market and actually accounted for 6 percent of global EV sales in the fourth quarter of 2018. By the end of 2018, electric vehicles made up 7 percent of all new vehicle sales in China. Thanks to a mix of government and market forces, the EV market is now extremely heated with hundreds of startups in the space in China. What do you think differentiates XPENG from the rest?

Brian Gu: I think there are two things you mentioned that I definitely agree with. I think the first thing is that EV presents tremendous opportunity. I mean it’s one of the sectors, if not the sector with scale, with explosive growth and also with almost certainty that the change is going to happen. That’s something I agree with your assessment. The second point I can agree with your assessment is it’s also very competitive. You mentioned there are hundreds of new startups joining this movement. I think there are companies, not just from a startup perspective, there are also existing OEMs that are trying to do electric vehicle. However, I think what Xiaopeng or XPENG is doing differently is that we’re not just focused on making an electric vehicle. A lot of startups actually are people who came from the original OEMs. Their vision or their idea is just to make maybe a cheaper or better electric vehicle from a gas engine car. Because of the unique DNA that Xiaopeng himself brings to the business, as well as this very unique starting point of the venture, XPENG Motors actually is set out to design and build not just EV, but a smart, intelligent and autonomous driving vehicle. We are one of the very few, I would say, startups that actually do our hardware, software, autonomous driving all in-house. We believe in integrated capability. We believe that in order to provide the best product experience to the drivers as well as customers, you need to own all these three pieces, and not just merely to be an EV manufacturer and rely on suppliers for the software and autonomous driving pieces. Also, what we do differently from some of the other startups is that we started focusing on the largest segment of the auto market, which is middle segment. Our price point actually is hopefully targeting the largest selling price point segment in Chinese passenger vehicles. Unlike some of the premium brands, we want our technology to be used and enjoyed by the mass market. I think our technology differentiation in this segment will be actually very, very standout compared to our peers and competition.

Hans Tung: XPENG calls itself an internet car company, instead of an EV or electric car company. What is the difference between internet car and an electric car? How does Xiaopeng’s background as an internet executive for a long time become a differentiation here?

Brian Gu: This is actually a very interesting question. When we launched our G3, which is the car in December with delivery, actually I went around asking a number of opinion leaders in the industry to hear their definition of what an internet car or smart car, intelligent car looks like. Everybody gave me a different answer. That means that there is no absolute definition of what a smart car is. But what we believe that to make a core car smart, you cannot just be someone with a big screen and you can have some sort of application features. You really need to thoroughly design a vehicle that can actually learn, respond and provide you with a very intelligent experience. In my mind, there are probably three elements of a vehicle intelligence that you need to have in order to qualify as a smart car. One, I think the car itself should have a deep learning capability through the interaction exchange with the driver. For example, in our current vehicle that we are selling, we can use voice to command the car. The car can learn your preferences in terms of your routes, listening to the type of songs you like. You actually have some driving patterns inside the car. The car can actually become smarter and understand you better, and provide better services in entertainment and productivity to you. That’s the first degree inside the vehicle. The second degree I think to qualify a car to be smarter is the ability to do OTA. I think a lot of cars now claim that they have over-the-air upgrade capabilities. But if you look at them, some of those capabilities mainly just upgrade their screen applications. But I think in order to make a car truly smart, it has to be much deeper than that. Right now, I would say the majority of the ECU, electronic controlling unit, in our vehicle can be upgraded over-the-air. Our next model, which we will be unveiling in April, we actually anticipate to have 100 percent of our ECUs to be OTA. That’s the second part. I think the third part obviously is the autonomous driving capabilities. In order to make a car smart, it has to be able to learn how to drive itself. We actually are very proud to say that our current selling model, G3 is probably the only domestically manufactured, volume produced model that incorporates self-developed autonomous driving features. That’s something I think that will make a car also smart. With all those three capabilities, I think a car can be truly called a smart intelligent vehicle.

Zara Zhang: I want to talk about your personal background. Where did you grow up? Why did you go to the U.S. for middle school?

Brian Gu: I grew up in Shanghai. I actually always tell my friends that I’m probably the… Because obviously you know that a lot of Shanghainese actually came from different cities. But my grandfather, my father and I were all born in the same hospital in Shanghai.

Hans Tung: Wow.

