Technology companies are shortlisted, driving new forces in car manufacturing

The business of making cars has changed.

Since 2014, making cars has become what entrepreneurs want to do most. Not only have successful entrepreneurs devoted themselves to starting their second and third businesses, but countless "grassroots" teams have also begun to get excited, as if the threshold for making cars has suddenly been reduced to non-existent.

But it turns out that there are indeed barriers to entry in car manufacturing, and this has limited most players. Li Bin, founder and chairman of NIO, once said that an electric car company needs at least 20 billion yuan to achieve mass production. He Xiaopeng, chairman of Xpeng Motors, also lamented: "I used to think that 10 billion yuan was too much when I saw others making cars. Now that I have jumped in, I realize that 20 billion yuan is not enough."

In the end, three first-tier players emerged from the new forces in car manufacturing, but at the same time, it also made people realize how difficult it is for a new company to build a car. People's attitude towards new players gradually became cold, and large companies only tried to invest in companies within the industry many times and layout the automotive industry in a roundabout way.

The situation is changing now. When the automobile industry is undergoing a major transformation, the issue of car manufacturing has been raised again. However, the protagonist has changed from a startup to an Internet technology giant.

Baidu has established a car company called Jidu and appointed Xia Yiping, the former co-founder of Mobike, as the CEO of the new company. Xiaomi was revealed to have decided to build cars, but the official response was rather ambiguous: "Let's wait and see, not yet." Even Apple, the king of the smartphone era, has begun to prepare for car manufacturing. It seems that overnight, car manufacturing has become a standard feature of technology giants, and if this trend continues, more players will enter the car manufacturing market in the future.

Why did this happen? What part of the car do technology companies really care about? These are the questions that Geek Park (ID: geekpark) wants to explore. More importantly, at the beginning of the second decade of the 21st century, everyone seems to be aiming at this time point. What does time mean to them?

The cost of making cars is getting lower and lower

A major change in the environment is that the hardware cost of car manufacturing seems to be getting lower and lower.

The cost mentioned here does not simply refer to the issue of funds. In fact, electric vehicles cost more than fuel vehicles. In the past automobile market, the core components of a fuel vehicle were the engine and powertrain. Li Feng, founding partner of Frees Capital, said that the engine and powertrain accounted for about 15-20% of the cost of a fuel vehicle. In a new energy vehicle, the core components have become batteries, electronic controls and motors, which are the so-called "three electrics", accounting for more than 60% of the cost, of which batteries can account for 40-50% of the cost of the entire vehicle.

"China has achieved relatively good independent innovation in these key technologies that account for the highest cost ratio of new energy vehicles, and has reached the world's advanced level," said Li Feng. Compared with fuel vehicles, after 30 years of efforts, independent innovation in mid-to-high-end fuel engines has not yet reached the best international level. This is why new energy vehicles are considered to be an opportunity for China to "overtake on the curve."

Back to the reason why technology companies entered the car manufacturing industry, in the process of automobile transformation to electrification, the problem that new car manufacturers need to solve is not only money, but also the "game" with parts manufacturers.

A certain auto parts manufacturing factory. The popularity of new car-making forces has driven the development of the electric vehicle industry chain to a certain extent｜Visual China

An insider of a new car-making power once told Geek Park that, compared with traditional car companies, new car-making powers pay more attention to the intelligence of cars, such as human-computer interaction, smart cockpits, etc. Therefore, in order to provide a unique experience, they have higher requirements for parts. However, correspondingly, since new car-making powers have little or no sales in the early stage, the development costs of parts manufacturers are also higher.

For example, the chassis, interior and exterior key parts of electric vehicles need to be redesigned and developed, and the production quantity will not be too high. A parts manufacturer once revealed that in order to control investment risks, they will charge a certain development fee to the new car-making forces to share the risks.

Bosch, one of the world's largest auto parts suppliers, is NIO's most important partner. It also provided great support to NIO in the early stages of its car manufacturing. Bosch Executive Vice President Xu Daquan once said in an interview with Geek Park that it is indeed difficult to make a profit from cooperation with new car manufacturers, especially for customized parts for OEMs. It is difficult to recover the initial investment costs, and at this time, it is necessary to determine whether you are determined to continue cooperating with this company.

After experiencing the "pain" of the past few years, the new forces in car manufacturing have been recognized by the industry, and the supply chain behind them has also been further upgraded. Take Tesla as an example. Tesla produces cars in Shanghai, which has driven the maturity of China's new energy vehicle industry chain to a certain extent. It is understood that the localization rate of Tesla parts produced in the Shanghai factory has reached 100%, and it has only been one year since the Tesla Shanghai factory started operation.

Tesla's parts localization rate has reached 100% | Visual China

"Companies like Tesla are worthy of respect because they have pioneered an era of electrification and truly promoted the popularization of electric vehicles. It is precisely because many hardware technologies and platform technologies have been standardized that the subsequent intelligence has become more reasonable." Xia Yiping, CEO of Baidu Auto Company Jidu, said in an interview with Geek Park that new car-making forces such as Tesla and Weilai have completed the first stage, which is to promote the standardization of the entire upstream and downstream of the industry. "For example, if a player like Baidu enters the market at this time, we will not encounter the problems that Tesla and other companies encountered in the early days."

If new car-making forces such as NIO, Xpeng, and Ideal are regarded as "New Car-making 1.0", the resources they "combine" in the early days result in costs and manufacturing complexity that are significantly higher than those of traditional car companies. Then, as the supply chain gradually matures, the entry of technology companies such as Baidu, Apple, and Xiaomi seems more reasonable, and can even be regarded as "New Car-making 2.0."

