Zhu Huarong: "Lack of cores and expensive electricity" - the "most painful point" faced by the current automobile industry

From November 8th to 10th, 2022 , the 12th China Automobile Forum hosted by the China Association of Automobile Manufacturers was held in Jiading, Shanghai . Zhu Huarong, Chairman of Chongqing Changan Automobile Co., Ltd., delivered a keynote speech. From the current situation of the company, Zhu Huarong will talk about some of the difficulties currently encountered by the company, as well as suggestions for the development of the automobile industry , for everyone to discuss together.

1. Chinese brands have the best opportunity to change lanes and overtake

Faced with complex and severe situations such as repeated epidemics, high temperature power rationing, and "shortage of cores and expensive electricity", with the joint efforts of all sectors of the industry, China's automobile industry has grown resiliently despite the wind and waves, and has generally operated smoothly and achieved healthy development. Against the background of the decline of the global automobile market, the Chinese automobile market is still able to achieve year-on-year growth this year , and is expected to achieve year-on-year growth of 2.8% . The automobile industry is still a "stabilizer" of labor employment, an important force in stimulating domestic demand and an important pillar of the national economy , and it has become more prominent.

In particular, our Chinese brand has achieved good development momentum with the help of Dongfeng, which is developing rapidly with new energy and intelligence, and has also ushered in the best opportunity to change lanes and overtake . In terms of products, services, brands, etc., the competitiveness of Chinese brands has also been greatly improved. All are improving rapidly . I personally think that there will never be another opportunity like this in the next 20 to 30 years. Specifically, from the perspective of market share, from January to September this year , the market share of Chinese brand new energy passenger vehicles hit a record high, driving the overall market share of Chinese brands to increase to 44.5% . From the perspective of product premiums, this is a very painful problem for the Chinese automobile industry or automobile brands .

It turns out that there is a 40% to 50% price difference between our premiums and joint venture brands in the traditional field . In the new round of competition , with the support of new energy and intelligence , the price difference has quickly narrowed to 20% or 10% , and some premiums have even exceeded It turns out that this is a very remarkable progress for a joint venture brand. From the perspective of brand power, Chinese brands have become an important choice for new energy vehicle consumers. More and more young users are beginning to trust and choose Chinese brands , and the proportion of choices has reached a historic high. Judging from the survey, some models have exceeded 50% .

2. Pain points faced by China’s automobile industry

Of course , while we are seizing new tracks, building new development models , and achieving results, we must also be clearly aware that China's intelligent new energy vehicle industry still faces many pain points in the process of moving from early adopters of technology to mass popularization. Today we focus on Let’s talk about it from two points : lack of cores and expensive electricity .

One is "lack of core".

"Core shortage" has caused chip prices to soar, which directly leads to an increase in the procurement costs of OEMs. In the early stages of new product launches, chip shortages have lengthened the order delivery cycle, seriously affecting the pace and sales of new products , as well as corporate brand image . At the same time, the production order of the entire industry was severely disrupted. Semi-finished products form a large inventory , which was originally the best in the automotive industry, but now it has become a situation that exists in almost every enterprise . In parking lots near car company factories , in order to compete for production capacity, many new cars are installed first . If parts are missing , they will be replenished when the parts arrive . This situation of uncontrollable supply has brought about abnormal phenomena in many industries.

The second is "expensive electricity" .

The price of power batteries continues to rise, which makes vehicle companies miserable . It accounts for more than 40% of the cost of the vehicle , and more than 50% for small vehicle companies . It seriously affects the achievement of product benefits and has a great impact on corporate costs . The increase in battery costs is much greater than The value that technological progress brings to users. It is reported that battery-grade lithium carbonate has soared from 53,000 yuan / ton in early 2021 to 560,000 yuan / ton today , an increase of up to 10 times. This has also led to an increase in the cost of Changan Automobile 's different models of bicycles by approximately 5,000 to 35,000 yuan , which are all researched and digested by the company itself.

