Expert opinion | China's auto industry does not need blind investment in capital expansion

On November 23, 2021, the First Department of Equipment Industry of the Ministry of Industry and Information Technology issued the "Directory of Specially Publicized Road Motor Vehicle Manufacturers (as of November 2021)", and said that "in the next step, the Ministry of Industry and Information Technology will continue to strengthen the supervision and management of special publicity road motor vehicle production enterprises, dynamically update the directory of special public enterprises, and strengthen information sharing with relevant departments, implement joint supervision, and effectively promote the high-quality development of the automobile industry." ”

It is puzzling that among the 5 passenger car manufacturers in this directory, Jilin Tongtian Automobile Co., Ltd., which has been discontinued for more than 10 years, is still listed, rather than canceling its qualifications.

After the implementation of the socialist market economic system in the country, the competent government departments broke the planning pattern of "three majors, three small and two micro" of automobile enterprises and relaxed the investment restrictions of automobile enterprises. With the continuous rapid growth of the domestic automobile market, all kinds of capital have entered the automobile industry, and the preferred goal is to set up vehicle manufacturers.

After 20 years of rapid development, China's automobile industry has now formed the scale of 10 automobile groups and 153 independent vehicle enterprises such as FAW, Dongfeng, SAIC, Changan, GAC, BAIC, Geely, Jianghuai, Fuqi (Fujian Automobile Industry Group), and Sinotruk (China National Heavy Duty Truck Group), with a total of 163. If you count the individual enterprises in the enterprise group, the number of enterprises with automobile production qualifications listed in the announcement directory of the Ministry of Industry and Information Technology has reached 266. The continuous investment impulse has made the problem of too many automobile enterprises in China not only not be solved, but has become more and more intense.

Among these independent vehicle companies, there are not a few small-scale enterprises that lack independent research and development capabilities, and the annual car sales are very small, and they are on the verge of loss or loss for a long time. The excessive number of these enterprises has reduced the overall capacity utilization rate of automobiles and affected the high-quality development of China's automobile industry.

Such enterprises lack the stamina to develop and are difficult to withstand the impact of fierce market competition. Far from the long exit from the market of Zhongda Automobile, Baolong Automobile, Zhongshun Automobile, Tongtian Automobile, Chunlan Automobile, Waveguide Automobile, Huaxiang Fuqi Automobile, Midea Bus, Zhongyu Automobile, Oaks Automobile, etc. In the past two years, due to the dual impact of the acceleration of new energy transformation and the decline in sales of the automobile market, many companies have fallen into difficulties, including many enterprises that have been in the limelight. Recently, it has been reported that enterprises that have entered the equity transfer or bankruptcy liquidation procedures include Brilliance Automobile, Lifan Automobile, Youth Automobile, Huatai Automobile, Zotye Automobile, Cheetah Automobile and so on. In addition, there are also some companies whose annual automobile sales are only between hundreds or thousands or have even been discontinued, which has shown an unsustainable trend.

The withdrawal of these enterprises from the automotive industry is undoubtedly a painful thing for corporate investors, operators and employees; but for the entire industry, eliminating backward enterprises and reducing ineffective production capacity must be a good thing conducive to the high-quality development of the industry.

The problem of too many old automobile companies is far from being solved, and a new group of investors with deep pockets has emerged.

More than five years ago, with the concept of "Internet + car", Internet companies began to get involved in the automobile manufacturing industry. Taking advantage of the opportunity of electrification, networking, intelligence and sharing of automobile products (referred to as the "new four modernizations"), some enterprises in other industries have invested in car manufacturing, setting off a wave of new forces to build cars.

Suddenly, thirty or forty new energy vehicle manufacturers appeared. After 5 years, there has been a clear divergence of new car-making forces. Sales of Weilai, Xiaopeng, Ideal, Nezha, WM Automobile, etc. are steadily increasing, and the annual sales volume can be measured by tens of thousands of orders. Aichi, Tianji, Zero Run, Qiantu, Gaohe Automobile, etc. have also been listed, and they are still in the stage of increasing sales. Although min'an automobile's production base has been completed, there is no plan to launch the product. Byton, Bo County, Sailin Automobile 3 started when the movement is not small, the negative news is also the biggest, basically has returned to the sky powerless. Most of the rest of the well-known or unknown enterprises cannot escape the fate of the flag.

Just when the dust has settled on the new power structure of car manufacturing, there has been a series of announcements from Evergrande Group that it intends to transfer part of the equity of Evergrande Automobile and xiaomi announcing that it has entered the vehicle manufacturing industry.

