Introduction
Author: Leng Zelin
Editor: Wu Xianzhi
In 2015, Geely entered the field of new energy vehicle manufacturing, launching the “Blue Geely Plan” and aiming for Geely’s energy vehicle sales to account for over 90% by 2020. In the same year, BAIC New Energy proposed the “Weilan Career Plan 2.0,” striving to achieve sales of more than 200,000 vehicles by 2020.
Two years later, Changan launched the new energy strategy, the “Shangri-La Plan,” aiming to stop selling traditionally fuel-powered vehicles comprehensively by 2025 and achieve electrification across the entire range. Guangzhou Automotive “smarter” by giving a floating range. Wu Song, then the general manager of Guangzhou Automotive Passenger Car, said that Guangzhou Automotive and Guangzhou Trumpchi’s new energy vehicles will achieve a scale of 100,000 to 200,000 by 2020.
However, without exception, these seemingly grandiose targets were all shot down by reality.
In 2019, BAIC New Energy sold 150,000 vehicles and appeared to be on the verge of achieving their goal. However, the following year’s sales fell by 82.8% compared to the previous year to only 26,000 vehicles. Geely’s new energy cars sold 68,000 vehicles in 2020, with a market share of less than 5.2% – which has yet to exceed double digits. Guangzhou Automotive Group’s new energy vehicle sales were 77,700 vehicles, also failing to reach the minimum target set years ago.
Since the deadline hasn’t arrived, Changan is not a complete failure yet. However, at last year’s Changan Automotive Technology Ecology Conference, they changed their plan under the pressure of less than three years of time, planning to achieve Changan’s brand sales of three million vehicles and new energy vehicles accounting for 35% by 2025, which is 1.05 million vehicles – rather than completely ceasing sales as before.
All of these traditional car companies have the same characteristics: early entry, grandiose goals, but all of them predicted the market wrong and were unable to withstand the temptation halfway, joining the net car army or the micro-car-making boom. Under the sudden outbreak of the new energy vehicle market, most traditional car companies appeared to be ill-adapted.
Failure
In 2009, BAIC established Beijing New Energy Automobile Co., Ltd., the first independent operation, the first new energy automobile production qualification, the first to carry out mixed ownership reform, the first batch of state-owned enterprise employee stock ownership reform of new energy enterprises.
However, these various honors did not bring the expected results. If compared with BYD, which started at the same time, BAIC New Energy may lack determination and goals.
In 2014, BAIC Group listed on the Hong Kong Stock Exchange and divested its new energy automobile business, while BAIC New Energy began preparations for listing, starting the mixed ownership reform and employee stock ownership plan, with two rounds of financing before listing exceeding 14 billion RMB.
However, the purpose of mixed ownership reform is not to “mix” but to “reform,” which seems to have been missed by BAIC Blue Valley.# New Energy Vehicle Companies Focus on R&D Investment
New energy vehicle companies attach great importance to R&D investment. For example, WmAuto, Xiaoli, and Sanjia have accumulated R&D investments of RMB 11.508 billion, RMB 7.91 billion, and RMB 5.555 billion respectively over the past three years. Although the proportion of R&D investment of BAIC Blue Valley has increased significantly, the main reason is the sharp decline in sales and revenue after 2020, and the actual value change is relatively small.
Their R&D investment directly reflects the competitiveness of their models. After realizing that their models that have killed it on the B-side cannot compete with the upstarts targeting the C-side, BAIC quickly relaunched the Arctic Fox brand that was silenced for a few years.
However, the existence of BAIC still has significance. With the sales of the travel market, BAIC has continuously won the new energy sales crown for several years, which has also made other traditional car companies feel a little tempted.
Guangzhou Automobile and Changan both shouted slogans in 2017. The following year, the two companies jointly established GAC NIO and Chang’an NIO in partnership with NIO. Who was expressing their determination and who was exploring the reality and fantasy gradually became evident in the future.
Compared with Changan, GAC ran faster. Not only did it release its first concept car the following year in cooperation with NIO, but it also quickly established its own E-An brand, thanks to GAC’s pure electric platform, GEP, which was developed in 2017, and the early construction of new energy factories.
In 2021, E-An sold 120,000 units, surpassing Xiaoli and other new forces, but it is still stuck in the mid-to-low-end market in terms of average price, especially the AION S, which has a proportion of 60%-70% in lease volume data from 2020-2021H1.
However, this did not prevent Feng Xingya, the general manager of GAC Group, from stating during a media communication meeting that he wants to turn WmAuto into “E Xiaowei”.
