BYD's sales have skyrocketed, and new car manufacturers have collectively failed. What do car companies need to "survive"?

Latest update time：2022-05-06 12:24

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In this ever-changing industry, what is "good" and what is "bad".

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Author | Ding Yi

Editor | Wu Wenliang

A major reshuffle in the automotive industry that focuses on the survival of the fittest is taking place.

From the flourishing of all brands in 2015 to the withdrawal of many brands from the market in recent years, China's new energy vehicle market has evolved rapidly in just a few years, and this situation may be further exacerbated in the next few years.

Recently, the April car sales of domestic new energy vehicle companies were released. BYD's sales increased by 313% year-on-year to 106,000 vehicles, and its sales exceeded 100,000 for two consecutive months. However, the sales of new car companies declined to varying degrees, and none of them exceeded 10,000. As for the reason for the decline in delivery volume, many new car companies attributed it to the tight supply chain.

This may be an accidental incident under the influence of the epidemic, but it reflects the fragility of new car companies. Under the influence of the epidemic with an uncertain outbreak time, no one can guarantee that the same situation will not happen again. Once it happens again, it may once again set back most car companies.

Supply chain tightness is only one of the factors that affect car manufacturing progress and car sales. He Xiaopeng, CEO of Xpeng Motors, once predicted that there will only be 2-3 new car companies that will be truly influential in the future.

Survival of the fittest is a manifestation of industry progress, but the industry has no clear standard answer to what is "good" and what is "bad".

How do new car companies cope with the challenges of the ever-changing industry landscape? What kind of companies will survive in the end? And how should the supply chain change as the number of OEMs decreases?

Differentiation, the eternal core competitiveness

A few years ago, Qoros, a subsidiary of Baoneng, asked: Do we still need a new car brand? On its official website, it answered: "The world does not need another new car company, it only needs a different car company."

Although Qoros' ending is not too good - its two car manufacturing investment projects in Kunming were removed by the Yunnan Provincial Development and Reform Commission because they were overdue for two years, but it is certain that for any car company, pursuing uniqueness and creating differentiated products has become one of the common goals.

Wuling Hongguang MINI EV was once popular in the market for its extremely low price and functions that meet the needs of urban transportation, and defeated Tesla to become the global electric vehicle sales champion. This also proves to a certain extent that finding a blank market and launching distinctive products in a highly competitive industry can indeed bring more sales and market attention to a car company.

However, after many car companies took a fancy to this market and launched a variety of models with similar positioning to Wuling Hongguang MINI EV, the sales of Wuling Hongguang MINI EV declined. Data released by the China Passenger Car Association showed that in January 2022, the sales of Wuling Hongguang MINI EV fell by 52% year-on-year.

The pursuit of differentiation may help automakers run faster than their competitors in the race, but in the absence of sufficient endurance, once competitors launch similar products, the gap between the two sides will be narrowed.

What might be the endurance that enables a car company to run faster and farther?

Nezha Auto told New Intelligent Driving that it believes that a car company must have three elements: core competitiveness, product definition capabilities, user operations and digital capabilities. Among them, Nezha Auto interprets core competitiveness as products, user experience and user services that are truly recognized by the market. An investor who focuses on the new energy vehicle market also expressed a similar view to New Intelligent Driving.

Looking at the reality, most of the new car-making forces have now attached different labels and use this as one of their selling points to continue to attract potential users.

For example, NIO's battery swap service is its distinctive feature and has won the support of many users. However, even earlier, Better Place, the world's first company to provide battery swap services, went bankrupt after operating in many countries. Ideal Auto, on the other hand, has insight into the pain points of some groups and entered the new energy vehicle market with the extended-range route.

However, the recurrence of epidemics in many places, the rise in raw material prices, and changes in the consumer environment have, to a certain extent, caused the fluctuations in the delivery volume of new car products. But Nezha Automobile believes that this is a normal phenomenon. In the context of production capacity determining the market, the sales and delivery rankings of car companies are full of randomness.

