Tineco Has Lost Its Innovation Edge

2020 Year-on-Year Price Surge

#### RISE OF TINECO

Would Tineco Have Become Famous Without the Pandemic?

#### Analysis of Tineco Product Line:

• Tineco Hard Floor Washer – Comparable to Bissell
• Tineco Stir-Fry Pot
• Tineco Vacuum Cleaner – Dyson-like
• Tineco Hair Dryer

#### Analyzing Tineco's DNA

• Trade Background (Market-Oriented)
• **Lack of Emphasis on Technological Investment (Kehang Motor, Tongfang)

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#### Opportunistic Player

Comparing it to other brands, Tineco’s future will likely resemble that of Ecovacs. While it has sales, it may not lead the industry.

Tineco is not the next Dyson; instead, it will be the next Ecovacs.

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2020: The Pandemic and the Surge in Cleaning Appliances

In 2020, with the outbreak of the pandemic and subsequent home quarantine measures, the cleaning appliance industry experienced a significant boom. A month-long New Year holiday led to unprecedented attention on household cleanliness. Major e-commerce platforms saw their stockpiles of vacuum cleaners and other cleaning appliances sold out rapidly.

The rapid spread of content on Douyin in 2020 significantly increased the visibility of new cleaning products, particularly hard floor washers like Tineco's offerings.

In April 2020, Roger Ye announced his entry into Douyin live-stream e-commerce. This move kicked off the wealth-creation mythof Douyin's e-commerce platform. Live-stream e-commerce began to replace traditional e-commerce as the primary sales channel. The Douyin platform, with its dual attributes of product promotion and sales, pioneered the interest-driven e-commerce model, setting it apart from traditional e-commerce.

Here it is important to explain interest-based e-commerce, "which is an e-commerce model based on people's aspirations for a better life, aimed at fulfilling users' latent shopping interests and enhancing consumers' quality of life." Products like hard floor washers, in their early days on platforms such as Taobao and JD.com, did not have search keywords. Therefore, even if companies invested heavily in advertising, it would fail to generate any sales. On Douyin, however, with its powerful visual impact, these products can easily spark interest in consumers' minds and be converted into sales through engaging live stream hosts.

The convergence of the pandemic, Douyin (TikTok), and live streaming created several historic opportunities that propelled Tineco's hard floor washer sales to new heights. This ultimately led to a 12-fold increase in Ecovacs' (the parent company of Tineco) stock price in 2020, creating a remarkable miracle. It also made cleaning appliances one of the most attractive industries in the entire home appliance and consumer sector, with foreign brands increasingly entering the market and external investors continuously increasing their stakes. Conservative estimates suggest that funding for cleaning appliances over these years has reached several billion dollars...

Who would have thought that before 2020, this industry was still in a low-margin, unattractive zone?

As an industry leader, Tineco naturally reaped the benefits of this rapid growth. By the first half of 2022, Tineco's market share for hard floor washers remained above 56%, with sales reaching 2.57 billion yuan and a net profit margin of around 24% (which includes other products; however, it is essentially close to 24% for the main hard floor washer sales).

Do We Need to Question if Tineco's Success Was Inevitable? What Are the Internal Factors for Success and Future Potential?

Without the pandemic in 2020, the brand Tineco might well have become a failed case of an IPO. Prior to 2020, Tineco primarily focused on vacuum cleaners with the slogan "Life White Tech." The company invested tens of millions or even hundreds of millions annually in marketing but saw no significant market impact. At that time, many marketers and brand managers at Tineco left the company. As for Tineco's future breakout product—the hard floor washer—only a few people were aware of it, with virtually no one believing in its potential.

Let us comprehensively review Tineco’s product line to gain deeper insights into the company's core competencies.

Hard Floor Washer Series: Although Tineco is currently leading the hard floor washer market, this category was not invented by Tineco but by Bissell. Early on, Tineco operated as a contract manufacturer, gaining extensive experience in the process. However, from a product form and functionality perspective, Tineco's only improvement was adding a screen. Currently, Bissell and Tineco are already engaged in multiple patent battles across various markets, with an uncertain outlook for litigation in North America.

Vacuum Cleaner: Tineco's early focus was on cordless handheld vacuum cleaners, which drew heavily from Dyson V8 in both design and functionality. This approach was understandable during the early days of cordless vacuums, as Dyson served as a benchmark for the entire cleaning appliance industry. However, even Dyson introduced different forms such as the V10 and Omni Glide models. Yet, Tineco has consistently stuck to the V8 form factor. The reason is simple: other designs (V10) did not perform well in the market, so they decided to stick with this single form factor.

Hair Dryer Series

This is no exception; it's also a tribute to Dyson’s hair dryers. Unfortunately, while Dyson can generate billions in sales for personal care products annually, its followers have yet to match this pace.

Smart Cooking Pot: This pot draws inspiration from smart cooking pots by major kitchen appliance giants such as Joyoung and Supor. It adds electronic controls and screens to challenge the traditional kitchen setup. According to reports, this product line is now personally overseen by Mr. Qian, marking his third entrepreneurial venture (following Tineco's hard floor washer, which was his second). Unfortunately, consumer response has been lukewarm; it is said that most of the initial batch of 5,000 cooking pots remains unsold and stored in warehouses.

From the above products of Tineco, it is evident that truly innovative and self-developed products are few. Tineco, or more accurately, Ecovacs, excels in market judgment and marketing capabilities but does not lead in product innovation compared to other industry competitors.

Tineco's business model mirrors that of Ecovacs: Identify promising products -->borrowing the forms of leading players--> Launch multiple products with substantial marketing investments --> Achieve scale or incur losses.

A simple example is Tineco's subsidiary Kaihang Electric, which primarily manufactures motors. However, both within the industry and at Tineco itself, the evaluation of Kaihang's motors is lower than that of external third-party suppliers such as Xingdestong. For core modules like motors and controls in hard floor washers, Tineco lacks significant technological barriers and heavily relies on external companies. So, what are Tineco's core competencies? Design or marketing?

The reasons are straightforward: Tineco's leaders have a background in trade, and over several decades, whether through OEM manufacturing or Ecovacs, they have achieved success through marketing and promotion, creating a path dependency. Their emphasis on technology is far less than that of another listed company, Leku Electrical.

Mr. Qian has a keen grasp of the market and can make judgments in complex situations. However, his weakness lies in product and core technology investment.

Can businesses with no moat and high profits sustain themselves long-term?

With stronger replication capabilities compared to Tineco, Dreame Technology raised 3.6 billion yuan last year and has been pixel-by-pixel following Tineco's footsteps over the past few years. In terms of R&D teams, product launches, and marketing tests, they are benchmarking against Tineco. Each product is priced about 15-20% lower than Tineco’s, with no shortage of marketing funds, often described as "full-scale investment." Currently, Dreame's sales on Douyin exceed those of Tineco, and it is possible that within the next 1-2 years, Dreame could surpass Tineco in the hard floor washer segment.

Where Will Tineco's Future Lie?

In the first half of 2022, the sales revenue of the sub-brand under Ecovacs reached 3.497 billion yuan, with a loss of 1.39 billion yuan. Could this be the future for Tineco?

Will Tineco Be the Next Dyson? Could It Be Ecovacs Instead?