Evergrande Auto started with an investment in Saving Faraday Future in June 2018, and in December of that year, the two sides broke up due to disagreements over the payment of funds. Evergrande then acquired Guoneng Electric Vehicle Sweden Co., Ltd. (NEVS) to obtain the vehicle production qualification. In order to transform and raise funds, "Evergrande Health", which is listed on the Hong Kong stock market, was renamed "Evergrande Automobile".

Evergrande Car takes the form of acquiring existing enterprises in the industrial chain. According to media reports, as of 2020, Evergrande Automobile has invested as much as 47.4 billion yuan, of which 24.9 billion yuan was used to purchase core technologies and research and development investment.

Using capital crushing to open the way was once the usual practice of Evergrande Group. Whether it is the earlier Evergrande women's volleyball team or the later Evergrande football, all of them are players who hire world-renowned coaches with heavy money and then introduce almost half of the national team lineup with high salaries, and they can easily occupy the top position in the domestic league for many years. Evergrande's pursuit of "Golden Dollar Football" has brought far more negative effects to the development of Chinese football than positive effects.

This time, Evergrande spent money to build a car but it did not work. Since automobile manufacturing is both a capital-intensive industry and a technology-intensive industry, and the investment payback period is long, since 2018, Evergrande Automobile has been in a state of continuous loss, with a loss of 1.429 billion yuan in 2018, a loss of 4.426 billion yuan in 2019, and a loss of 7.394 billion yuan in 2020. Coupled with the difficulties encountered by Evergrande Group in cash flow shortage this year, it cannot continue to meet the needs of high-intensity car investment in a short period of time.

In order to raise funds, not only did Evergrande Group announce its intention to transfer part of the equity of Evergrande Automobile, but Evergrande Automobile was also selling assets such as Guoneng Electric Vehicle Sweden Ltd., British automotive technology company Protean, and electric drivetrain company e-Traction, which it had previously acquired. On November 10, 2021, Evergrande Automobile announced that it will raise funds through the placement of shares, which will be used for evergrande automobile's Tianjin production base to fully start trial production in the fourth quarter of 2021 and achieve large-scale delivery in 2022.

Even if Hengchi Automobile can be listed as scheduled, it must also obtain consumer recognition in terms of product performance, quality, price, service and other aspects in order to occupy a place in the market.

Judging from Evergrande's 3 years of car manufacturing experience, Evergrande Group wants to achieve the three major goals of Evergrande Automobile becoming the world's largest and strongest new energy vehicle group, achieving annual production and sales of more than 1 million vehicles by 2025, and achieving annual production and sales of more than 5 million vehicles by 2035.

With the lessons of many companies, Xiaomi's car manufacturing is particularly cautious. After announcing on March 30, 2021 that the company's board of directors officially approved the establishment of the smart electric vehicle business project, the company's senior management visited representative enterprises in the industrial chain. Xiaomi Automobile Co., Ltd. completed its industrial and commercial registration in Beijing on September 1, and the company has received more than 20,000 resumes and has formed a team of about 300 people. On November 27, 2021, the company announced that the first vehicle will roll off the production line and achieve mass production in two phases, including 150,000 units in the first and second phases, respectively, and the first vehicle is expected to roll off the production line in 2024.

There is news on the Internet that the salary given by Xiaomi Recruitment is 20%-30% higher than that of general enterprises. When the new car-making forces recruited a large number of people from traditional automobile companies with high salaries, they have increased the labor costs of the automotive industry for no reason. The large number of people recruited by Xiaomi will disturb the ecology of human resources in the automotive industry.

Evergrande and Xiaomi both chose automobile manufacturing in the transformation of enterprises, but neither of them has the breakthrough technology of self-creation in automotive technology. The intervention of these enterprises only relies on capital to squeeze the living space of existing automobile companies. To paraphrase the current Internet buzzword, it is to exacerbate the "inner volume" of the automotive industry.

Also taking the automotive industry as a new growth point for enterprise business, Ali and Huawei's approach is more realistic. Relying on the advantages of mastering consumer big data, Alibaba cooperated with SAIC Motor to successfully develop the world's first Internet car, which developed the Zebra Zhixing system, which can also provide services for other automotive companies. Huawei relies on its strengths in artificial intelligence research, in cooperation with BAIC BJEV and Xiaokang Automobile, Jihu and Xilix Automobile equipped with Huawei's intelligent systems have been listed; as long as other companies are willing, Huawei can also provide intelligent car solutions.

Ali and Huawei are both involved in the automotive business as a link in the automotive industry supply chain in the original business, using their own technical advantages, rather than rushing into vehicle manufacturing. This is a wise move that is beneficial to both the company itself and the automotive industry.

In the case of a production capacity of 40 million vehicles, China's automobile industry no longer needs the blind investment of disorderly expansion of capital, but needs rational investment that is conducive to independent innovation and high-quality development of China's automobile industry.