Brian Gu: That’s pretty rare. I’m a true Shanghainese. I can make that statement. Zara, you mentioned I actually left Shanghai very early in my growing years. I went to the US when I was 12 years old. I actually spent two years in U.S. for middle school. Then I came back to China for high school, because I followed my mother who was a business scholar at the time. She returned to China after three years of experience. After the high school, I decided to go to the U.S. for college again. I went back to Oregon to get my undergrad degrees. Then I went to the University of Washington for my Ph.D. In my first phase of my career, I always wanted to be a scientist. I studied biochemistry. I was fascinated by science obviously, because my family are all scientists. My mom was actually a chemist. One funny story is that when I started in Oregon, before I walked into my first class, they already handed me a sheet saying, your major is chemistry. I said, “Who actually picked the courses for me?” Actually because of my mom’s background, she thought that was the best subject to study. I studied biochemistry. Then after I got my Ph.D., I decided that I want to do something different. I felt that the scientific training was very exciting, but I felt like I wanted to do something that is more dealing with people and commerce. But I didn’t know what I wanted to do, so I went to business school for a career switch. I went to Yale. I got my MBA from Yale School of Management. At Yale, I got to learn about the finance side of the business. It was an east coast school, so a lot of people focused on banking. Naturally, I sort of ended up joining an investment bank out of business school. The first few years, actually I was in New York. I was at Lehman’s M&A group. Again, given my background in biochemistry, they thought I would definitely make a good healthcare banker, which I spent probably 5, 6 years focusing on healthcare M&A, working with U.S. and global companies. But in 2004, I decided to return to Asia. I saw the opportunity with China booming. Also, I think the banking sector is also going through a transformation, so I decided to leave the U.S. and join J. P. Morgan Hong Kong office.

Hans Tung: In China, we’re starting to see a tradition developing of top U.S. educated investment bankers or finance professionals joining a top internet company as an executive, such as Martin Lau (刘炽平) of Tencent, or Joe Tsai (蔡崇信) of Alibaba, or Charles Chao (曹国伟) of Sina. You joining XPENG Auto also could be another example of this. Obviously, in the case of Martin and Joe and Charles, they’ve all contributed a ton to Tencent, Alibaba, and Sina in the growth of their international credibility. What do you see as your role in contribution at XPENG to be like going forward? Now that you’ve been there for a year, what are some of the interesting surprises or adjustments that you have made so far?

Brian Gu: Martin, Joe, and Charles actually are all very good friends of mine. I really respect what they have accomplished. I think they took different types of risks. Some went into the industry very early on at a young stage in the company’s development stage. Some I think joined after the IPO of the company. But along the way, they have made a tremendous impact as you pointed out on their respective businesses. I think this is definitely something that I would love to do at XPENG Motors. I believe that EV is a global industry. It’s also a cross section of multiple disciplines that have to make it work. For example, it’s not merely an auto company. It’s not merely a technology company. It’s not merely an operating service company. It can also have financial elements, too. It’s a very interesting and very complex business. I feel like my background being in the banking sector for that many years, seeing the development of many different successful companies, and also understanding the global nature of dealing with partners, investors and company executives, I believe I can bring a sense of global perspective to the business. At the same time, I think XPENG at this stage of growth needs to connect very closely with capital markets. That’s an area I think I have tremendous experience in given what I have done in the past. I think both in the near term and the long term, I would love to contribute to the vast growth and development of the company. Also, similar to those friends of mine who actually has done successfully in Tencent, in Alibaba, in Sina, I hope one day, my contribution can stir XPENG to be one of the global giants as well.

Hans Tung: If I push this point a little bit further, on the operations side, what kind of things would you want to spend more time on? Is it international partnerships? If so, what kind of partnership is possible? Beyond that, what are the other areas of interest for you to spend time on?

Brian Gu: I think the first order of business for us is to make sure we are firmly established as one of the global or China leaders at the moment in the EV space or the intelligent EV space. We want to have that in the mind of the global investors, the global thought leaders and global strategic potential partners. That’s an area I would love to spend more time to cultivate and establish. Also, I think as a young company, which I think haven’t answered your prior question on what I see in a young company is it’s very dynamic. Actually, it’s tremendously interesting in how a young company evolves. You won’t know that until you’re inside the company. I think there is a tremendous learning power of the executives around me. A lot of those probably have not gone through large companies before. But they have a lot of innovative ideas. To piece those good ideas in a structured manner I think also takes experience and organization. I think that’s also an area that I would like to make sure I contribute because of my background experience in larger companies. I think also to provide a global perspective on a lot of things we do also can influence the direction of the company’s businesses, both in terms of technology development, as well as business model selections. These areas I also hope to shape with my involvement as well.

Hans Tung: It makes sense. I’m sure that’s why Xiaopeng decided to recruit you to join him from early on. Now that you’ve been there for a year, what has surprised you?

Brian Gu: Like I said, I think what surprised me most is how talented and how large the potential to learn for the young executives around me. Because in a large company, you always feel okay, we have seen a lot, we know a lot and we actually can teach them how to do things. But in China, especially with the talent surrounding us, a lot of them have not gone through the large companies, but they have real good common sense and business judgement. They actually have very innovative ideas. Actually their ability to learn is also tremendously powerful. I think what surprised me most is actually I realized that a lot of times, it’s not me showing them how to do things in a proper or the global or sort of the sophisticated way in the larger companies. Actually I’m learning from them how actually we can do more innovative things and how we actually can achieve things more efficiently. I was very surprised by my own learning.

Hans Tung: Do you have an example?