Even for car companies like GAC E-An, which leads Xiaoli in sales, the roots of the problems that surfaced before still need to be remedied in the later stage.
Problems
To achieve goals, it is necessary to find problems and to prescribe the right medicine to cure the illness. Looking back at the transition path of traditional car companies to new energy, they have all encountered four problems:
- The temptation of the B-side market.
We can observe that the real rise of the new energy vehicle market in China occurred in 2021, even though there was a shocking year-on-year growth in 2014-2015, it has maintained a growth rate of around 50% since 2016, and even appeared negative growth during the downturn of the automobile market in 2019.In the first nine years, for most carmakers, whether new energy can replace traditional fuel vehicles remains a huge question. It is not difficult to understand why most of the host factories that survive well in the traditional fuel vehicle market are reluctant to enter the new energy field, instead lingering outside the door repeatedly.
However, the emergence of BAIC New Energy has given traditional carmakers another answer, which is the B-side market. By occupying the B/G-side market, while the requirements for products in this market are not high, technology investment and even research and development investment can be reduced to a minimum.
The early new energy market was more like the metaverse of today, and all major Internet companies are laying out. However, only a few companies such as Facebook (Meta) actually shouted out “ALL IN”. At that time, this role that shouted “ALL IN” was BYD.
If the new energy market did not experience explosive development or came later, perhaps BYD would not have the volume it has today, and traditional host factories would not have made such a mistake and lose everything.
However, people who are experiencing history always cannot see things more clearly than “Monday quarterbacks”.
Secondly, the temptation of mini-cars.
Small electric vehicles have the characteristics of relatively low price and lower entry threshold for consumers, and for car companies, development speed and cost can be reduced, while also providing points for the production of fuel vehicles.
Many people only recognized the A00-level mini-cars after the Hongguang MINI EV appeared. But in fact, in 2017, small pure electric passenger cars accounted for 78.9% of new energy vehicle sales that year.
That year, the Baojun E100 was launched in Liuzhou, which successfully pushed this third-tier city in China to the forefront of the new energy wave through political and corporate cooperation. This cheap car model suitable for small cities or short-distance travel allowed Liuzhou to rank first in the country with electrification rates of 19.9%, 24.7%, and 28.8% from 2018 to 2020.
Hongguang MINI EV sold a cumulative total of 427,000 units in 2021, with the latest monthly sales of 42,000 units, making it the best-selling model today.
From the earliest fraudulent subsidy tools to today’s new energy darlings, we can see the transformation of traditional carmakers on the pragmatic road.
However, this has also created a situation where host factories are entering the market of mini-cars. According to data from the “2021 New Energy Passenger Vehicle White Paper” released by Baidu Marketing, the deployment of new energy products in 2021 is still tilted towards the micro and compact segment markets. The number of products launched in 2021 reached 271, accounting for nearly 70%.Looking at the sales data of various major car companies’ new energy vehicles last year, most of the manufacturers were able to surpass NIO. Great Wall sold 136,000 new energy vehicles in 2021, with Euler brand accounting for 135,000 and Changan sold 106,000, with Benz eStar accounting for 76,300.
Today, with the sharp rise in upstream raw materials prices and the tight supply chain, Euler’s black/white cats and Benz eStar national versions have stopped taking orders one after another.
Third, the problem of converting from oil to electricity.
Almost all traditional car companies that have transformed have a “history of converting from oil to electricity”, such as GAC GE3, Geometry Kungfu Niu EX3, and so on.
The advantage of converting from oil to electricity is that it reduces R&D costs and time, but due to the difference in the vehicle power system, the layout of oil and electric vehicles is completely different. This also makes the performance of converted vehicles in terms of space utilization and endurance inferior, and their product competitiveness is far inferior to the vehicles developed by new forces. Naturally, it is referred to as “traditional car companies cannot compete with new forces” among consumers.
Most car companies involved in the above three points have experienced one or two. Although they are in the game, the result is that their product strength, brand reputation, and tone are always lagging behind new forces, and many models are slightly mediocre and tasteless. They are abandoned, but it is a pity to let them go.
In the past two years, traditional car companies can indeed take it easy, but for now, with the penetration rate of new energy retail reaching 28.2%, traditional car companies have to worry.
Redemption
Shortly after the lunar new year, GAC Aion sounded the first shot. On February 18th, GAC Aion’s factory expansion project was completed, doubling the annual production capacity of the factory to 200,000 vehicles. At the same time, the construction of the second factory is also progressing synchronously, and it is planned to be completed by the end of 2022, with a planned production capacity of 200,000 vehicles per year.
