The automotive industry is starting a knockout game, and new and old forces are looking for a way out Looking back on 2023 (3)

Interface News Reporter | Zhou Shuqi

Interface News Editor | Zhao Baiyuan

Almost all car companies in the Chinese market have reached a consensus that the elimination of the automotive industry will be decided around 2025. But what they didn't expect was that the competition in the first year of this knockout round would be so deep and wide-ranging.

The auto industry in 2023 kicked off with an unprecedented price war, and also fired the starting gun for the industry's knockout game. The decades-old rules of car manufacturing in the automotive industry are being reversed, and the system experience that was once emulated is failing. Whether it is an established force that is deeply involved in the industry, or an emerging company that is about to step into the automotive field, they are all pulled to the same running line to seek a way out.

In the past year, price reduction has been the main theme of the auto market. When the overall size of the market has peaked, and the top strong brands do not hesitate to trade profits for market share, all players are forced to follow up.

In January, Tesla lowered the prices of all Model 3 and Model Y products, changing the lowest price record in product history, and in February, BYD launched the Qin PLUS DM-i Champion Edition, with a starting price of less than 100,000 yuan, directly entering the price hinterland of A-class fuel vehicles with the slogan of "oil and electricity parity".

These two also represent two price methods commonly adopted by auto companies this year, directly reducing the terminal price or involuting the pricing of new cars. Some automotive companies may have to take both approaches. For example, the price of the first model, the Jiyue 01, was reduced by 30,000 yuan in only one month after delivery, which would hardly happen in the traditional fuel vehicle period.

Under the dual impact of the price shock of new energy vehicles and the switch of the China VIB policy, the price war of fuel vehicles has also been fierce. In March, the Hubei Provincial Government launched a limited-time promotion policy, and some models can be reduced by 90,000 yuan after superimposed corporate discounts. This has also become the fuse for the price reduction of joint venture brands, and nearly 40 auto brands have followed up one after another. Even luxury brands have not been able to maintain their premium ability, and some BMW models have dropped by as much as 250,000 yuan.

Market share becomes the number one priority for automotive companies. Yang Siyao, general manager of SAIC Audi's marketing business, told Jiemian News that the price reduction promotion is harmful to the brand, but this year's price reduction is not ashamed, and the most feared thing is that there is no sales after the price reduction.

Fang Yinliang, global managing partner of McKinsey & Company, pointed out in an interview with Jiemian News that auto companies usually determine high market estimates for their pre-planned products, and need sales volume to support the decline of the cost curve and return on investment, so they need aggressive market measures to ensure that they do not deviate too much from the expected target. At the same time, there is a diminishing marginal cost of automotive software, and its benefits need to be released at a certain scale.

For the past 30 years, China has been a successful example of the global auto giants trading technology for the market, but that story was rewritten this year. In July this year, Volkswagen made a strategic investment in a 4.99% stake in Xpeng Motors, which is the first time that a multinational car company has officially invested in a Chinese start-up car company. According to the disclosure, this is still a technology-for-market deal, but this time the roles of both parties have shifted.

Another partnership between the new forces and multinational giants occurred in October this year, when Stellantis Group invested about 1.5 billion euros in Leapmotor to acquire about 20% of Leapmotor. Leapmotor will also use Stellantis' European channels to introduce several models labeled Leapmotor to the European market by 2025.

Chinese auto companies have already exported China's electric vehicle technology through "technology export" and "reverse joint venture". Whether it is the technical cooperation framework between Xpeng Motors and Volkswagen, or the joint establishment of an overseas joint venture between Leapmotor and Stellantis, it means that the intelligent electrification technology of Chinese automobile companies has been recognized by the world's leading automobile companies, and it is expected to gain the right to speak in overseas markets.

This is also a shift in the trend of the automotive industry from financial investment to strategic investment. When the equity investment and financing market is sluggish, cooperation within the automobile industry chain is also becoming a trend. In particular, in terms of infrastructure construction such as charging and battery swapping, NIO has reached a battery swap alliance with Geely and Changan, and car companies such as Volvo and Jaguar Land Rover have established charging alliances.

Intelligence has replaced electrification and is becoming the core competitive focus of automobile companies. In the middle of this year, leading new power companies have successively released urban assisted driving functions. Compared with the previous urban intelligent driving that relied on high-definition maps, the algorithm based on the BEV+Transform architecture helps automobile companies use the vehicle's own perception ability to improve the speed of opening the city and reduce costs.

A number of brands such as Wenjie, Ideal, Xpeng, and Zhiji are racing on the coverage of urban assisted driving. From Xpeng Motors' 50 cities to open by the end of this year, to Li Auto's 100 cities, and then to the nationwide urban coverage, car brands use intuitive digital marketing to influence users' minds. The AEB public opinion war between He Xiaopeng and Yu Chengdong is also a battle between Xiaopeng Motors and Huawei for the seat of the domestic head intelligent driving.

On the one hand, it is difficult to strengthen cooperation with suppliers such as Horizon, and on the other hand, adjust the internal intelligent driving business structure, and vigorously attract talents to strengthen the self-research of intelligent driving. Li Auto has also promoted "intelligent driving leadership" as its core strategic goal, and at the same time introduced external suppliers such as Qingzhou Zhihang to accelerate the speed.

In line with the stage of transformation and development and the launch of product sequences, new and old forces have begun to change their sales channels. Geely Galaxy and Haval Thunder have established new independent channels, which are different from the traditional fuel vehicle dealer system; in March, BMW MINI officially switched to an agency system in the domestic market, and dealers are only responsible for the delivery of new vehicles; Xpeng Motors launched the "Jupiter Plan", the core measure is to gradually replace the past direct sales model with the dealer model.