The time to build cars is software-defined

Another change in the environment is that car companies have opened their arms to technology companies.

Baidu entered the car manufacturing industry by establishing a joint venture with Geely, and Apple is discussing cooperation with several car manufacturers including Kia... If we count the D1, which was previously designed by Didi Chuxing and launched for the online car-hailing field, it was also manufactured by BYD.

If we simply describe these car companies as "OEMs", it may not be completely accurate, because the model that may be created in the cooperation between car companies and technology companies is full of imagination.

The clear example is the cooperation between Baidu and Geely. Xia Yiping said that Baidu is the actual leader of Jidu, and Geely is a strategic partner and investor. But the important point of choosing Geely is that in the domestic automobile market, Geely may be the first company to provide an open pure electric platform for electric vehicles.

This platform is called "SEA Vast Architecture", and the first model equipped with the SEA platform is Lynk & Co's pure electric model ZERO concept. According to Geely's official statement, this architecture represents "an upgrade from an automobile manufacturer to a smart travel service provider."

Geely SEA Vast Intelligent Evolution Experience Architecture｜Visual China

As the basic architecture of the car, the SEA platform makes the hardware pluggable and the software upgradeable. In the words of an industry insider, it is like a motherboard on which car companies can define vehicles according to their needs, including the electronic system architecture and the opening of the vehicle bus to the vehicle control authority interface.

Geely officially announced that the SEA platform is a product that Geely spent 4 years and invested more than 18 billion yuan to develop. "This is a relatively mature platform that Geely has spent a lot of money to develop, and it truly undertakes electrification and intelligence." A product manager in the automotive industry told Geek Park that generally speaking, car companies will not open up their own platforms, but Geely maintains an open attitude towards the outside world and hopes to promote SEA horizontally to other brands or models.

On the other hand, Geely itself is also seeking to transform towards electric and intelligent vehicles. "From 2015 to now, Geely has been seeking transformation, but past attempts have not been truly successful. Baidu's advantages in intelligent driving and experience in digitalization are what Geely needs to learn." The product manager analyzed that the cooperation between the two parties is based on what they need to complement in the other party. This is also the reason why car companies cannot be simply regarded as OEM factories.

For technology companies, the manpower, financial resources and time required to build a car from scratch are too huge. Take NIO as an example, the development cycle of its first-generation platform was three years. Cooperating with car companies can greatly shorten the car manufacturing process from 4-5 years to 2-3 years, which is attractive enough from a time perspective.

Software accounts for an increasing proportion in cars｜Visual China

Yes, in the final analysis, time is a very important reason for technology companies to enter the car manufacturing industry. The gradual maturity of the supply chain and the openness of the underlying platform have further reduced the hardware and time costs of car manufacturing. Correspondingly, the proportion of software has further increased, which is the so-called "software-defined car".

Technology companies whose main business is software have seen great opportunities in this.

Time window brought by business model

After seeing the opportunity, where does the sense of urgency come from for technology companies to build cars?

"LatePost" mentioned in its report on Xiaomi's car manufacturing that in the third quarter of 2019, Xiaomi's decision-makers mentioned car manufacturing again at the board meeting, saying that the end of 2019 to the beginning of 2020 would be the time for Xiaomi to enter the car manufacturing market.

It can be guessed that the judgment of the future has allowed technology companies to see great possibilities, and the opening of the window period is a key factor in the demise of many technology companies.

First of all, there is the huge market for automobiles. After mobile phones, automobiles are likely to be the market with the largest volume and changes, and also the most potential. After the mobile phone market reached its ceiling, the dividends of the automobile industry have just begun, attracting many technology companies including mobile phone manufacturers.

Secondly, after "software-defined cars" became a consensus among people, the imagination brought by software became more eye-catching.

Paying for car software is likely to become a "necessity" in the future | NIO

Geek Park has introduced a business model based on autonomous driving, and Tesla CEO Elon Musk also confirmed this statement in a recent interview. He said that Tesla will launch a subscription service for autonomous driving (FSD) in the second quarter of 2021.

In addition, the NAD (NIO Autonomous Driving) system released by NIO together with the ET7 adopts a service subscription model on the standard hardware, with a monthly service fee of 680 yuan; coupled with the 9.9 yuan advanced in-car entertainment service package launched by Tesla, the software payment model built on the hardware foundation has already taken shape.

It is not difficult to imagine that, similar to smartphones, paid subscriptions for car software can become a large part of the profit source for future car companies. This is a fundamental change from the "one-time deal" of car sales in the past.

Imagine if we enter the era of paid subscription for autonomous driving, excluding hardware and some labor costs, the marginal cost of software subscription is very low, and the corresponding car companies can achieve a very high profit margin on software. An industry insider has done the math. According to Tesla's investment in FSD over the past three years, if the subscription rate of Tesla's FSD software is 50%, the net profit of a car can reach 20,000 yuan; if Tesla sells 1 million cars a year, the profit on autonomous driving software is 20 billion yuan.

There is huge room for imagination in the future of autonomous driving｜Visual China

According to this standard, Tesla alone can achieve a market value of tens of billions, and there is still more room for negotiation, because the bargaining power of the autonomous driving software package is completely in the hands of the car company. As sales grow, the vehicles will obtain more and more data, and the experience will be better and better, which means that more people are willing to pay for the product experience. Just like Internet products, the snowball will get bigger and bigger.

With the window period already open, technology companies should have seen the potential achievements of software in future cars and the considerable profit margins that can be generated. The fact that some companies have started to take action may be one of the reasons why technology companies decided to enter the market. If they don’t catch up, the opportunities in the future will become smaller and smaller.

Regardless of the outcome, "New Car Manufacturing 2.0" may have officially begun at this moment.