New energy vehicles are expected to break down the barriers of scale economies formed by traditional car companies. With the deepening of the automobile industry to the "new four modernizations", the collaboration between industries has become more and more obvious, and independent industrial organizations and institutions have established an effective communication platform, which is conducive to breaking cognitive bias, forming consensus and reaching cooperation.
| interviewed Zhang Xuming Deputy Secretary-General, Society of Automotive Engineers, China
Written by | Hao Qingqian
Responsible for | Qi Qing
The automobile industry is an important support for building a manufacturing power, and it is also an important pillar industry of the national economy. In 2021, Mainland China's automobile production was 26.0822 million units (Figure 1), ranking first in the world for thirteen consecutive years. According to data from the National Bureau of Statistics, the total consumption of automobiles accounts for more than 10% of the total retail sales of consumer goods and the tax revenue of automobile-related industries in the country. It can be seen that the automobile industry plays an important role in the national economy.
Figure 1: Distribution of the TOP10 global automobile production in 2021
Source: OICA
However, due to the lack of key core technologies, China's auto industry has long been in a large but not strong situation, and the high-end field has long been occupied by foreign brands. With the increasing prominence of global energy shortages, climate anomalies and environmental pollution, major countries around the world are paying more attention to and supporting the development of the renewable energy industry.
Under the influence of policies, as well as 5G information and communications, artificial intelligence, cloud and other new technologies and the automotive industry to accelerate the integration, the automotive industry is entering a new round of transformation and upgrading, the competitive landscape will also be fully reshaped.
The opportunity of the new energy industry is expected to break down the barriers of economies of scale
After a century of development, the automobile industry has experienced different stages from dispersion to relative concentration, mainly because the automobile industry is a typical representative of economies of scale. Economies of scale refer to the fact that within a certain production range, production increases and the average cost continues to decrease. If the production and sales of automobiles do not reach a certain scale, the fixed costs related to research and development and manufacturing cannot be apportioned, and high costs and low profits will make enterprises lose competitiveness. The most important reason why established automakers such as Volkswagen, Toyota, and GM can win the competition is to achieve economies of scale. According to the statistics of the Association of Automobile Manufacturers in the past, the top three sales in China's automobile market have long been occupied by German, Japanese and American cars.
However, this competitive landscape is changing, and domestic automakers represented by Geely Automobile and Changan Automobile are forming a catch-up trend. According to the association, geely automobile ranked fourth in the 2021 passenger car retail sales ranking with 1.213 million units, ranking behind Volkswagen and GM, but surpassing Japan's Toyota and Honda. Not only that, in the top ten retail sales of new energy vehicles, in addition to Tesla, domestic automakers led by BYD have been on the list.
The exploration and development of new energy vehicles in major countries or regions
In the past decade or so, the macro environment is changing, and the resulting changes in the automotive industry will bring new development opportunities to Chinese automakers.
Whether dealing with energy or climate change, decarbonization has become a global problem. For the automotive industry, changes in the macro environment are both a pressure and a driving force.
According to national conditions and resource endowments, different countries can choose the development model suitable for their own industries, and give support and guidance from the policy. According to the statistics of Autohome, the penetration rate of new energy passenger cars in major countries in the world in 2021 (Figure 2), it can be seen that different countries show obvious differences in the development of new energy vehicles.
Figure 2: Penetration rate of new energy passenger cars in major countries around the world
Source: Autohome Collation Statistics
The early Japanese solution was energy saving. In order to reduce vehicle emissions, Japan has vigorously promoted energy-saving and environmentally friendly vehicles, including hybrid and electric vehicles, as well as fuel cell vehicles and natural gas vehicles. Due to Japan's national geographical location and resource endowments, it is more suitable for the development of hydrogen energy, and the Japanese automobile industry has listed hydrogen energy as a key research direction.
Moreover, compared with pure electricity, Japan believes that hydrogen energy is easier to store on a large scale and has the technical ability to ensure the safety of hydrogen energy use. Major automakers such as Toyota and Honda began to develop fuel cell models early on. In December 2014, Toyota launched the Mirai model, which actually drove a distance of more than 500 kilometers, becoming one of the main products of fuel cell vehicles in the world. Due to Japan's slow development in the direction of pure electric, its electric vehicle market penetration rate is low.
Compared with Japan, although the United States is the largest country in global energy demand, after the shale gas revolution, the United States has basically achieved energy self-sufficiency. Although the United States has formulated a new energy stimulus program, because the dependence on energy is no longer urgent and sensitive, the United States has slowed down the development of new energy vehicles to some extent, which eventually led to the market penetration of new energy passenger vehicles is still at a low level.
Europe has always been very concerned about climate change, and fossil energy security is becoming more and more serious, so it has shown strong enthusiasm for new energy vehicles. As shown in the content of Germany's new energy policy, from February 17, 2020, Germany's subsidies for new energy vehicles will increase by more than 50%, and the purchase of second-hand electric vehicles can also enjoy subsidies. Italy from the date of registration, electric vehicles can enjoy 5 years of tax exemption, after 5 years at 25% of the fuel vehicle tax, etc. In 2021, the overall penetration rate of new energy vehicles in eight European countries will reach about 21%.
