*This article is reproduced from the autocarweekly public account.
Author: Financial Street Lao Li
Endless vitality is a reflection of the progress of the times and a true reflection of an enterprise’s upward struggle.
In the past five years, the reshaping of the automotive industry around the “Four New Developments” has been a topic of widespread discussion. Looking to the future, the automotive industry is facing two “transitions”, the first is the comprehensive realization of new energy for the entire industry and the second is the transformation of enterprises into technology companies.
In recent years, traditional car companies have been slow to implement the “two transitions”, but starting this year, as traditional car companies accelerate their transformation, some relatively progressive car companies have demonstrated a great development potential.
As a typical representative of the rising trend of domestic brands in recent years, Great Wall Motors, with multiple brands and technologies, appeared at the Guangzhou Auto Show, once again declaring its determination to “create a new ecological system of intelligent technology and innovation”. As a company that combines industry and capital, Great Wall Motors’ series of actions have received widespread attention.
Starting from this year, some top-level analysts in the secondary market have given a valuation of “1 trillion yuan” for Great Wall Motors. Building on the information released at the Guangzhou Auto Show, Lao Li will chat with everyone today about why analysts have proposed a trillion-yuan valuation, where the advantages of Great Wall Motors’ technology and model lie, and why the business value of Great Wall Motors can exceed that of new forces.
Technological Evolution Leads the Industry Revolution
The essence of industrial revolution is the result of technological progress, and this round of automotive industry revolution is also driven by technological evolution. In the past decade, advances in energy, communication, transportation, and other fields have driven the electrification, intelligence, and interconnection of the automotive industry.
As the saying goes, “the older generation plants the trees and the younger generation enjoys the shade.” History tells us that it is often new revolutionary brands and entrepreneurs who pave the way for the industry, exploring the direction of progress amidst hardships. Industry big players who later realized the direction then followed suit – those who did not perform well fell behind, while those who did well jointly changed the entire industry landscape. The automotive industry will also follow this pattern.
Tesla and new car makers such as NIO and XPENG, which are represented by pure electric vehicles, have launched the first shot for industrial change. After that, major automotive giants followed suit, with their own plans:
According to the development plan of the new energy automotive industry, by 2025, the annual sales ratio of new energy vehicles in China will only be 20%. Even with the currently optimistic sales situation, the penetration rate of new energy vehicles will only be 30%. Therefore, from a time perspective of 5 to 10 years, hybrid vehicles will be a very valuable field in the market.# Layout for the Next Generation Automotive Industry
Represented by Great Wall Motors, major automakers have chosen a “multi-legged” approach to invest in the development of pure electric, intelligent, and internet-connected vehicles while simultaneously laying out in the field of hybrid vehicles. Great Wall Motors has released the Lemon Hybrid DHT technology, achieving zero emissions in factories and promoting carbon reduction.
In the field of electric vehicles, the core of a company’s lifeline is the supply chain. The 1 trillion market value of CATL has demonstrated the importance of industrial links, while companies like BYD that have laid out in both vehicles and batteries have directly increased their profit margins. Tesla is also promoting its own battery supply.
Three years ago, when Great Wall Motors launched the Honeycomb Energy, many were adopting a wait-and-see attitude towards it. Many experts believed that there was a technology barrier to power batteries and that car companies which specialize in vehicle integration might not be capable of manufacturing batteries. Three years later, Great Wall Motors has proven through technological innovation and investment in resources that it can help Honeycomb Energy move towards the first tier of power batteries. From this aspect, Great Wall Motors is walking hand in hand with BYD and Tesla by laying out a “vehicle + battery” business.
Additionally, Great Wall Motors has also laid out hydrogen fuel cells – although its energy subsidiary Unis Inc is not well-known compared to Honeycomb Energy, it does not affect its industry position. Speaking only of the conclusion, from the national strategy perspective, hydrogen energy is the direction of focus in Japan. From a domestic perspective, the application of lithium-ion batteries for passenger cars and hydrogen energy for commercial vehicles is an industry-recognized direction in 5-10 years. In a situation where Yihuatong and Reshaping dominate the north and south respectively, Unis Inc becomes the first fuel cell enterprise incubated by a domestic complete vehicle enterprise.