The above problems are the "most painful points" faced by the current automobile industry , and all major automobile companies are suffering from them, with varying degrees of volume losses and delivery delays.

Unfair distribution of benefits and increased costs in the industrial chain seriously threaten the healthy and sustainable development of the automobile industry, especially the new energy vehicles and intelligent connected automobile industries.

Take Changan Automobile as an example. From January to September this year , Changan Automobile has lost 606,000 vehicles due to the "shortage of cores and expensive electricity" and power rationing due to the epidemic .

In particular, the series of intelligent and electrified products we launched this year, such as Avita 11 , Deep Blue 03 , and UNI-V , which are loved by users, have also been seriously affected. I would like to take this opportunity to apologize to all users. I am very sorry to everyone and thank you for your understanding. Changan Automobile is carrying out "Decisive Battle in the Fourth Quarter to Ensure Delivery" and will do its best to deliver vehicles to our users as soon as possible.

3. The underlying reasons for “lack of cores and expensive electricity”

Regarding the deep-seated reasons for "shortage of cores and expensive electricity", based on the research and understanding of domestic and international chip companies and electronics companies , I would like to share some views of Changan Automobile for your reference .

Why is there such a shortage of chips?

First, key technologies are controlled by others . In fact, the investment independence of chips in China is not strong. At present, it mainly relies on the layout of these large international companies in China, and this layout is very limited. Domestic companies want to invest, but they are restricted and affected by problems such as photolithography machines and design software . In addition, high-end chips and automotive-grade chips are very demanding, which also brings its own cost and reliability challenges.

The second is the contradiction between the short-term explosion of chip market demand and the long cycle of increasing chip production . With the development of new technologies such as smart electric vehicles, virtual reality, and the Yuanverse, the demand for chips has grown rapidly, and market orders are generally more than twice the production capacity . It used to be that if a car had five to six hundred chips compared to a fuel car, now there are 1,500 or even 2,000 chips in a car, so it has increased by 3 times or even 4 times, and will increase in the future, and car-grade chips have high Quality, high safety, high certification requirements, and the expansion cycle is also very long. At the same time, I also learned that due to different requirements , existing production capacity cannot be converted into car-sized chip production capacity . Moreover, in this industry , the investment is large and the risks are high, so chip companies have no more willingness and enthusiasm.

Third, structural shortages are becoming the norm . Customized chips or individual chips with low usage and few customers have a single channel and squeezed production capacity, resulting in structural shortages . In addition to these, I think one of the most critical problems is that while the entire industry structure is changing, the automotive industry and the chip industry lack direct communication and planning.

Fourth, because vehicle companies and chip companies have not established a risk-sharing partnership , there is no sense of trust between supply and demand, and investment risks are high, so chip companies are not resolute in investing.

Why are batteries so expensive?

One is the increase in raw material prices . Rapidly increasing demand has caused raw material prices to skyrocket, and the industrial chain is inherently unevenly distributed in terms of benefits. Coupled with human factors such as vicious speculation from various sources of capital, some sellers are reluctant to sell, buyers are hoarding goods, and middlemen are hoarding goods, causing battery prices to soar.

Second, due to technical routes and technical barriers, the battery industry has poor standardization and prototyping. Each battery manufacturer and vehicle manufacturer has different model standards. From the material system point of view, there are mainly ternary lithium and lithium iron phosphate; from the appearance point of view, there are square batteries, cylindrical batteries, and soft pack batteries. There are many and non-standard types of various battery cells, making it difficult to fully release power battery production capacity and develop on a large scale. The status of the battery pack is complex.

Third, people who are in urgent need of treatment seek medical treatment and their industrial investment is abnormal. "Everyone makes batteries" will eventually lead to increased costs, development waste, and quality risks. Is this industry best practice? Awaiting further observation.

4. Suggestions on “Lack of Cores and Expensive Electricity”

To this end, I make the following suggestions for your reference.