China is the world's largest net importer of crude oil and a major oil consumer. According to the operating data released by the China Petroleum and Chemical Industry Federation, In 2021, China's crude oil imports will be 513 million tons, and its external dependence will decline to 72% year-on-year. To reduce oil consumption and wean itself off its dependence on oil, China urgently needs to seek energy alternatives. At the same time, air pollution due to oil use has become a topic of global concern. Driven by the superposition of the "double carbon" goal, the electrification of the automobile industry is imperative.
From the perspective of the policies formulated by countries around the world for new energy vehicles and the sales of electric vehicles calculated by EV VOLUMES (Figure 3), compared with 2020, the sales growth rate of new energy vehicles in major countries and regions around the world in 2021 is significant. China increased by 155% year-on-year, the fastest growth rate in the world. It can be seen that new energy vehicles have become a clear development direction for the automotive industry in major countries around the world.
Figure 3: Pure electricity + plug-in hybrid sales (unit: 1,000 units)
Source: EV VOLUMES
The market inflection point has emerged, and opportunities and challenges coexist
In the five years from 2017 to 2021, the market penetration rate of new energy vehicles will increase year by year. According to the China Association of Automobile Manufacturers, the market penetration rate of new energy vehicles will reach 14.8% in 2021 (Figure 4). From the historical experience of market development, if the market penetration rate of a certain category reaches 10%, the market trend will appear at an inflection point. This also means that the category will enter a period of rapid development, which will have a substantial impact and impact on the existing category.
Figure 4: Market penetration rate of new energy vehicles from 2017 to 2021
Source: China Association of Automobile Manufacturers
New energy vehicles have entered a stage of rapid expansion, indicating that they are already endogenous and no longer rely on external forces to promote growth. New energy vehicles have the ability to compete with traditional fuel vehicles by virtue of their low cost of vehicles, high degree of intelligence, and better driving experience. Based on this, the subsidies for new energy vehicles and the preferential policies for the exemption of purchase tax are being adjusted accordingly with market changes. The subsidy has been declining year by year until it is fully terminated on December 31, 2022. New energy vehicles are shifting from policy-driven to market-driven, so that the development of the industry is more benign, healthy and sustainable.
Although the subsidy incentive policy is about to end, the market has undergone a fundamental change, and the development of new energy vehicles will not be affected by the cancellation of subsidies. Moreover, the new version of the "double integration policy" not only adjusts the proportion of points, but also increases the measures to guide the energy saving of traditional passenger cars, enriches the identification conditions of affiliated enterprises, and includes passenger cars that burn alcohol ether fuel into the accounting scope, and gives accounting preferences to models with energy saving and emission reduction advantages.
It can be seen from this that the purpose of policy adjustment is to promote the coordinated development of new energy vehicles and energy conservation. The Ministry of Industry and Information Technology's "New Energy Vehicle Industry Development Plan (2021-2035)" also provides clear guidance for continuing to promote the "new four modernizations" of the automobile industry.
The automotive industry is based on electrification, through intelligent, networked technical support, to achieve a more intelligent, convenient and efficient way of travel. The "new four modernizations" of automobiles, that is, electrification, intelligence, networking, and sharing, accelerate industrial transformation and upgrading with a relationship of mutual promotion, progression and integration. In this process, there are both opportunities and challenges.
The technical advantages of new energy vehicles, such as power performance, automatic driving assistance systems, and intelligent networking, are being favored and sought after by young consumer groups. According to the 2021 China New Energy Vehicle Consumption Decision and Attitude Survey Report jointly released by New Mobility and Chevrolet, among the reasons why users choose to buy new energy vehicles, the top three are: low car cost, good power performance and driving experience, and high degree of intelligence. According to the survey data of Chinese consumers on the prospects of new energy vehicles in 2022, 67.8% of consumers are optimistic about the development of new energy vehicles.
However, the "new four modernizations" also put forward higher requirements for the automobile industry. Relative to the entire automobile industry, new energy vehicles are still in the growth and accumulation stage. There are many problems in technology and management, such as insufficient core technology innovation capabilities, imperfect quality management system, backward charging infrastructure and imperfect industrial ecology. These have become the main factors restricting the development of new energy vehicles.
Specifically, in terms of electrification, the two research reports of New Travel and Ai Media show that the anxiety of endurance brought about by long-distance travel, imperfect charging infrastructure and long charging time, and the safety of battery use are the most worrying issues for consumers. Battery-related endurance, charging, and safety have become urgent problems to be solved.
From this stage, the batteries needed by automobile manufacturers mainly rely on suppliers such as CATL, and most automakers have not mastered the core battery technology. Although automakers can purchase batteries through suppliers, they still need talents who are familiar with battery technology to conduct supplier docking and technical evaluation. In addition, how to improve the construction of charging infrastructure and dispel consumers' doubts about charging also affects the development of electrification.
