Author: Xiong Xin
Editor: Wang Pan
Fuel cars, the synonym for traditional car companies, are also the object of “siege” by new forces. In terms of the speed and strength of embracing new energy, new forces are not inferior to traditional car companies, surpassing them in market value in just a few years, and becoming the object of chasing in sales.
“The new forces are showing off, and the traditional car companies are being beaten,” was once a popular internet joke. The new product forms and avant-garde designs, as well as new car-buying experiences, have refreshed consumers’ vision, while traditional car companies’ “outdated” approaches are highlighted. With the rise of new energy, the competition between the two camps has never stopped, and the weak defeating the strong has become an industry norm.
Even Volkswagen, as strong as it is, can only passively respond with the “oil-to-electric” strategy, but increasingly savvy consumers are not impressed with the “novice” products. While the later released ID series also suffered to some extent, it represented traditional car companies’ attitude towards the new energy race, and the market structure is far from established.
Last year, Tesla was the global leader in new energy vehicle sales, while domestically, BYD took the crown, and NIO, XPeng, and Li Auto performed well, with four of the top ten manufacturers being new forces. In the first half of this year, BYD, which has completely stopped producing fuel cars, has “double killed” Tesla in global and domestic sales, while only Tesla and XPeng, two new forces, remain in the top ten of the domestic market sales list, and NIO and Li Auto have fallen to 14th and 12th, respectively.
The “slow heat” of traditional car companies has trended towards surpassing new forces. With the shortage of parts supply and the surge in raw material prices, new forces that were already struggling to make profits have exposed their weaknesses to varying degrees, while traditional car companies with a solid foundation and extensive layout have gradually shown their advantages in this wave of impact.
New forces battle for the midfield
With the entry of traditional car company sub-brands such as Jinkr, Ora, Voyah, and RisingAuto into the market one after another, the shadows of the new forces’ “new weapons” can be seen on the newcomers. Whether it is the frequency of entering shopping malls or the characteristics of offline experiences, online orders, traditional car companies are catching up, and this “close follow-up” is more apparent in products.
Before the release of Li Auto One, not many people knew about extended-range technology, but this “innovative” driving form is not difficult for traditional car companies. Dongfeng’s Voyah Free is a positioning competition against new forces, with both an extended-range version and a pure electric version, priced close to Li Auto One, with certain differences in product details: using a four-cylinder instead of a three-cylinder, and using a large five-seater to cope with a three-row six-seater. Importantly, Dongfeng has launched an extended-range layout, while Li Auto’s pure electric models are still on the way.
NIO is facing a similar problem, as the battery swap model is no longer unique. If BAIC and Geely only create a buzz in the B-end, it is not direct competition, but the appearance of SAIC RisingAuto R7 will bring the battle to the C-end, and whether the battery swap raceway will quickly become a red ocean depends on whether other car companies will follow suit.At this year’s World Battery Conference, Guangzhou Automobile Group (GAC) chairman joked that he was working for CATL (Contemporary Amperex Technology). In response, CATL chairman Robin Zeng said that CATL’s battery swapping technology can allow users to only purchase the car body, and save costs through shared battery swapping and leasing.
“Carmakers buy” becomes “users rent”. If one chooses CATL’s technology, it means that the carmaker needs to develop two batteries to match CATL’s requirements, making them more like an outsourcing factory. For mainstream top carmakers, the answer is clear: will they hand over the market to CATL or keep trying to compete? The countdown has begun for NIO’s exclusive C-end battery swapping track, and the company is looking for a breakthrough in CATL’s battle with top carmakers.
NIO is losing its hardware uniqueness, while XPeng’s software short-term advantages are not yet apparent. XPeng, which features autonomous driving as its core selling point, had a stunning victory over Tesla’s Model 3 in testing years ago, but now cars and roads cannot cooperate, and laws and regulations are not completely open. No matter how excellent the technology is, everyone can only be classified as L2. In recent years, accidents caused by assisted driving have made consumers reluctant to adopt the technology. Like Audi’s slogan, “Breaking through technology, enlightening the future,” users now ask, where is the sense of technology? Will the money spent on purchasing an unrealized L3/L4 also face the same problems?
