This change is no longer a development problem for traditional car companies, but a problem of survival
Photo/Visual China
Text | Fang Yue
Edit | Wang Jingyi
In the first 10 months of 2021, China's production and sales of new energy vehicles reached 2.566 million units and 2.542 million units, respectively, an increase of more than 180% year-on-year.
According to the first 10 months of automobile sales of 20.9628 million units, the market share of new energy vehicles is about 12.13%. Although affected by the epidemic, production capacity, chips and other unfavorable factors, the annual sales of new energy vehicles are expected to exceed 3 million, and the market share should be between 13% and 14% by the end of the year.
According to the national "New Energy Vehicle Industry Development Plan (2021-2035)", by 2030, the proportion of new energy vehicles in China will reach 40%. According to this target, the average annual share will increase by nearly 3% over the next nine years. According to the trend of recent years, this goal should not be difficult to achieve, which also means that the market will reach a trillion scale.
Globally, several agencies predict that annual sales of electric vehicles will reach 28 million in 2030 and 48 million in 2040, surpassing the 42 million gasoline and diesel models.
The new energy automobile industry also continues to be a hot spot for investment. Over the past decade, the sector has attracted about $400 billion in investment; in the past year or so, more than $100 billion has been invested.
With the strong growth of the new energy vehicle market around the world and the expectation of future development, traditional automakers, new car manufacturers and technology giants all want to show their skills and gain a competitive advantage in the emerging new energy vehicle market.
Software research and development, business models and brand building will become the three main battlefields.
How is the trend of new energy vehicles achieved?
Why are new energy vehicles the future direction of development? The first is environmental pressures and policy pushes.
Carbon emissions and climate warming, accelerating aging, continued urbanization, a rapidly rising middle class, and rising wealth inequality are five of the biggest challenges facing humanity today and in the coming decades.
All countries around the world regard new energy as a strategic development direction and make every effort to promote the transformation of the automotive industry to low-carbon green. The European Union wants to reduce carbon emissions by 55 percent by 2030, and the U.S. aims to make up 50 percent of new energy vehicles by 2030. If China can complete the goal of the national "New Energy Automobile Industry Development Plan (2021-2035)", it will achieve carbon peaking in the automotive industry in 2030.
According to the 2021 McKinsey Automotive Consumer Insights, the promotion of the policy environment and consumers' tendency to low-carbon environmental protection products account for the first reasons why consumers choose pure electric vehicles (accounting for 68%).
Second, from the product side, scientific and technological innovation and the large-scale application of key technologies are the key to the development of new energy vehicles.
Electric vehicles have had several ups and downs in the long river of history. In 1834, American blacksmiths built the first electric motor-powered car, half a century before the internal combustion car.
With the deepening of scientists' research on batteries, in the early 20th century, electric vehicles entered a "golden" period: at that time, electric vehicles in the United States accounted for 38% of the market share, while gasoline vehicles accounted for 22%, and steam-powered vehicles accounted for 40%. In 1911, the New York Times commented on electric vehicles: "It is economical, does not emit exhaust gases, and is the ideal means of transportation." ”
Since then, due to the sharp decline in the cost of internal combustion engines, the continuous popularity of gas stations, and the bottleneck of charging time for electric vehicles, electric vehicles have basically withdrawn from the automobile market in the mid-20th century. Even with the oil crisis and environmental pollution in the 1970s, electric vehicles did not return to the public eye.
New energy vehicles have no price advantage over internal combustion engine vehicles, even in 2019, the production cost is on average 12,000 US dollars higher than that of internal combustion engine vehicles, except for a few high-end models, most of the OEMs are in a state of loss.
The good news is that Tesla, as the leader of the new power of new energy car manufacturing, the automobile business has achieved profitability. Tesla's revenue in the third quarter of this year was $13.757 billion, of which electric vehicle sales were $11.672 billion and sales of carbon credits were only $279 million. Third-quarter net income was $1.618 billion, up 389% year-over-year.
With the maturity of technology, the cost of new energy vehicles will continue to decrease, coupled with consumer recognition and the improvement of manufacturers' production capacity, the relationship between supply and demand will reach a better balance. According to McKinsey's analysis, new energy vehicles will reach the same cost level as internal combustion locomotives in 2025.
Third, from the perspective of market demand, the recognition of new energy vehicles is rising year by year.
According to the 2020 CONSUMER REPORT, up to 71% of consumers are willing to accept the purchase of an electric vehicle. As for Chinese consumers, since 2017, the proportion of willing to buy new energy vehicles has risen from 20% all the way to 63%.
With the advancement of digital technology, the car is not only a means of transportation, but also a scene for consumers to experience life and integrate into the digital ecosystem. According to market research firm IHS Markit, 45.7% of Chinese consumers see in-vehicle technologies such as connected vehicles, OTA (over-the-air) and autonomous driving as key purchasing influences, second only to safety, vehicle parameters and fuel economy.