"Only when the policy advantages of new energy subsidies, purchase taxes, license plates, etc. disappear can we more directly reflect which car companies are better or worse in the new energy vehicle market."

Volkswagen Wenwen CEO Zhang Renjie gave the answer from the supplier's perspective.

Zhang Renjie believes that it is very important for OEMs to build an ecological intelligence platform, which is likely to help automakers occupy a monopoly position in the industry. In his eyes, ecological intelligence not only includes cars, but also mobile phones. Taking Douyin as an example, a sustainable ecological intelligence allows users to produce and consume content, and also allows third parties to use content marketing to achieve mutual benefit for all parties.

However, Zhang Renjie also pointed out that it is currently difficult to achieve this, and that OEMs need to truly change their existing thinking and design software or hardware from the perspective of user needs.

The number of automakers is decreasing, and suppliers are accelerating their internal competition

After communicating with many OEMs, Xinzhijia found that it has almost become a consensus that most car brands will disappear in the future. This in turn involves the fate of suppliers who are mutually beneficial to the OEMs.

Zhang Renjie told Xin Zhijia that in the future, both the OEMs and the supply chain will form an industry monopoly, with 2-3 companies dividing up most of the market share.

As the number of OEMs decreases, suppliers will have fewer opportunities to get orders from OEMs. Therefore, in the process of automobile manufacturing, OEMs may have much more initiative than they do now.

In the process of cooperation between OEMs and suppliers, paying acceptance bills is an unwritten industry rule. In the past and now, this credit-based settlement method has accompanied the development of China's automobile industry.

Usually, the payment cycle of the OEM is "1+3+6": "1" means that the OEM will issue an acceptance bill at the end of the month when it starts cooperating with the parts supplier. Three months after the acceptance bill is issued, the OEM will pay the supplier, and the payment received by the supplier is usually a six-month acceptance bill.

For OEMs, transactions with acceptance bills can reduce capital costs to purchase more parts, and for suppliers, it can increase product sales and speed up capital turnover. This is an ideal state that is beneficial to both parties, but when OEMs fall into a survival crisis in the future, the cornerstone supporting this state - credit - may disappear, and the possibility of defaulting on payments to suppliers will also increase.

During the downturn of the domestic automobile industry in 2019, many new car companies were on the verge of bankruptcy. Industry insiders at the time estimated that at least hundreds of automobile brands were at risk of defaulting on payments to suppliers.

In China's automobile manufacturing process, OEMs usually play a dominant role. In order to enter the cooperation list of large OEMs, most suppliers must endure price cuts, heavy penalties and overdue payments from OEMs.

Many suppliers have gone bankrupt or had their normal operations affected because the OEMs have been in arrears with payments for half a year or even more than a year.

Many industry reports in recent years show that the average profit margin of auto suppliers is around 6%. When the number of automakers decreases, the oversupply buyer's market may accelerate the collective involution of suppliers, further compressing their living space.

Xin Zhijia learned that the survival conditions of some suppliers are becoming increasingly severe. An international Tier 1 has not received any domestic market orders in the past two years . If this situation continues, they may face the risk of withdrawing from the Chinese market.

Zhang Renjie believes that software suppliers can only avoid being eliminated by the market if they expand product application areas and increase the number of products that can be purchased by OEMs. Following this logic, Volkswagen Wenwen is currently transforming and upgrading its business and exploring new business directions.

The inevitable market outcome

In recent years, many companies from different fields have participated in car manufacturing. They all have a common feature - spending a lot of money, attracting talents from all sides, and joining forces to try to divide up the vast new energy vehicle market.

We cannot predict the fate of new car companies in this era, but today's booming car-making scene easily reminds people of a car-making period 20 years ago that was very similar to the current situation.

In 2000, the Fifth Plenary Session of the 15th Central Committee formally adopted the "Proposal of the Central Committee of the Communist Party of China on Formulating the Tenth Five-Year Plan for National Economic and Social Development", which clearly encouraged cars to enter families and vigorously develop the public transportation industry.