Brian Gu: Let’s just use one. For example, in a traditional company, when you look at selling a product, I think there’s a lot of analysis we have to go through and also the standard channels you have to push and understand in the market. There’s almost a playbook. But there are a lot of innovative measures that we actually put into our business, which have not been seen before. For example, nobody in the past, other than Tesla I think, in China, people don’t click and buy automobile, right? Because it’s a larger purchase item, people want to test and feel it. But I think we actually try to break down the process into two parts. We want to efficiently leverage the online and internet traffic and appeal and the fan-based approach to generate excitement. At the same time, we actually are directing that and funneling that into our physical stores, which we built ourselves in large cities, which was never seen before nationally in China when we actually sell automobiles. A lot of times I think you have executives who come from large auto companies like BMW, or from other domestic makers. They were actually, I would say, blown away by how innovative some of the things that we’re doing here. I think we have results to show for it, because if we actually look at the foot traffic that comes into our showroom to buy our product, more than 50 percent of this foot traffic is actually converted online, which is actually a lot more efficient way than relying on just regular traffic inside a shopping mall or the physical stores. I think these are the things that we are doing that hopefully can differentiate ourselves.

Hans Tung: It sounds like the stores that you have are your own stores, not dealers or channels?

Brian Gu: Right. I think for a young company with a product that is very different, and also we want to have a direct connection with our customers, direct stores is probably the right format. But however, if we scale up and we actually want to penetrate into tier 3, tier 4 or other cities, I think we cannot build enough of our self-owned stores. We will also explore partnerships if we decide to scale up. I think we will always be looking for the best model. Maybe it’s a hybrid in a year or two. But right now, we are focused on building our own experience stores in the large cities.

Hans Tung: I definitely see some similarity between your approach and how Xiaomi started selling phones online and then opened XiaoMi stores offline. It is definitely an internet-inspired model for sure.

Brian Gu: Xiaopeng himself has been influenced a lot by Xiaomi. Lei Jun (雷军), the chairman of Xiaomi, used to be the chairman of UC. I think Xiaopeng used Lei Jun as one of the mentors. I think there’s definitely a lot of influence we receive from a successful business model like Xiaomi, which is also very innovative in the way they do business. However, I think as a car, that product is very different from smartphones. We need to tweak that model to make sure that it actually addresses some of the pain points for auto customers. That’s why we are actually constantly exploring new approaches.

Hans Tung: From my perspective, seeing how VANCL (凡客) trying to sell clothes online, but they weren’t able to open up good stores offline to sell it. Then a few years later, Lei Jun went with selling phones online and tried the stores offline. Then another few years later, you guys went to do that in auto. Each time the challenge being taken is hard. Before Xiaomi selling phones online, even Google failed. Then before you guys do that, not many others, maybe besides Tesla, have done it. Each time, Chinese founders are breaking new grounds, and it is super exciting to see.

Brian Gu: Absolutely.

Zara Zhang: Xiaopeng’s G3 car which released in December 2018, could you talk about what’s special about this car? What has been the attraction so far?

Brian Gu: First of all, it’s a SUV. It’s a compact SUV, five seater, beautifully designed. I can show some pictures actually. It’s very sporty look, particularly targeted at the young, active drivers in large cities. Also, the car is packed with technology. This car has level two plus autonomous driving features, which means that it has full ADAS plus some of the level three features in low speed scenario. For example, we actually have a full scenario auto parking that is very differentiated compared to everything that is out there on the market. Our car can park in more than 70 percent of the different types of parking scenarios in the Chinese parking lots and parking areas. Whereas compared to even Tesla, which I would say, is probably one of the smarter cars, they only can identify probably less than 20 percent of those parking scenarios. Actually we are trying to provide a very unique and targeted solution to our drivers. The car also has a range per charge of 365 kilometers, which is already, I would say, sufficient for city use. The car has a panoramic glass roof, very similar to the Model X experience. It also has one of the larger screens inside the car that has full control of the vehicle. It does not have the traditional vehicles like buttons and dials. It’s very futuristic. Also, what’s unique about the car is that I actually drive our vehicle to work every day. I don’t even touch the screen or control or window. I use my voice command. Actually the voice change is something that’s really, I would say, differentiating because you can actually select your music, lower your window, turn on your fans or adjust your own seats for you. It also has facial recognition features with an AI camera that actually can monitor whether you’re distracted, whether you’re tired. It can monitor your heartbeat. There are lots of these cool intelligent features in our vehicle. But more importantly, the price point that we actually are hitting as I mentioned earlier is very different compared to Tesla or other premium models. Our car is priced between RMB150,000 to RMB 200,000, which is less than half the price of Model 3, the most basic model in China.

Zara Zhang: That’s around $22,000 to $30,000.

Brian Gu: Right. We want to provide a very differentiated unique product packed with technology to a segment that is the largest and at best growth in China.

Zara Zhang: What is the experience of driving that car in Guangzhou? Do you think China is equipped to have a lot of people driving EVs around, in terms of infrastructure, for example, charging points.

