Roland Berger Zheng Yun: The new energy vehicle market in 2021 can be defined as the first year driven by the market

Looking back at the past 2021, under the multiple challenges of chip supply shortage and rising raw material prices, the domestic auto market still handed over a positive growth "report card" against the trend.

On January 12, 2022, data released by the China Association of Automobile Manufacturers showed that in 2021, domestic automobile production and sales were 26.082 million units and 26.275 million units, up 3.4% and 3.8% year-on-year, respectively, and ended the downward trend for three consecutive years since 2018. Among them, new energy vehicles became the biggest highlight, with annual sales of more than 3.5 million units, and the market share increased to 13.4%.

In addition, driven by the recovery of the international market and the improvement of the competitiveness of Chinese brands, the mainland's automobile exports have performed well, and since April 2021, they have repeatedly set new historical records, and annual exports exceeded 2 million for the first time, achieving a breakthrough of about 1 million vehicles that has been hovering around 1 million for many years.

"The performance of the domestic auto market in 2021 is more in line with expectations as a whole. We previously had an overall view of the domestic car market, the sales level in 2019 is the peak of the past few years; in 2020, due to the impact of the epidemic, sales will decline; in 2021, the domestic car market sales can basically return to the level of 2019. Recently, Zheng Yun, global senior partner of Roland Berger and vice president of Greater China, commented on the performance of the domestic auto market in 2021 in an exclusive interview with the reporter of China Business Daily. In addition, Zheng Yun also shared his views on many hot topics in the industry such as the overseas voyage of Chinese car companies and the 20th anniversary of China's accession to the WTO.

In 2022, the growth rate of the automobile market is expected to be between 4% and 4.5%.

China Business Daily: How to view the impact of chips and other issues on the domestic car market?

Zheng Yun: Overall, the shortage of chips has brought some volatile shocks to the market. At present, for the problem of chips, the consensus is that by the second half of 2022, the shortage situation will be alleviated. If you look at it in the medium and long term, the problem of chip supply will not have a particularly big constraint on the development of the entire automobile market.

For many chip manufacturers, the problem of chip shortage also allows them to see a market opportunity. Because compared with traditional fuel vehicles, electric vehicles, especially smart electric vehicles, their demand for chips will be higher, and this part will be improved more rapidly on the supply side.

China Business Daily: How to view the changes in the competition pattern of the new energy market in recent years?

Zheng Yun: I think the new energy market has gone through three stages: the first stage is to use terminal subsidies to stimulate market demand. The second stage is from 2019, the market gradually introduced the concept of "double integration policy", that is, it is hoped that the simple purchase subsidy from the policy end and the conversion of OEMs will form a balance around the double integration. The third stage is for consumers themselves to drive the market. From the current situation, we can position 2021 as a first year for new energy to be driven by the market. This is because from 2018 to 2020, new energy vehicles will have a volume of more than 1 million vehicles per year, and these seed users will play a better demonstration role for consumers around them, which can dispel some of their concerns about the mileage anxiety and safety of new energy vehicles.

In addition, the laying of basic charging piles such as emerging charging, cloud fast charging, and special calls, as well as some cooperation between OEMs and them, will also more clearly outline the future in the charging link, electric vehicle users will not have too much inconvenience. The combination of the above factors will make consumers feel the competitiveness of new energy vehicles. The large-scale replacement of traditional fuel vehicles by new energy vehicles in the future is also a relatively clear development trend.

China Business Daily: What is the forecast for the direction of the domestic auto market in 2022?

Zheng Yun: Subject to the influence of chips, the growth rate of passenger cars in 2021 is still suppressed. However, with the easing of chip problems in the second half of 2022, the growth rate of the domestic auto market in 2022 may be around 4% to 4.5%, which should be slightly higher than that in 2021. If the timeline is extended, the domestic auto market will be an incremental market with a compound annual growth rate of about 3%. Of course, the structure of the market will change to a certain extent, such as the overall penetration rate of the new energy market, which will climb more rapidly in the next few years.

GDP growth is a major prerequisite for automobile consumption

China Business Daily: 2021 is the 20th anniversary of China's accession to the WTO, how to view the development of China's auto market in the past 20 years?

Zheng Yun: The development of China's auto market in the past 20 years can be viewed from two perspectives: First, in the initial period, we have used some experience brought from abroad, which may be at the design end, but also in the production end and sales model, we have introduced some good practices and good processes in the overseas automobile industry. Second, since 2015, the Chinese auto market has begun to reverse export, and some new automotive product functions, including some new sales models, as well as some ways and methods of user operation, have been well reverse exported to other countries around the world.

Why has China's auto market been able to develop rapidly in the past 20 years? I think that on the one hand, it has benefited from the rapid growth of GDP; on the other hand, the dividends of population growth have also been fully captured. In addition, for many domestic and foreign auto brands, the Chinese market is a core market that wants to occupy a place.