At that time, most Chinese auto companies were state-owned, and the policy of relaxing car manufacturing conditions prompted a large number of companies to enter the auto industry. At the same time, this may be the first time that the Chinese auto market has entered a cross-border car manufacturing period.

In the era when traditional enterprises such as tobacco, alcohol, and electrical appliances were in power, traditional physical enterprises were one of the frontline car-making forces: Yunnan Hongta Group in the tobacco industry, Wuliangye Group in the liquor industry, and Bird Group in the mobile phone industry all made cars through acquisitions or cooperation with automobile companies. Among them, home appliance companies, like today's Internet companies, accounted for half of the total number of cross-border car-making companies.

Home appliance companies such as Midea, AUX, Xiaxin, Xinfei, Glencore, and Xiaoya have all announced plans to build cars, investing hundreds of millions of yuan to acquire car companies in order to obtain qualifications to produce passenger cars. Midea has even acquired a number of car companies and built its own car factories in many places across the country.

In stark contrast to the glory when they announced their plans to build cars, within a few years, most of the cross-border car-making companies had to stop investing and stop losses and stop producing cars due to poor sales due to insufficient control over the production and sales of cars. For example, Aux Auto had more than 120 car dealers and outlets across the country in 2004, but the total number of cars sold throughout the year was only more than 2,000. More than a year after it announced its plans to build cars, Aux Auto had no choice but to delist.

Among the cross-border enterprises, only Xinfei's automotive business has grown and survived to this day, and its product types have expanded from refrigerated trucks related to its main refrigeration business to insulated trucks, vaccine transport trucks, RVs, etc.

It is worth noting that during that period, automobile companies such as Geely and BYD also successfully emerged.

Although the past time span is 20 years, the market environment, car manufacturers, and product types are all different, and we cannot fully judge the development trend of China's new energy vehicle market based on this. However, both periods were in a macro environment with huge market demand, encouraging government policies, and relaxed car manufacturing conditions, which has certain reference significance.

As many industry insiders have predicted, there will be fewer auto brands in the future. Zhu Huarong recently said, "This is not a judgment but a rule. The world does not need so many brands."

According to statistics, there were more than 60 new car-making forces in China in 2018. However, most of them have disappeared into the dust of history because they have been unable to launch mass-produced cars for a long time or their products have not been recognized by the market after release. Currently, there are less than 10 new car-making forces still active. With the decline of subsidies for new energy vehicles and intensified market competition, more new energy vehicle brands may be eliminated.

The development trend of China's automobile industry today is like the American automobile market that was once on accelerator.

In 1890, fuel-powered cars flourished in the United States as a new type of transportation. According to statistics, in 1900, there were at least 1,900 car brands in the United States with a permanent population of 75 million. But 40 years later, 94% of the car sales in the United States were divided up by three car companies, General Motors, Ford, and Chrysler, and a large number of car brands went bankrupt or were merged by car giants.

The above real cases from ancient and modern times, both at home and abroad, all point to the same point - the world does not need a lot of car brands, especially in the face of the uncertainty brought about by the repeated epidemics.

The other side of innovation: extinction

Wang Chuanfu, chairman of BYD Group, once summarized at the Sequoia Technology Summit that electric vehicles are the first half and smart cars are the second half.

These are two characteristics of the transformation of the automotive industry, and they are also two exams that all OEMs need to pass. The biggest difference between the two exams is that the former sets clear passing standards for all candidates, while the latter allows candidates to find the answers on their own.

In the test of electrification, a large number of auto brands have withdrawn from the historical stage due to their slow pace of electrification transformation, while new independent auto brands have seized the opportunity to go global. In the test of intelligence, which has no standard answers, all OEMs are moving forward by trial and error.

OEMs and suppliers have different answers to questions such as what is intelligence, why it is defined in this way, and how to achieve intelligence. This means that the final answer requires OEMs and suppliers to continue to experiment. The cost of experimentation is the consumption of time, the demise of some OEMs and suppliers, and the reshaping of the automotive industry.

Innovation and extinction always appear together.

END