Brian Gu: Driving an EV I think is very easy. It’s actually easier than other traditional gas engine vehicles. There’s no gear. You can actually just go. I think our G3 is also very easy to drive. It’s not designed to be a super car at this price point. We don’t have the super fast acceleration, but it’s nimble enough. I think in city driving, the acceleration is really strong, especially in the 0-60 kilometer, it’s very, very fast. But the reason I think people hesitate to buy EV, I think the top reason is the charging. I think the distance anxiety is something that people always cite. We provide actually a holistic charging solution to our drivers. First of all, we provide home charging to whoever that has the capability to install home chargers. If they have dedicated parking space or they have a garage, we will give them a free home charger. The second thing is that we have our own proprietary supercharging network that’s built in large cities that we’re selling our vehicles. Those supercharging network only provides supercharge, which is a fast charger that we designed with our partners. It provides 80 percent and above charging for less than 40 minutes. It’s a very fast charging time. We are likely to half that time in the next 12 months.

Zara Zhang: How many of those are there?

Brian Gu: We have built close to 2,000 of these charging stations already. We aim to have close to 200 by the end of this year. Then the third solution we have is our vehicle can be charged at any of the third party charging stations, so charging companies or public charging infrastructures. China, as you know, is actually probably the most advanced in terms of building auto charging infrastructures. The government has already mandated by 2020 to have close to 5 million charging piles around China. It means that it is going to have more charging piles than the rest of the world combined.

Hans Tung: The Chinese government has spent close to $60 billion in various subsidies, like you said, in support for building out charging stations and to build up the new energy vehicle industry in the last decade. But recently Beijing has also been rolling back on subsidies in some areas. How has the growth of spending money to help to build this industry help to support this industry? Does the cutback on the subsidies have any negative impact at all on the sector?

Brian Gu: I think the Chinese government has been very, very instrumental in facilitating the development of the EV industry. The subsidy you mentioned, the infrastructure investment all are a part of an effort to really push China to be one of the global leaders, if not the global leader in EV. I think the Chinese government is also thinking about what are the best ways to support the industry. I think the subsidy has been probably the main factor in the last 5 years. It obviously gave a lot of financial assistance to EV makers. But at the same time, I think it created some dynamic that encouraged lower-end producers to design and build products that’s not the best product but end up collecting subsidies, which is not the right thing I think for the industry. I think the government is actually realizing that and trying to change the way they support the industry into more efficient means. For example, there are a lot of policies that are now being implemented around Chinese large cities. EV can actually receive plates much easier than traditional gas engine cars. That’s one of the main drivers for a lot of people to buy EVs, because they can easily get the cars to drive in large cities. Secondly, I think they actually are pushing the emission standard for OEMs in the gas engine world. The emission standard will become more and more stringent. Actually I would say, by some measures, China is actually already ahead of Europe for the emission standard requirement. Some of the cities are likely to ban gas engine cars altogether. That is also some movement that is pushing the development of EV. Also, I think the continual investment into infrastructure is something I think the Chinese government will commit to do to actually foster the development of this industry. I think the overall tone as well as the overall support from the government continues to be very strong. For young EV companies like XPENG Motors, I think we clearly want to make sure we take full advantage of this support in our development. The scale back of subsidy is going to be felt by all the players in the industry. We believe that it actually favors companies like XPENG, who actually focus on product design and unique experiences and technology superiority. The more customers or consumers focus on the product technology itself, I think we actually get better advantages. In the long run, I think it’s good for the industry and we are very confident that we can actually be one of the potential leaders given the way that we define and position ourselves.

Zara Zhang: On the G3 SUV, how many orders have you received? How is delivery going?

Brian Gu: We started delivering G3 in December last year. The delivery obviously is a slow ramp up process. If you look at NIO and other companies, they all went through the same phase, because it takes time to get the factories to perfect the manufacturing process, get the supply chains ready. The first three months, there was actually a low volume delivery. I think we are going to start volume delivery by later this month, which is March 2019. We actually aim to do delivery in the thousands, multiple thousands of range in the next few months. In terms of orders, we actually have been receiving very exciting momentum in our orders. We have more than 10,000 paying orders on hand. Our orders are already stretched in terms of delivery schedule well into the second half of this year.

Zara Zhang: As you mentioned, the XPENG car is priced very competitively at between $23,000 to $30,000. Could you talk about why you’re targeting this younger consumer group?

Brian Gu: First of all, I think if you look at the demographics, the young. I would define young as between 25 to 35. I think it is actually the fastest growing driving crowd in China. Also, we believe at that age, these drivers are more tuned to try new technology, new features. For a lot of them, it may be their first car or their first family car. A lot of times, I think these people can truly enjoy and be involved with our technology development. I think that’s why I think targeting those core users is actually our first strategy. But again, I think once we actually can really put the precise positioning of our vehicle into the minds of these individuals or customers, then we can expand from there. One interesting data point for you is that if you look at the orders that we have on hand, given we have three trim levels of the G3. We have the basic trim level, which is without our autonomous driving features. We have the intelligent trim, which is including the autonomous driving, and then the top end. If you look at our order book, 97 percent of our orders are actually in the intelligent and the top end, which means that our positioning is quite successful. People who come to buy Xiaopeng cars are actually coming to us because of our intelligent and our technology approach.

Zara Zhang: Recently Tesla has also cut the price of its vehicles in China significantly. Do you think that will have an impact on you?