On the whole, the rapid growth of consumption capacity, relatively abundant supply, and under the impact of new trends, some new elements have been added to the car, so that the overall sales of the domestic car market have a very large outbreak. Of course, the rapid development of the domestic automobile market in the past 20 years, the most critical or GDP growth rate is a big premise, consumers are we have the ability to spend, naturally there will be a very strong consumer demand.

China Business Daily: In the early days of China's accession to the WTO, one of the industries that China was most worried about was the automobile industry. But in practice, the impact of the automobile industry is not large, what are the reasons behind this?

Zheng Yun: I think there are two reasons.

On the one hand, on the supply side, the premise of the extreme situation that everyone is more worried about is that foreign brands should do complete research and development, production and sales localization on the supply side, but because the state has set up a joint venture company, it has protected China's automobile industry to a certain extent. Because there are joint ventures, for example, at the research and development level, all foreign brands will have reservations, and more mature products will be exported to the Chinese market. The state also allows overseas brands to enter the domestic market to promote the development of the domestic automobile market.

On the other hand, due to the establishment of the joint venture company, it basically determines that it is impossible for overseas brands to fully localize their research and development. To this extent, this leaves time and space for the development of China's own brands. After 20 years of development, independent car brands such as Geely, BYD, and Great Wall have made great strides in development, and their vitality and flexibility have been reflected in the market-oriented competition.

"China Business Daily": In the next 20 years of China's accession to the WTO, what opportunities will there be in the domestic automotive industry? How to grasp?

Zheng Yun: The first development opportunity is the change of powertrain. At present, it is a transition from fuel to new energy, and we can run relatively fast in the field of new energy without some disadvantages in the field of engines and transmissions. In addition, the batteries used in new energy vehicles now have enough competitiveness to obtain more international shares.

The second development opportunity is intelligence. Now that the whole vehicle is becoming more and more intelligent, at the level of innovation around consumer demand, China has added several dimensions to the competition of the automobile industry from the original simple competition at the level of the machinery industry, including the competition of some technologies and the competition of ecology, which is largely beneficial to our Chinese enterprises.

The third development opportunity is scenario-based autonomous driving. Scenario-based autonomous driving is to slowly transform the car from a vehicle into a living space that can be moved. Whether it is from the perspective of infrastructure or the completeness of technology, including ecological partners and different dimensions such as laws and regulations, there are many opportunities for innovation.

The fourth development opportunity is the innovation of sales models. In some very mature auto markets, due to the limited capacity of the entire market, it may be difficult for some mainstream auto dealers to innovate too much in the distribution model. But China's market is large, and there are many new brands appearing, which also brings some new inspiration to the market.

The overall overseas competitiveness of car companies' products is upward

"China Business Daily": Mainland Automobile has experienced from "imported products" to "overseas expeditions", what is the current level of domestic automobiles going to sea?

Zheng Yun: I think that domestic cars going to sea are still more at the product level, and the main way we go to sea now is to superimpose some differentiated selling points such as cost performance, service, and interaction as our product competitiveness. In terms of new energy vehicle categories, our overall product competitiveness is still OK, and it is competitive in the global market. However, some competition at the vehicle and ecological level, the domestic market is still in the exploration period, in the export to overseas markets, it has not yet reached this level.

In the future, we must make good use of the core asset of new energy batteries. Because the battery is an important fulcrum connecting the automotive industry, the mobility industry, and the energy industry in the future, the battery follow-up includes cascade utilization, recycling, etc., and these are highly relevant. Some innovative methods at these levels are still more focused on the local market in China, and in the future, when going to sea, Chinese car companies should gradually superimpose these competitive advantages in different dimensions.

"China Business Daily": How to view the current situation of many new domestic car-making forces entering overseas markets?

Zheng Yun: Their products do have some of their own characteristics, they think that to a new market, or can have a corresponding competitive advantage, for example, Weilai may think that the company's power exchange business model can also run through in Europe, the ideal may think that the company's product configuration, powertrain, due to price reasons, can also find the corresponding space in the European market.

Like Nezha and some other new power brands, it may be more hoping to show their advantages to a certain extent when entering overseas markets. Because the Chinese market is relatively large, it is possible to incubate some new brands, which is not an advantage in other markets.

Looking at the global automotive market, the future transformation of fuel to new energy is a relatively clear trend. Some investors in other countries, or players in the traditional industry chain, need to invest in the new track during the transition period. This may also be an additional consideration for players in the second echelon of new domestic car-making forces to enter overseas markets.

China Business Daily: What difficulties may be encountered in the reverse output of domestic cars?

Zheng Yun: Today's consumers are increasingly demanding personalized solutions. In the Chinese market, domestic car companies, including new car-making forces, will develop some models that are more popular with Chinese consumers because they understand the needs of Chinese consumers more deeply. However, in other countries overseas, car companies may encounter a situation of dissatisfaction at the level of customization.

In addition, in terms of automotive data privacy and network security, the national conditions of each country are different. Some countries may have higher requirements for Chinese car brands. In mature auto markets, such as the auto markets in Europe and the United States, they may have stricter regulatory requirements for network privacy security and data protection than in the domestic market.