Compared to electric vehicles, Great Wall’s layout in the fields of intelligence and internet connectivity is more fine-grained. Looking to the future, Great Wall Motors has released the Coffee Smart Driving 331 strategy, planning to become a leader in intelligent driving within 3 years. Meanwhile, Great Wall Motors has also built a digital product center and established the Haomo Autonomous Driving, Xiandou Intelligent, and Norchips Technology as four intelligent organizational matrices through self-establishment and incubation, among other means. In the eyes of the capital market, this is multiple insurance coverage.
Overall, technological progress and innovation are key elements in Great Wall Motors’ transformation towards a “global intelligent technology company,” and its industrial layout has thus been opened up, forming the basis of its strategic objectives.
From Brand Positioning to Combinatorial Play
In this round of industrial transformations, many enterprises are engaged in technological innovation of the “new four modernizations,” but not many simultaneously undertake brand repositioning.Over the past decade, the fundamental changes in the automotive industry have been mainly in supply and demand. On the supply side, there has been technological transformation, on the demand side, changes have been mainly driven by users. There are many companies that dare to innovate around users. However, would you believe it if someone told you that a car company had achieved millions of sales and created leading advantages in multiple sub-markets within three years? Probably not, but Great Wall Motors has done it.
If an MBA course in business school were to create a textbook on strategic positioning, Lao Li believes that Great Wall Motors’ multi-category strategy should definitely be included. A multi-category strategy is not the same as a multi-brand strategy. Many domestic brands have tried multi-brand strategies in the past, but they all failed. The key reason was due to the lack of differentiation in product technology and positioning. Multi-brand was nothing more than a flash in the pan. Based on category innovation, Great Wall Motors builds brands, where differentiation in product and technology are the main focus, especially targeting a particular sub-category to expand the small market.
The concept of “expanding small markets into large ones” has been circulated in the industry for many years, but many companies dare not push for scale, except for Great Wall Motors. At the Guangzhou Auto Show, Haval, Ora, WEY, Tank, Great Wall Pickup and independent brand Salon Motors appeared together. Walking through the exhibition hall, it seems like everywhere is Great Wall Motors.
Each brand of Great Wall Motors has a unique positioning. Lao Li briefly describes the capital market’s view on each brand: Haval is the foundation brand of Great Wall Motors, as long as Haval remains stable, the fundamentals of Great Wall Motors are not bad. WEY represents high-end, and many researchers believe that WEY is more important as a symbolic representation of the enterprise’s continuous development. Tank brand represents the future of SUVs and is a choice for elite men. Great Wall Pickup is the only independent pickup brand in China, making it naturally scarce in the secondary market. As for the newly released Salon Motors, Lao Li remains relatively optimistic.
Although the various brands of Great Wall Motors may seem messy, they have a tight logical relationship. From economy to high-end brands, from niche products to mass markets, they cover different markets and users. As for the development of each brand’s future, it is related to the strategy of Great Wall Motors, and Lao Li finds it challenging to judge.
From the development of each brand so far, Lao Li thinks that the future of Great Wall Motors should be very imaginative. Taking Ora as an example, at this year’s Guangzhou Auto Show, there are several changes in the Ora brand:- One is the change in products. By 2022, Euler will embrace a major year in product development. In addition to Ballet Cat, Punk Cat and Lightning Cat, Euler will launch a new C-Class sedan. This means that Euler’s brand product line extension is becoming better and better.
- Two is the change in business model. Euler will initiate the “Partner” business model, with brand flagship stores as the center, allowing store managers and sales assistants to become Euler partners. By providing diverse and innovative experiences, they will build a bridge to communicate with consumers, forming an exclusive social ecosystem and culture circle known as the “Cat Series.”