Brian Gu: First of all, I think Tesla will bring Model 3 and Model Y, but I think it will take a little longer, particularly Model Y which is a similar size of our G3. It is a few years out. Also, I think at the current stage, I think the cars they are going to bring to the market are still going to be viewed as premium segment vehicles, even with local production. I think their supply chain cannot be completely localized yet. I think there will be additional cost. I think the vehicle will come down from the current price, but still way above XPENG’s price range. I think the competition itself, we will not feel directly, because we’re not going to compete in the same segment. But I think it’s actually a good thing that you have a good product coming into the Chinese market that stimulates Chinese consumer demand and interest levels, and at the same time, bringing high quality supply chains to the Chinese markets. I think those are actually in general good for the development.

Zara Zhang: Like Apple for the smartphone market.

Brian Gu: We are actually seeing this as a positive development. I think also given years, let’s say in two to three or four years, we actually are confident that our technology, given the user base, the vehicle on street and the data we continually collect, we can actually come up with better features, more localized experiences in autonomous driving than Tesla. I think we are very confident that in the long run, we can compete well with Tesla products.

Hans Tung: My last question is around a different topic, around talent. XPENG Motors currently has about 3,000 employees. This number is growing rapidly. As you know, in 2018 the company in one year alone added almost 2,000 employees, 70 percent of them in R&D. Xiaopeng has said recently and told us that he plans to add another 5,000 new employees this year. The company has been able to attract a wide range of high caliber talent, such as including yourself from early on. Can you talk about Xiaopeng’s talent strategy? What are the different profiles that you guys are looking for to add to the team? As you may know, many of our listeners of 996 podcast listened to our interview of a Chinese company before they joined them. Hopefully everything said today will be something that will help you attract more talent to join you as well.

Brian Gu: We actually have a very diverse employee pool. We have employees coming from over 200 different companies. There is great diversity. We also have employees coming from over, I would say, a dozen different nationalities. It’s growing really fast as you mentioned earlier. Obviously, we are into adding employees at a pretty significant pace. The 5,000 number you mentioned includes part time employees. The full time number will be significantly less than that. But still I think it would be an impressive growth by any measure. We’re looking for talent in actually a lot of different areas. As the company is focused on automobile and technology, talents that bring the experiences in the relevant product areas, I think we’d love to talk to them. We would love to get experienced applicants in AI, in autonomous driving, in vehicle design, in power train, in a number of these specific product areas. At the same time, we’d also like to attract individuals coming from more non traditional and non auto backgrounds, because I think we are trying to do something quite differently. We want to bring individuals that have experiences with new retail models, new network development capabilities. We want to also attract executives in the functional areas like legal and finance and corporate strategy, etc. I think we are actually looking for talents across the board. This company has a very strong employee-focused culture. We have a very strong emphasis on human capital. One of the key area or department that Xiaopeng oversees directly is the HR function, because he feels like having the right infrastructure, right organizational structure, and right culture is important for a company to grow into a much larger scale. I think that that is something we probably are different from other fast growing Chinese companies, because of our emphasis on human capital and organizational structure.

Zara Zhang: I also want to ask a career related question. I do have a lot of friends in investment banking, who are trying to pivot themselves to join a tech company, but it doesn’t come naturally to a lot of them. Do you have any advice for aspiring or current finance professionals who are trying to transition into tech?

Hans Tung: Good question.

Brian Gu: There are actually quite a few investment bankers in our company, myself included obviously. But in our strategy department, we have senior bankers and also junior bankers as well. We also have finance professionals, who have been successful investment professionals for over 20 years in the largest Wall Street firms. I think we have a very unique balance of companies from finance, technology and other areas. I think the transition from an investment bank to a fast growing entrepreneur company is always going to be challenging, because it’s a different pace. It’s a different culture. Also, it’s focused on different priorities. But I think if you are willing to learn, if you actually are flexible about the work schedule intensity, I think an entrepreneur technology company is actually very, very good experience for young bankers. I always feel it interesting that if I actually, in the earlier part of my career, have had experience inside a company and see the operation, I think that would make me a much better or much more well rounded banker. I think that experience is very valuable. I’ll give you another story. Actually, I had breakfast with Joe Tsai for example, when I joined XPENG. I asked him. I said, “You took lots of risks. You joined Alibaba when it was first founded. Why did you take that risk?” Joe looked at me. He said, “I don’t think there was a lot of risks.”

Zara Zhang: That was not so bad.

Brian Gu: “For me, spending two or three years in Alibaba even if it didn’t work out…”

Hans Tung: Exactly, it didn’t matter.

Brian Gu: “It’s a tremendous experience compared to if I stayed in Investor AB. Where’s the risk? I don’t see any.”

Hans Tung: You can always get another job if Alibaba didn’t work out.

Brian Gu: What I’m saying is that for young professionals who are starting their banking career, don’t be afraid. Try to be inside an entrepreneur company. The experience will be very valuable. You still have time to decide what you want to do later.

Zara Zhang: The only risk is not taking any risk.

Brian Gu: That’s right.