In recent years, Tesla has greatly enhanced consumers' recognition of new energy vehicles and autonomous driving technology through its extensive global influence, and cultivated and bred a good demand-side soil for all parties involved in the new energy vehicle market.
The first battlefield: software research and development
In the face of the rapid growth of the new energy vehicle market scale and the continuous improvement of penetration rate, traditional automobile manufacturers, new car manufacturers and technology giants have formed a three-way game, and software research and development, business models and brand building are the three main battlefields.
First, software redefining the automobile is the consensus of the industry. The compound annual growth rate of in-vehicle software and electronic devices from 2020 to 2030 will reach 12%, while the complexity of software is growing rapidly, and successful software development needs to be continuously improved and iterated according to changes in consumer needs. The challenge of achieving a complete set of solution advantages of software + hardware is extremely challenging for all three forces.
The new car-making forces have a natural advantage in terms of software capabilities. Different from the product concept of traditional internal combustion engine vehicles, the new forces of car manufacturing regard automobiles as scientific and technological electronic products, and the research and development team focuses on software algorithm research and development and electronic device research and development, and many executives come from technology companies and Internet companies.
Compared with the steady and steady play of traditional automobile manufacturers, "fast" and "new" are the main characteristics of the new forces of car manufacturing: first emphasize speed and efficiency, break the stereotypical research and development process and links, shorten the research and development cycle, so as to achieve faster product innovation and market response, and emphasize the subsequent continuous iteration; "new" is reflected in the fact that the product is no longer based on the traditional control, comfort and other functional needs as the selling point, but the intelligent function and strong sense of technology as the core difference point.
In the past, the R&D teams of traditional automobile manufacturers mostly focused on mechanical engineering and other backgrounds, and have always regarded the car as a hardware product, believing that software is just the icing on the cake, and the understanding of the importance of software needs to be improved and changed urgently. Traditional automakers must redouble their efforts to invest in software research and development to attract and retain talent, recognizing that this is a must-win battle. In terms of talent, traditional automakers are competing with technology companies and new car-making forces.
One of the trends is for traditional automakers to cooperate with technology companies to leverage their respective strengths and achieve a win-win situation. Some technology companies, such as Huawei, have clarified their positioning, "Huawei does not build cars, focuses on ICT technology, and helps car companies build good cars", and deeply participates in the new energy vehicle sector of many automakers in the form of technology empowerment.
Other technology companies, such as Xiaomi, decided to build cars as automakers. However, the hardware development of automobiles is more complex than that of general electronic equipment, research and development and manufacturing not only need to consider market demand, but also to meet regulatory indicators such as safety, quality, emission standards, etc. Technology companies will face great challenges and responsibilities when cross-border into new energy vehicles.
Traditional automakers and tech companies are not born partners and want to take control of their products and business models, the latter want their products to present their logos, and the former is reluctant to become a foundry for tech companies.
John Paul MacDuffie, a management professor at Wharton, said: "The initial contest is when new car-making forces and technology companies enter the auto market, and then traditional car companies respond and fight back against the offense. But if the new car-making forces and technology companies in the future will completely dominate the automotive industry, I doubt it. ”
The second battleground: business models
In recent years, with the improvement of the digital ecosystem, the interaction model between automakers and consumers has been redefined, and is being driven and dominated by consumer behavior, moving towards diversification and full life cycle.
Taking the D2C (Direct to Consumer, direct sales) of the new car-making forces as an example, through the offline direct experience store showroom and the manufacturer's online direct sales method, we will create a unified and transparent price and a full-life cycle integrated service, actively interact with car owners, and strive to improve customer experience.
Unlike the marketing teams of traditional automakers, which are mostly from OEMs, the marketing teams of the new forces have more backgrounds in the consumer electronics and FMCG industries. This subverts the traditional model of offline sales of dealers as the core, realizes strong control over the sales network, and is closer to the user's life scene.
Wu Zhao, partner of Roland Berger and an expert in the automotive industry, said: "New forces are constantly innovating in sales models, reducing the threshold for users to buy cars while helping to eliminate car purchase concerns (such as vehicle-to-electricity separation model, energy supplementary services, subscription-based leasing, etc.). At the same time, the user operation around the circle community has also completely subverted the traditional customer relationship management model, and users have become loyal fans of the brand and achieved ripple marketing. ”
In the industrial chain, Tesla brings the "catfish effect", the maturity of the domestic new energy vehicle industry chain continues to increase, and various solution providers and marketing models emerge in an endless stream, which will further reduce the threshold for new energy vehicles to build cars, and bring about the expansion of production capacity and delivery on the supply side.