The dealer model can help auto brands quickly expand their networks and reduce costs, and the direct sales model can maintain the terminal service level and price system, but in the end, which model to choose, manufacturers need to establish their own sales capabilities. Li Bin, CEO of NIO, publicly stated that the biggest lesson of NIO this year is that the lag in sales capacity building has led to a large loss of intended orders.

When the pressure of external competition intensified and sales growth became bottlenecked, auto brands began to improve internal efficiency. After a year of in-depth organizational changes, Xpeng Motors introduced Wang Fengying, the former general manager of Great Wall Motors, to the position of president. Her arrival helped Xpeng Motors integrate marketing channels and fight a "turnaround battle" on Xpeng G6.

NIO has made rare layoffs, merging redundant departments and positions, and changing inefficient internal work processes and division of labor. At the same time, it postponed and reduced the investment in projects that could not improve the company's financial performance for three years. In the past, NIO's widely criticized distraction problem has been solved to a certain extent, and business focus has become the most talked about keyword for the company.

There are also some companies that have suffered difficulties this year and fell on the eve of the finals. WM, which failed to hit the IPO success, eventually filed for bankruptcy, Aiways, which owed its employees several months in arrears, has all but come to a standstill, and the Mitsubishi brand withdrew from the Chinese market in October. Evergrande Automobile, Tianji Automobile, Reading Automobile and other companies are already on the edge of the industry.

After two new energy car-making campaigns promoted by policy and capital, cross-border technology companies represented by Xiaomi and Huawei may enter the game for the third time.

The giants in the field of consumer electronics naturally have stronger brand influence, strong financial strength and user-centric ecological interconnection, which has attracted great attention when they first entered the market.

Fang Yinliang told Jiemian News that the entry of technology companies will not only rebuild the business model of the automotive industry, but also reconstruct the distribution of the profit pool of the automotive industry chain - who has the right to speak in software intelligence will dominate the industry.

This year, Huawei's in-depth cooperation with automobile companies has transformed into the HarmonyOS Intelligent Mobility Alliance, which includes models cooperated by Huawei with four manufacturers: Cialis, Chery, JAC, and BAIC. The M7 is currently the most successful model, with more than 90,000 units in less than two months on the market, promoting the "resurrection" of Huawei's automotive business.

Huawei's car BU system has also undergone major changes. In November this year, Huawei announced that it would establish a joint venture to achieve market-oriented independence of car BUs in disguise. Huawei will also release part of its equity to introduce other partners except Changan Automobile.

CITIC Securities said that this cooperation is a milestone event in the domestic smart electric vehicle industry, and the development of the new company will be the biggest variable in the industry in the next three years.

Xiaomi may be the only popular car company that can compete with Huawei at the moment. From the official announcement of the warm-up to the official announcement of the Ministry of Industry and Information Technology, Xiaomi's every move has attracted attention from the outside world. As of press time, the only key information to be released about Xiaomi Auto is the price. Perhaps Xiaomi did not expect that the ultra-low price of 199,000 yuan, which could be called absurd a year ago, will no longer be able to surprise consumers at the end of this year.

Joint venture brands have suffered a greater impact, having lost pricing power and brand effect in the Chinese market, and this trend is difficult to reverse. Its huge market share and excess profits in the era of fuel vehicles are being rapidly eroded by the new energy wave, and China's own brands have surpassed joint venture brands in market share.

According to data from the China Association of Automobile Manufacturers, in the past three years, as the penetration rate of new energy passenger vehicles in China has increased rapidly from 5% to 40.4%, the overall market share of joint venture automobile companies has fallen by two percent, to less than 40%. Among them, BYD has surpassed Volkswagen in the north and south this year, ranking first in domestic passenger car sales.

When the model life cycle weakens and it is difficult to quickly launch an iterative model matrix that meets consumer needs, the joint venture brand will fall into a decline in volume and price. The CITIC Securities Research Report believes that the joint venture brand will gradually reduce its share along the order of "second-line joint venture-first-line Japanese", and is even likely to withdraw from the Chinese market.

In response to the transition crisis, multinational automobile companies such as Ford, Stellantis, and Kia are turning their joint venture factories in China into export bases, relying on China's complete industrial chain to digest redundant fuel vehicle production capacity; Dongfeng Honda and Dongfeng Nissan have launched joint venture independent brands, handing over the dominance of new energy vehicle products to the Chinese side, trying to get rid of the shackles of the original brand genes and meet the new needs of Chinese consumers.

Looking at the international market, Chinese car brands are gaining global attention. During the Shanghai Motor Show in April, executives from nearly all multinational auto brands visited China, where they realized the extent of their failures in China and how long it would take to get back to racing, while the Munich Motor Show in September brought Chinese auto brands deep into the heart of Europe, announcing that the auto industry is facing strong rivals.

In the first half of this year, China has successfully overtaken Japan to become the world's largest exporter of automobiles. According to the analysis, China's automobile exports will exceed 5 million units in 2023. The path of Chinese auto companies going overseas is changing, from the whole vehicle to the overseas production capacity layout. SAIC Motor and BYD are already planning to build vehicle plants in Europe and Thailand.

However, the situation of cars going overseas is also more complicated. Geopolitical uncertainties also cast a shadow over auto exports from the European Union's announcement of a countervailing investigation into Chinese electric vehicles in September and the U.S. government's consideration of tariffs on Chinese electric vehicles in December.

Whether it is brand building, local market compliance, product development for the target market, or overseas supply chain and talent system construction, it will be the problem that Chinese independent brands will solve when they develop overseas. When the export volume of Chinese enterprises reaches a certain scale, these problems are overcome, and a real Chinese multinational automobile giant may be born.