Hans Tung: I just want to emphasize on this point that Brian made again, which is that I don’t think I will be as good a VC if I didn’t have startup experience in the internet before. I highly encourage everyone to follow Brian’s advice. If you are in banking or in consulting, spend two or three years in a tech startup or a tech company, just gain more experience, not be afraid to try that. It would be much better, even when you go back to banking or consulting later.

Zara Zhang: Now I will jump to a round of quick-fire questions. You can just say the first thing that comes to your mind. The first one is who is an entrepreneur you admire the most and why?

Brian Gu: Jeff Bezos and Jack Ma, because I think they not only built a big company, they weathered the ups and downs of a company. They always come up with new better ideas and better directions for their company. I feel like that’s true entrepreneurship. It’s consistent, not just one-hit wonders.

Zara Zhang: What’s a book you read recently that you would recommend?

Brian Gu: Actually I read something I recommend to our management team is Founder’s Mentality, which is a book written by BCG I think or Bain, one of the consulting companies. They took some analysis on the companies they looked at and concluded a number of traits that make a company better, which included a lot of the company characteristics that trace back to the founder’s way of doing business.

Zara Zhang: What is a habit you have that you think has changed your life?

Brian Gu: I think the best thing I learned is not to react too quickly. I think that that’s something I learned as a scientist, and then as a banker. I think a lot of times, the first reaction may not be the right one. Always take a pause and you will benefit from that slow response.

Zara Zhang: Lastly, what do you do for fun?

Hans Tung: Go to Iceland.

Brian Gu: Travel is always fun, but it needs time. What I do is I usually try to find time to do hiking because Hong Kong has a lot of hiking trails. A group of friends will always like to hike together. I also enjoy wine and food. These are probably my hobbies.

Zara Zhang: Brian, thank you so much for your time.

Hans Tung: Thank you, Brian.

Brian Gu: Thank you very much.

Hans Tung: It was great.

Zara Zhang: Next, you will hear a short interview with our managing partner, Jixun Foo, who co-led GGV’s investment in UCWeb with our other managing partner, Jenny Lee. UCWeb is a mobile browser company founded by He Xiaopeng that was acquired by Alibaba for over $3.8 billion in 2014 in the largest M&A deal ever in Chinese history back then. Jixun, could you talk about how you first met Xiaopeng and how you actually persuaded him to start his next venture, XPENG Motors.

Jixun Foo: Sure. Actually my history with Xiaopeng, first of all, dates back to when I first met Lei Jun. Lei Jun was an angel investor at UCWeb. Back in ’06, he started to tell me this story about a mobile browser. I was thinking, future phone, mobile browser, what is that? He then made an introduction to one of the CEO co-founder of the company, Yu Yongfu (俞永福). Yongfu at that time was brought in and co-led the team with Xiaopeng. He became the CEO of the company. I actually first met Yongfu and then later met Xiaopeng. Xiaopeng was based in Guangzhou. He was really the guy who built the product for UCWeb. This deal is kind of interesting. Jenny and I actually got to know Lei Jun. There were a few deals at that time that Lei Jun sort of angel-ed as the most promising deal. He kind of helped out, promoted the deals to us and got us to look at it. One of them is YY, which he spent a lot of time and the other one is UC. We then subsequently did quite a bit of work. In ’08,‘09, we made an investment in UC. To be fair, we are a relatively small. We sort of co-led the round with what was called Nokia Growth Ventures at that time. It was Paul and his team. We co-led the round at about $150 million valuation at that time. It was an interesting start. The thing with UC has always been that, with a feature for market, how is that value going to evolve? Obviously, they made a huge impact in terms of growing, not just within China as a browser, but they also had scaled outside of China. Anyway, the long story short is ’06 was the time because of UC, that’s where I met Xiaopeng as the founder and key product person behind UC. Along the way, obviously we stayed in touch, but I spent a lot more time with Yongfu than I spent with him. Having said that, I think after the company got acquired by Alibaba, both Jenny and I were a little involved in trying to navigate the acquisition as well as a merger, because there were a few parties, not just Alibaba involved. There was also Baidu. Then post-acquisition, Xiaopeng stayed on at Ali. Then there was this time that he called upon Jenny and said, “Hey, I built this car, incubated this car. I want you guys to come and take a look.” I did. Jenny asked me and we went along. We went to Guangzhou and we saw this whole mockup, stripped out car, EV. He put together, incubated a team led by Henry, who today is the president of the company, Henry Xia. It was interesting, but I didn’t have a lot of drive. I said, “Hey Xiaopeng, are you doing this full time?” He said, “No, no, I’m still at Alibaba.” That didn’t really give me a lot of conviction or confidence in how he would want to build this. It was kind of like a project, a toy project for him. That was 2013, 2014. By 2016, I start to see the whole momentum behind EVs. I see there’s been a lot more talk about autonomous drive. I think that smart car is a big future. There’s a big potential because of all the potential infrastructure, investments that’s made by the Chinese government, the subsidy that’s been launched by the Chinese government, etc. I started to think and I spent a bit of time looking in the category, met up with NIO and Weima (威马) and a few other players. I felt like Xiaopeng, if he wants to do this, and he goes on full time, it would be interesting. I spent quite a bit of time talking to him. I revisited his team. In fact, this time round, I dragged Jenny along to spend a day at Guangzhou, meeting up with his team and so on. I spent probably, I would say, a few months talking to Xiaopeng and said, “Are you ready to go full time? Are you ready to go full time? Because if you are, I’m going to be backing you.” There was this day that I called him. It was just right after Chinese New Year, or just around Chinese New Year in February of 2017. I said, “You really need to do this.” That’s the point in time where somehow it struck him. I’m not sure why because he just had his newborn second kid and it was a boy. At that time, he was holding his baby. I didn’t realize that when I made that call to him. Then I was just ramping off telling him. I wasn’t congratulating him because I didn’t realize he just had a boy. I said, “You should do this.” That really turned him on. Thereafter, he made the decision to jump. He officially jumped in in August 2017 and went full time on Xiaopeng.