For the "missing core" problem:

I think the country, the automotive industry, the semiconductor industry and enterprises should work together to strengthen top-level design, system deployment, division of labor and cooperation to achieve rapid breakthroughs.

At the national level, national ministries and commissions take the lead to formulate protection plans under extreme risks for high-tech fields in the industrial chain such as chips; policies are introduced to actively promote the localization of core component technologies. At the industry level, accelerate the process of automotive chip unification and generalization; jointly promote supply chain transparency, establish new supply relationships with chip manufacturers and Tier1 , and jointly build a good chip supply ecosystem. Build a direct cooperation model between chip companies and the automotive industry. At the corporate level, we adhere to the principle of "grasping with both hands and being strong with both hands" and strengthen open cooperation with international and domestic chip manufacturers; strengthen self-research and improve supply security capabilities.

Regarding the "expensive electricity" problem:

I suggest that the automobile industry, with the support of national ministries and commissions, launch an anti- profiteering operation in accordance with the law to save the healthy and sustainable development of new energy vehicles. Because I think it has threatened the healthy and sustainable development of new energy vehicles. Therefore, at the national level, I suggest that we should resolutely crack down on the hoarding and speculation of raw materials by individual companies at home and abroad, and rectify the chaos in the battery industry. At the national level, we must resolutely crack down on the hoarding and speculation of raw materials by individual companies and rectify the chaos in the battery industry. At the industry level, promote the recycling of used power batteries and key metal resources, and improve the power battery recycling management system. At the enterprise level, we are promoting a series of "stuck" core technologies such as new energy electronic control systems, integrated electric drives, and solid-state batteries . Establish standardization and modularization of battery cells and battery packs to improve generalization, reduce costs, and improve efficiency.

5. Changan Automobile’s strategic planning

Changan Automobile will unswervingly build a Chinese brand and has been deeply involved in the field of independent brands . At present, more than 70% of Changan Automobile's sales are from its own brands, and more than 70% of its profits are from its own brands. The independent brands have become the pillar of profits, which we think is a basis for its sustainable development.

Changan Automobile has always resolutely implemented the national "dual carbon" strategy and is committed to bringing users a wonderful green and smart travel experience. To this end, we continue to pursue and explore, firmly implement the "Third Entrepreneurship - Innovation and Entrepreneurship", take the new energy "Shangri-La" plan and the intelligent "Beidou Tianshu" plan as the main line, and accelerate our transformation into an intelligent and low-carbon travel technology company. Transformation and achieved a series of staged progress.

In terms of new brand building, we have joined forces with Huawei and CATL to create a global high-end emotional intelligence brand - Avita . It was unimaginable before. Now the bicycle is priced at more than 400,000 yuan , and the limited edition is 600,000 yuan. It was originally planned to be promoted in 5 factories. , as a result, all the products promoted by the first factory were sold out, which shows that our Chinese people’s love for new brands and new technologies is very gratifying.

At the same time , we also released a new digital pure electric brand - Changan Deep Blue; released Changan Automobile's new smart brand - "Zhuge Smart", etc.

In the field of new technologies, we continue to increase investment in R&D, including adjusting the talent structure, and now have a R&D team of nearly 5,000 people in the fields of intelligence, new energy, and software . At the same time, we accelerated the creation of new platforms. We created CHN, the world's leading, autonomous and controllable intelligent electric connected vehicle platform ; we created the world's first all-electric EPA platform and intelligent intelligent vehicle platform covering pure electric, extended range, hydrogen fuel and other multi-power configurations. Electric super digital platform architecture - SDA platform.

In the future, Changan Automobile will continue to firmly build "new cars + new ecology", fully promote the third entrepreneurship, and transform into an intelligent and low-carbon travel technology company. By 2030 , we will achieve sales of 4.5 million Changan brand intelligent connected cars , strive to become a world-class automobile brand, help build a modern industrial system, promote the high-end, intelligent, and green development of China's manufacturing industry, and strive to achieve the goal of "car "Dream of a Strong Country" contributes to Chang'an!