- Three is the change in service. All car companies are developing services around “cars,” but Euler will focus on the APP as the main platform, extending services from “cars” into non-car fields such as beauty, fashion, technology, and education. By integrating cross-domain resources, Euler empowers all users with a new way of consuming.
- It can be said that the development of Euler’s brand provides greater imagination for Great Wall Motors. We can predict that in the next few years, Great Wall Motors will explore multiple business models according to different user groups.
- In the past, the automotive industry has always used product differentiation to meet the needs of different user groups. Later, it began to pursue brand differentiation to meet the needs of different users. Euler’s development indicates that, in the future, the combination of “brand + product + model + service” is the way to meet user needs. Only by capturing users can we capture value.
- Value reconstruction oriented towards user service
- For the industry, reshaping means technological progress and improved social efficiency. For a company, the ultimate meaning of reshaping is value reconstruction.
- The target market value of 10 trillion yuan for Great Wall Motors actually stems from value reconstruction. From the perspective of the company’s fundamentals, Great Wall Motors is on the rise in both technology and product development, and has achieved leadership in some areas. However, to gain recognition in the capital market, changes in services are necessary, which means that companies must create value for users, and in turn, companies can make profits in this process.
- Many car companies are transforming from “traditional car manufacturers” to “technology service providers,” and the ultimate goal of the transformation is to serve users throughout the entire life cycle of cars. Taking Great Wall Motors as an example, the company will transform from selling “products” in the past to now selling “products + software + services.” From a capital perspective, the enhancement of service dimension and value is not a simple linear relationship, but a special doubling law.In the Internet field, there is a famous “Moore’s Law” around technology, which is the most basic technological principle; around business value, there is “Metcalfe’s Law”, which states that the value of a network equals the square of the number of nodes in the network, and the value of the network is proportional to the square of the number of connected users.
After transformation into a smart technology service provider, automotive companies also follow the laws of the Internet. The new four transformations are more like “Moore’s Law”, and electrification, intelligence and networking provide the basis for the commercial value. The commercial value of automotive companies will follow “Metcalfe’s Law”. Taking Great Wall Motors as an example, Liang Jianzhang and many researchers discussed that its commercial value can be displayed using the “MN Law”, where M represents the enterprise’s service value in the whole vehicle life cycle, and N represents nodes, that is, the number of users.
As smart technology service providers, the underlying logic of the business value of traditional enterprises and new forces is completely different. As far as mid-term business value is concerned, the commercial value of successful transformation of traditional car companies should be more imaginative than that of new forces:
M represents the service value in the entire vehicle life cycle. The intelligent and networked level of Great Wall Motors represents its broad value extension in this field, which is not much different from that of new forces. However, because its products cover fuel vehicles and have more service dimensions, its service value in the entire vehicle life cycle may exceed that of new forces.
N represents the number of users. Great Wall Motors sells more than one million vehicles annually, with advantages in both existing and new users. The more users enjoy the service, the higher the commercial value of the enterprise.
Lao Li believes that the commercial model of car companies can be viewed more clearly from the “MN Law”. Although many domestic and foreign car companies are transforming into “smart technology service,” frankly speaking, they talk more but do less. Great Wall Motors is moving faster among domestic enterprises, and Lao Li believes that there are three reasons:
First, the flexibility of the mechanism. Private enterprises dare to reform and innovate; second, the efficient management system. Many decisions of Great Wall Motors are directly involved by Wei Jianjun, which is the ability of the leader; third, continuous technology accumulation. Without the technology accumulation of the new four transformations, the transformation will be just empty talk.
In the context of reshaping, according to the laws of business development, no matter what industry or enterprise, transformation will be the top priority. From the perspective of medium- and long-term development trends, traditional automotive companies at home and abroad will undergo transformation, and companies that cannot keep up or transform poorly will soon be eliminated; and automotive companies that can keep up and transform well may become new giants.
This is the significance of reshaping the pattern and the inexhaustible power, and Great Wall Motors has taken the first step.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.