Figure 5: Ranking of the Global Computing Power Index by Country
With the in-depth development of autonomous driving, vehicles and the Internet of Things, intelligence and networking are also facing more challenges. Key software and hardware technologies such as 5G, software architecture, operating systems, application stores, cloud platforms, and chips are in the hands of high-tech companies and Internet companies. And the safety and compliance of autonomous vehicle driving require the government and urban transportation departments to formulate a unified policy system and laws and regulations.
The "new four modernizations" not only face technical challenges, but also put forward higher requirements for management and talents.
For traditional automobile manufacturers, whether they can ensure the rational allocation of resources from the strategic design, break the original thinking inertia, and maintain organizational vitality is the key to the success of enterprise transformation. In the final analysis, technology is developed and mastered by people. The "new four modernizations" make the automotive industry need more talents in the fields of software, architecture design, chips, and algorithms than ever before, especially the composite talents who understand both software algorithms and vehicle development. The talent gap has become one of the key challenges in the process of comprehensive restructuring of the automotive industry.
On the whole, in the transformation and upgrading of the "new four modernizations", the connotation and extension of the automobile have undergone tremendous changes, not only to face the internal challenges such as overcoming the original inertia, breaking the original boundary, and adapting to the new production and business model. It is also necessary to solve more macro external problems such as the integration and development of industries and the improvement of charging and power exchange infrastructure construction. The automobile industry itself is difficult to complete independently, and strengthening communication and cooperation between industries and between industries and governments is an effective way to overcome the challenge of the "new four modernizations" of the automobile industry.
Industrial cooperation to promote industrial upgrading
Due to the different understandings and understandings of the future development of the automobile industry, it is difficult to communicate and collaborate between banks. Therefore, independent industrial organizations and institutions are needed to establish an effective platform for free communication to break cognitive biases and form consensus and reach cooperation on the basis of trust. As a global authoritative technical institution, the Society of Automotive Engineers of China plays an important role in promoting exchanges and collaboration between the automotive industry and various ecological parties, and in promoting the technical exchange of the automotive industry at home and abroad.
Deputy Secretary-General, Society of Automotive Engineers of China
Mr. Zhang Xuming
At present, new energy vehicles are still in the exploration period, and industrial policies and technical routes are also moving forward in continuous exploration. In order to achieve efficient collaboration between industries, since 2019, the Society has successfully hosted the "World New Energy Vehicle Conference" for three consecutive years, through the creation of an exchange platform, the automotive, energy, transportation, environmental protection, IT and other key industries and research institutions gathered together, so that between the industry, industry and government policy makers can understand the latest and most cutting-edge automotive technology routes and standards, relevant laws and regulations, industrial planning and direction, etc., and then promote the direction of industrial development. A certain understanding and consensus is reached on the process and path.
The Society of Automotive Engineers of China is not only an important bridge connecting the government, enterprises and markets, but also deeply participates in the formulation of industrial policies and technical standards, and promotes the comprehensive and in-depth integration of new energy vehicles with the Internet, energy, transportation, information and communication industries.
2021 is the first year of China's "double carbon" goal, and it is also a year of rapid growth in the new energy market. Driven by the "double carbon" goal, the pace of transformation and upgrading of the "new four modernizations" of the automobile industry is accelerating, and the market competition will become more intense. The new car-making forces represented by Weilai, Ideal, and Xiaopeng have achieved first-mover advantages in technologies such as automatic driving, and even surpassed traditional manufacturers in the automobile segment. However, under the influence of policies, traditional automakers have also begun to accelerate the layout of new energy vehicles and form a catch-up trend.
For example, the president of SAIC Motor announced the strategic development plan of SAIC New Energy Vehicles at the main forum of the "2021 World New Energy Vehicle Conference": by 2025, SAIC Motor plans to achieve global sales of more than 2.7 million new energy vehicles, accounting for no less than 32% of SAIC's vehicle sales.
On April 3, 2022, BYD Automobile officially announced that it will stop the production of fuel vehicles from March 2022 in accordance with its strategic development needs. This also marks BYD becoming the first car company in the world to officially announce the suspension of fuel vehicles. Under the "double carbon" target, the process of electrification of vehicles will be further accelerated.
Although the short-term supply chain crisis caused by the epidemic in the automotive industry still exists, such as chip shortages, rising raw material prices, and shutdowns in the Shanghai factory. However, in the long run, the development direction of the "new four modernizations" of China's automobile industry has been very clear. The comprehensive market competition between the new car-making forces and traditional automobile manufacturers will reshuffle the automobile industry and reshape the existing competitive landscape. For the automotive industry, strengthening technological innovation, talent training and industrial collaboration is the key to maintaining the overall competitive advantage. Coupled with the Society of Automotive Engineers, a platform for industrial empowerment, exchange and collaboration, China's automotive industry is expected to achieve overtaking in the curve in this change, change from big to strong, and gain a more important position in the global market competition.