Zara Zhang: What about Xiaopeng that made you have such conviction that if he jumps in, you’re going to back him?

Jixun Foo: I always give this analogy between a feature phone versus a smartphone. I think there is a fundamental change when you go from just a functional product to a smart product. There’s a lot more thought and ideas that have to go into the whole user environment. The car is not just a utility anymore. I thought that somebody like Xiaopeng with an internet product background could be very, very powerful. There are not many of such so-called entrepreneurs, if you will, who have done this before. To do this, you need a serial entrepreneur. If you look at NIO for example, Bin (李斌), the founder is a serial entrepreneur. Without that serial entrepreneurship, without the bit of halo behind you, it’s hard to draw the kind of capital to build a car company. Elon Musk is a serial entrepreneur. I actually think you need a bit of serial entrepreneurship to do this. There are not many players around. Number two, he has that. I mean he has an interest. That’s why he incubated this company. He has a passion for cars. He loves cars. There is an inner interest. He’s not just off the street, I pull any guy, a serial entrepreneur and say, “Hey, you go do this”. He’s somebody who’s been doing this and he understands cars. Thirdly, this is a business, given how capital intensive it is, you need to be able to put your money where your mouth is. Investors, not only will follow you, they will also follow your money. Xiaopeng, given the exit at UC and so on, he has, not just the halo, but the ability to say, I can put my money where my mouth is and draw other capital along. That’s important. I think there are a few reasons. I think there’s a market factor. There’s the fact that he has the charisma, the halo, his pot of gold, if you will, to actually do this and make it work. The market opportunity is there, right? China has 26 million new cars every year. Today, Tesla globally probably sells 200,000-300,000 cars. There’s still lots of room for a second, third, fourth player to come up.

Hans Tung: I will add a couple of points to what Jixun said. I think he’s definitely right comparing what Xiaopeng is doing with XPENG Motors similar to going from feature phone to smartphone. Venture VC is a game of public recognition. When you see something shift from feature phone to smartphone like we all did with Xiaomi, it leaves an impression in your mind. When you go into a car, whether it’s utility or luxury, you see now you go from a dumb car to smart car. That experience just reminds you of the different shifts that you saw earlier both as an investor as well as a consumer. If everything around us is going to the cloud, why shouldn’t the car where we spend enough time on it, both going to work and leaving work, be smarter as well. Elon Musk already showed that is possible, and other countries should do that, especially a country as big as China. The second thing is that Jixun mentioned that Xiaopeng is a serial entrepreneur. A lot of times, the entrepreneur first time may be a creator of a product, but he may not be ready or she may not be ready to be the CEO of the company, because building a product and being the CEO, which requires more business background, are two different things. If someone has done it once, got an exit, but was never the CEO, and you have a new baby in your hand. You think like what is my legacy? I already have my money, but what do I want to be known as to my kids? As someone who kind of followed and did something or as someone who’s going like, I actually built something myself and took it all the way to the end and leave a legacy? A lot of times, a serial entrepreneur is driven, not by money anymore, but by a legacy. That’s an extremely powerful motivating factor for success.

Jixun Foo: I think that’s absolutely right. I think for Xiaopeng, it’s definitely not about money, because he is well to do on his own after UC. He’s driven by a more important underlying mission and passion for something for himself. I think that drive for legacy, I think is a good way to describe it. It’s really what propelled him. I had a board meeting with him recently. Prior to the board, we had this lunch. He said, “You know what? I worked as hard as I was, if not harder than I was when I was in UCWeb.” I mean this guy has already made it, but yet he’s working so hard. He might be working more than 9-9-6, Hans.

Hans Tung: Yes, I wouldn’t be surprised.

Zara Zhang: Brian joined the company around a year ago. How did you first meet Brian? What do you think are some unique values that he has brought to the company?