The following month, GAC Aion took another step forward through equity incentives for core personnel, which prevented talent loss and stimulated organizational vitality, while gradually moving away from GAC Group’s financial support.
Before this, GAC Aion adopted an organizational system consisting of general manager, deputy general manager, minister, department head, and division head. After the equity incentives, it cancelled the posts of department head and below, and all became project management system.
Although both Changan NIO and GAC NIO ultimately took a similar path of weakening NIO, GAC ran faster, and Changan, which had been silent all the time, has also woken up this year.
Recently, Changan launched its “Deep Blue” brand and released the long-awaited EPA1 electric drive platform. From now on, Changan’s brand will move towards tripartite cooperation, and the UNI series will operate as an independent brand. Deep Blue will be developed into a new energy brand, and AWEITA will be a high-end brand jointly owned by Ningde Times and Huawei.
The three pure electric vehicle models launched this year, the micro car LUMIN, the sports car C385, and the AWEITA 11, have a large overall span from model to price. It seems that due to the previous “sluggishness”, they had to rush later.There are many car companies that try hard to promote their brand or new products, but most of them are still in a lukewarm state.
Dongfeng Group launched the Landtour brand last year, the first mass-produced model Landtour Free delivered 6,791 units last year, and the second mass-produced model Dreamer MPV will also be launched in June this year. According to Dongfeng Group, they will also release another new high-end electric off-road vehicle brand, M, during the same period. At least for now, it is still uncertain whether Dongfeng has secured its position in the new energy market.
Compared to others, BYD, which had a great sales year last year, also has its own “problems”. It is widely known that the company has ambitions to compete in the high-end new energy market this year.
Since Daimler transferred most of its shares to BYD last year, BYD has been constantly expanding in the high-end market. Zhao Changjiang, the former general manager of BYD’s sales company, became the general manager of DENZA’s sales division, and disclosed the development direction of DENZA in April this year.
DENZA will release three models this year: MPV, mid-size SUV, and compact SUV. Among them, DENZA attaches great importance to the MPV market. The first model, D9, was partially revealed in April.
What’s important is that DENZA will no longer be awkwardly placed in Mercedes-Benz 4S stores as before, but will rebuild its offline channels. This also adds a new member to BYD’s Wangchao and Haiyang net sales model.
Wangchao is currently the backbone of BYD, and the Qinhan Tang series has accumulated good reputation. Haiyang net sales are more youthful, but being youthful means not making much money.
However, as we stated in the previous article “BYD Cannot Cross the “Generation Gap””, although these young people cannot elevate BYD to the high-end pedestal, they are still a good helper for BYD to cultivate its brand awareness in the long term. Because the impressions of low-end and poor quality of early BYDs have been engraved in the DNA of 70s and 80s generations, only by shaping a new image among young people who have not yet experienced much can this problem be solved. Of course, this is also a strategy that counts in terms of “era”.
However, DENZA is not BYD’s ultimate goal. BYD has also revealed that it will launch another high-end brand with a price between 500,000 and 1 million yuan. In the short term, this market’s development in the new energy race track is not mature enough, and fuel-powered cars still occupy a high position, and it needs to compete with Porsche Taycan, Macan, and flagship electric cars of BBA. One needs to eat the rice bite by bite, so DENZA currently has a greater hope of competing for high-end market share than BYD.
If we divide domestic self-owned brands into three generations: old, middle-aged, and young, the present young car companies have completed market exploration, and Wei Xiaoli has smoothly achieved sales of over ten thousand per month, with certain competitiveness in their respective segmented fields, and radiating in the upper and lower intervals.The middle-aged generation of domestic car manufacturers have learned from their failures and hastened the transition to new energy. Geely has launched JiKe, and has made strategic investments in industries such as chips, mobile phones, and satellites. Great Wall Motors has revived the WEY brand as a transformation point, and also invested in and incubated enterprises such as Honeycomb Energy, Mo An Zhi Xing, and Xian Dou, catching up with Weizhao Li in energy and intelligence. BYD relies on hybrid systems and lithium iron phosphate batteries to sweep last year’s new energy market with higher technology thresholds and cost-effectiveness compared to cars of the same level.
The older generation of car manufacturers are slightly slower to join the game due to various restrictions, but we can also see that this time, Guangzhou Automobile Group, Beijing Automotive Group, and Changan Automobile Group have not just made empty promises as in the past, but are actually taking steps to remedy past problems and achieve redemption.
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.