Practitioners in the electric vehicle industry believe that 2022 is a key year of relief for the production of key components for electric vehicles, because the electric vehicle industry has been plagued by supply shortages for some time. But based on the current supply and demand situation, such a relief has not been seen for a long time.
Emerging EV brands like Great Wall Motor's ORA and Geely's electric vehicle subsidiary, Geometry, struggle to get enough affordable chips and batteries to produce cars. Instead, companies such as Tesla, BYD and NETA have consolidated their market positions.
This contrast has led original equipment manufacturers (OEMs) to recognize that the competition for electric vehicles has evolved from the 1.0 era (where OEMs focus on marketing) to the 2.0 era. During this time, OEMs need to compete with their peers throughout the entire process, from supply chain management to after-sales service.
The booming electric vehicle industry has also been accompanied by constant consumer complaints. According to data from the website 12365auto.com, which focuses on the statistics of domestic auto-related complaints, new energy vehicles account for the vast majority of all complaints recorded on the platform.
The gasoline version of BYD's best-selling SUV model, song MAX, has received 248 consumer complaints so far this year, with the inability to upgrade Over The Air (OTA) being the most mentioned flaw.
During the same period, there were also 201 complaints against Geely's Geomettry brand, which buyers were impatient with the long delivery times. Consumers also filed about 200 reports against Great Wall Motors' female brand, ORA, accusing the company of "false advertising."
BYD may fix software issues with Song models while engineers solve them. Geometry and ORA have a difficult conundrum because there are no proactive and effective measures to deal with supply chain imbalances.
Solving the chip and battery shortages for Geometry and ORA seems more complicated. Chip shortages are caused by a number of factors, including "cyclical" problems faced by foundries, the COVID-19 pandemic, strong smartphone and PC sales, and a series of accidents. So, for OEMs, there is no better solution than waiting.
Supply chain chaos
Rising costs of making batteries have become another headache for automakers. As the main raw material for battery packs, the spot price of lithium has increased 10 times in the past 12 months. Although automakers have long-term contracts with suppliers, which reduce costs to some extent, their gross margins have been significantly eroded.
Last but not least, the Ukraine-Russia war exacerbated even the problem. Nickel is a key raw material for the production of some electric vehicle batteries, and its price has doubled since the war began. Other metals such as aluminum, zinc and copper have also joined in the price increases.
Soaring oil prices have also contributed to rampant inflation. While almost everything is getting more expensive, most OEMs aren't adjusting the price of electric vehicles accordingly because they don't want to lose potential consumers.
The disruption in the supply chain has led to different performances of various EV manufacturers. BYD dominated the market, selling 91,000 units in February, up 753% year-on-year. NETA, an electric vehicle startup backed by Qihoo 360, surprised market watchers with 7,117 buyers delivering its cars in the same month, up 255% year-on-year.
So, in February, the company beat Nio to enter the "new power" of China's electric vehicles, an emerging club of new energy vehicle manufacturers that used to consist mainly of Xiaopeng, Ideal and Nio. Nio's sales, which previously led the way among the three companies, have fallen for four consecutive months.
Analysts attribute NETA's relative success to its focus on the low-mid-market market. The company's best-selling model is the NETA V, an SUV that costs between 60,000 yuan ($9,508) and 80,000 yuan. This model has won consumer recognition on a limited budget and has helped democratize electric vehicles to some extent, just like Wuling's MiniEV.
The NETA V, along with BYD's hatchback Dolphin, caused a stir in niche markets. Overall, China's electric vehicle market is evolving from a "barbell" structure to a "spindle" structure, which means that the mid-range market will become mainstream.
NETA also demonstrates the advantages of the overall product relative to the modest pricing of its models. The NETA V Pro is a small car known for its cost performance, with a secondary driving assistant, automatic parking assistance (APA), remote parking and OTA upgrades, all of which consumers typically expect to see in high-priced models.
The company has also built strong relationships with players in the EV ecosystem. It has received a strategic investment from Qihoo 360, a top cybersecurity software provider. NETA has also signed agreements with Huawei, AI chip design firm Horizon Robotics and CATL to improve its competitive advantage.
Bottom line
Overall, China's EV market has evolved from the 1.0 era, when almost all EV companies were focused on increasing sales and attracting capital. To do this, BYD, Wuling's MiniEV, NIO, XPeng and Li Auto are all busy opening new stores, delivering cars and trying to differentiate their products.
But the good times didn't last. Since the beginning of 2022, demand for low- and mid-range cars has begun to grow, sales of mid-priced models have begun to pick up, and long-term supply chain bottlenecks have made it difficult for electric vehicle manufacturers to keep up with growing demand.
In the process, some OEMs lost market share. This will prompt EV competitors to upgrade their capabilities and prepare for the new challenges brought about by the Industry 2.0 era. To a certain extent, this requires them to be committed to solving problems in the upstream of the industrial chain.
OEMs must establish closer ties with suppliers. Some of them are contacting the foundry to get the chips; Other companies chose a second and third battery supplier to ensure supply.
In the new era, electric vehicle manufacturers will move upstream of the industrial chain and carry out deeper integration with upstream manufacturers. Whether this change will benefit the industry, such as reducing pressure on production and delivery, remains to be seen in the coming months.