Jixun Foo: I got to Brian while he was in investment banking. His last position was chairman at J. P. Morgan. I had touchpoints with him on and off. But Brian really brought a different set of skillsets to the organization, given his background, his knowledge, his perspective, his macro, and his ability to communicate very, very well with the outside world. I think Xiaopeng needs that. That’s one thing I would say about Xiaopeng. I said, his halo is important. This is not just about attracting investors, followers, etc. but talent. He’s able to attract talent to join him. Brian joining him is a testimony for that. It’s not just Brian. He has many other people who are ex-Tesla, or ex-Qualcomm, and Xiaomi, etc. joining the team, senior and professionals, etc. Brian is one of those. I think Brian really complements Xiaopeng in a way where he’s completely bilingual. He understands China very well. He has very strong linkage to various investors in the community. This is a capital intensive game. We need that ability to rally the support and the investors behind us to build the company. Brian plays that role really well.

Hans Tung: It’s interesting that Brian said that now he flies economy class all the time. When he was a banker at J. P. Morgan, it’s usually all first class and making good money. Why is he doing this? We’re seeing more and more professionals in China willing to take that entrepreneurship jump and be part of a company that’s leaving a legacy, changing the world, doing something better for society that gives enough meaning and also enough payout at the end to make it worthwhile, because the market is massive, the opportunity is huge, and the upside is there. If you work hard for three to five years, you can really make a huge difference at multiple levels.

Jixun Foo: Right, and it’s really interesting. Not just flying economy class. They even have budget for hotels. He stays in budget hotels. For a guy who has made it as a chairman of J. P. Morgan, and was obviously treated first class everywhere, including flight and hotels and travel, to be willing to kind of step down and say, this is what I’ll do coming into a company and having the desire and trust to follow Xiaopeng and do this, it certainly means a lot. It certainly takes a lot, not just for himself emotionally, but also family and everything. I mean Brian lives in Hong Kong, but he works in Guangzhou. I stayed in the hotel where he stayed, which is just next to the company. It is a budget hotel. It’s a sign of commitment and conviction to the XPENG vision.

Zara Zhang: Do you think China’s EV or smart car market is inherently localized? Is it possible for non-Chinese players to be successful in China, or do you think the local players will in the long run beat everyone else?

Jixun Foo: Auto market is not a winner takes all market. I will say that you have Mercedes and you have BMW. You have Toyota and you have Honda. You have local players. It’s a big enough market, with 26 million new cars being sold every year. Granted the whole growth momentum behind new car sales has come down, 2017 to 2018, but it’s still a big market. It’s probably the single biggest market in the world in terms of number of cars sold. There’s opportunity to grow that market share. Today, the penetration of EVs is about 3 percent. There’s still room for smart cars to actually extend itself. I’m less worried about competition per se. I mean there is definitely the competitive element. But foreign or local, the chances are actually fairly equal. I think China is increasingly trying to open up. It’s not limiting foreign players per se. The market is open to all. Having said that, I think that it’s important for us to appreciate the local environment and the local market. I’ll just give you one example, and this I use quite a bit, this ability to auto park, XPENG, right? Most people when they talk about auto parking as a feature, the reality is that many of the cars only recognize 10 to 20 percent of the parking scenarios here in China. Out of 10 times that you try to auto park, only one to two times, you get the auto parking. Then that feature is quite useless. I think Tesla, for one, coming into the market and others who are trying to come into the market, if they want to support that feature, they have to localize to the scenario that is here in China. Xiaopeng, for one, is able to address 70 to 80 percent of the parking scenarios here. Out of 10 times, 7 to 8 times you could easily auto park your car. That becomes a true valuable feature, versus just a feature that you put on the brochure. That’s important, localizing to the marketplace that you see, because China is a very, very different driving environment, I’m sure Zara and Hans, you guys are aware, versus the U.S.

Hans Tung: I will echo Jixun’s point a bit further. We get a lot of questions in the U.S. that China is different, so much regulation, government risk, blah, blah, blah. As if that’s the number one reason U.S. companies don’t do well. The reality is that, especially in this category, Tesla will be welcomed in China. That’s not the issue. That is not any more a bigger issue than any Chinese company will face. But what is different is that the Chinese companies do know the level of entrepreneurship and level of capabilities is so strong and so good that Chinese companies move extremely fast to satisfy the needs of local consumers. If you do that well, of course, consumers would use your product. If the product is not localized for China, then millions, hundreds of millions users are not going to use your product as readily even though you have an amazing brand from outside. Most American companies fail to realize why they should change and tailor a solution that’s specific for the Chinese market. Most of the time, that’s the reason why U.S. companies don’t do as well in China.

Zara Zhang: For Chinese players, there are a lot of companies in this space as well. What made you have such strong conviction that XPENG is the one you should bet on?

Jixun Foo: First of all, I think that each of these companies have their merits. As peers of Xiaopeng, they have their merits. It’s hard for me to comment. But I do fundamentally believe that this is a product business. The car is a product. It is not a service business. The intensity and skills and knowledge needed to build a great product is important. I think Xiaopeng is the type of person, he’s a product guy. He’s not here to market and pitch sales. He is pretty focused on giving the right product experience to the end user. That’s what I believe in. I think underlying it is what does it take to build a great car company. I think Xiaopeng has what it takes. Therefore, I chose to back him.

Zara Zhang: That’s all we have for today. Thanks so much, Jixun, for your time.

Jixun Foo: Thank you.