In the past few years, traditional automakers have been slow to deploy new energy vehicles strategically, mainly considering the following two points:
First, the manufacturing cost of new energy vehicles is relatively high, and batteries are considered to be the main obstacle to profitability. Although battery prices fell by about 80% between 2010 and 2016, in 2016, the cost of equipping a vehicle with a 60kWh battery was about $13,000, and with electric motors and other related systems, it is relatively difficult for electric vehicles to make a profit.
Second, at that time, the future development of new energy vehicles was still uncertain, and the traditional automotive industry still focused on the research and development and transformation of the internal combustion engine, hoping to improve the efficiency of the traditional internal combustion engine to the extreme.
Recently, traditional automakers have also begun to experiment with D2C direct sales. On September 27, 2021, SAIC Audi will deploy urban stores nationwide, where consumers can experience it in urban stores and buy cars directly from manufacturers online. It is worth noting that FAW Audi's existing models are not directly sold, but only apply to the new A7L launched by the newly established SAIC Audi, which will not be delivered until next year.
Dealers mostly put capital turnover and sales in the first place, how to cooperate with dealers in traditional automobile manufacturers, truly achieve "customer value" as the center, find their own path, is an urgent problem to be solved.
The third battlefield: brand building
Chinese auto consumers have a high degree of attention and demand for intelligent interconnection. As early as September 2017, McKinsey's research showed that consumers have great expectations for in-vehicle services, hoping that existing functions will continue to improve and iterate. If demand is not met, 64% of consumers may choose to change brands, compared with 37% in the US and 19% in Germany.
With the rapid development of connected technology, cars carry the functional needs of consumers beyond transportation. The iteration of green environmental protection technology, intelligence and sense of science and technology, perfect charging facilities and mileage have become the main battlefield for the brand construction of new energy vehicles in the future.
A few days ago, Volkswagen GROUP CEO Herbert Diess and hundreds of executives learned from Tesla CEO Elon Musk, And Diess said: Tesla's flattening, agile management, and rapid capture of innovation are worth learning.
Where is Tesla strong? Taking car research and development as an example, according to January 2021 data, Tesla invested $2984 per vehicle in research and development, while traditional automaker Chrysler, General Motors, Toyota and Ford invested $784, 878, 1063 and 1186 respectively.
In terms of advertising investment, Tesla is $0, and the advertising investment of the four traditional car manufacturers is 664, 394, 454 and 468 US dollars per vehicle, respectively.
Although Tesla has no advertising investment, it has a very high brand awareness in the electric vehicle industry and even in the entire automotive industry, and it is the technology leadership that has achieved its strong brand image and premium support.
Roland Berger's Wu Zhao believes that Tesla has three technical advantages:
The first is the leadership position of Sandian Technology: Since its inception, Tesla has always taken the self-development of battery, motor and electronic control technology as the foundation of its establishment. On the battery, from 18650 to 2170 to 4680, Tesla has made continuous breakthroughs in the energy density of the battery, far exceeding the industry average; on the motor, Tesla also takes the technical route of the self-developed motor, and the asynchronous switching motor on the Model 3/Y is also far ahead in power and energy consumption; at the electronic control level, it is also the first to apply SiC (silicon carbide) technology to significantly reduce energy consumption.
The second is the technology pioneer of automatic driving: Tesla has always adhered to the visual-based technical route, completed the mass production of the Demo version of L4 advanced unmanned driving technology in North America, realized the full uninterpretation of autonomous driving from A to B point, and can identify pedestrians, traffic lights and other difficult targets, far ahead of other players. From chips to software algorithms and even simulation platforms, Tesla has independently developed and mastered the next generation of core technologies.
The third is the potential leader of Robotaxi in the future: based on the first achievement of advanced driverless technology of L4 and above, Tesla is expected to quickly transform from a vehicle manufacturer to the world's first truly Robotaxi travel service provider through the first-mover advantage, providing a cheaper and safer travel experience for the society, and forming a dimensional reduction blow to overseas Uber and domestic Didi. This move also means that Tesla has subverted its own business model and profit model, bringing more value-added service opportunities.
For traditional automakers, it is crucial to accelerate investment in new energy vehicles, but the focus should not only be on the technical and product dimensions, but also on the need to fundamentally accelerate the transformation from "product-centric" to "customer value-centric", which is no longer a development problem for traditional car companies, but a survival problem.
Whether it is a traditional car manufacturer, or a new car-making force or a technology giant, it is necessary to clearly understand that intelligence is the main battlefield for future competition and achieve curve overtaking, and accelerate the transformation of "customer value-centric" by developing autonomous driving functions that are more suitable for domestic local road conditions, which will become a key opportunity point to improve core competitiveness, create awareness, reputation and brand image, and build product and service premium capabilities.
(The author is a professor of economics and decision science at China Europe International Business School; this article was originally published in caijing magazine on November 22, 2020 in the "Automotive and Mobility" column)