Not only carmakers, but even consumers are undergoing a “midfield adjustment”, where assisted driving is just one of many factors. New players are facing increasingly objective consumer awareness, and their refreshing unique qualities are no longer prominent. Driving modes, product forms, and intelligence… all are being followed by traditional automakers at a rapid pace.
In the first half of this year, sales of new energy vehicles reached 2.247 million units, an increase of 122.4% YoY. Among the top five brands in new energy sales, only XPeng’s sales increased by 124%, NIO’s sales increased by 199%, and Leapmotor’s sales increased by 265%. Among traditional automakers, the top six had the highest growth rates, with BYD’s new energy sales volume increasing by 314% YoY, Geely’s sales increasing by 398%, and Changan’s sales increasing by 127%.
New players are also undergoing a “midfield adjustment”: the top tier is changing, with slow growth for NIO and rapid growth for mid-tier players. The new force camp now has a traditional automaker pattern: quantity and price first, heavy foot and light head.The high growth rates of NIO and IM Auto reflect the current consumption pattern of China’s auto market. However, their small base and huge losses, as confirmed in their prospectuses, make it difficult for them to compete with traditional automakers. Although NIO was the first to take brand upgrading actions, the main focus of its product lineup is the 200,000+ yuan range, with only one model priced above 300,000 yuan, a limited edition of 999 cars. This will undoubtedly increase the difficulty of winning the upcoming price-sensitive customers in the lower-end market.
Whether going up or down, new automakers are facing growing pains, not only from fierce competition and changing consumer trends, but also from the resurgence of traditional automakers.
The Pack Attack Strategy of Traditional Automakers Works
In the first half of this year, sales of Volkswagen’s pure electric vehicles in China skyrocketed by 462%. In June, the ID series, which lagged far behind its competitors last year, reached a historical high of 17,600 units. Compared with the previous year, the ID series not only achieved a monthly sales volume exceeding 10,000 for the first time, but also had 6 models on sale (including the 3, 4 and 6 series and the north-south combination), with the ID8 and ID2 having been widely exposed. If we take into account the new energy versions of other models, Volkswagen’s new energy product matrix can be said to be huge.
Although having a rich product lineup and high sales volume may not be directly related, it is indeed a “safeguard mechanism.” Among all the Chinese EV makers, NIO has the largest product lineup, consisting of only 6 models, followed by XPeng with 4 models and Li Auto with 2. From the delivery data in the first eight months of this year, it was found that Li Auto was the most unstable, experiencing two “cutbacks” in April and August.
A narrow audience and the lack of “substitute players” mean difficulty in establishing the brand and generating more positive feedback. Making an analogy to Apple in the auto industry, Li Auto still lacks a unique moat. Facing similar industry dilemmas and regular product iterations, growing pains are inevitable for carmakers with a relatively limited product lineup, such as Li Auto.
Although Tesla also has 4 models, it is not as diversified as BYD, which has a broad product coverage. Tesla has won in terms of profits, but lost in terms of sales volume. In the long run, this may not be a good sign.
The difference in profits between the two companies largely comes from the price difference of their products. Whether the high-end sub-brand of BYD, which is rumored to be unveiled soon, can sell well is still uncertain, but its role in playing a “brand demonstration” effect, like NIO’s EP9, is more important for BYD. As the younger and more global “Ocean” series gradually expands, BYD still has room for improvement, and narrowing the profit gap with Tesla is highly likely.Regardless of the high-end or Internet thinking, both new forces and traditional car companies can thrive. SAIC quickly released the “IM” after the extraordinary, gradually demonstrating SAIC’s unique thinking on products: “raw materials”, L4, and a chassis tuned by Williams. Whether it is a gimmick or strength, success or failure has little effect on the overall situation. Most of SAIC’s products achieve both quantity and profitability, providing sufficient support for its experimentation. In addition to Tesla, new forces still face heavy losses driven by a lower fault tolerance, making it difficult to match the “pack tactics” of traditional car companies.
The new energy expansion of traditional car companies, coincidentally adopts both new brands and new models. This year, if nothing unexpected happens, Geely will launch a new brand again. Beyond the already established sports-focused “Geometry”, they also have a new mobility provider: “Revard”. The meaning of early positioning is clear to see.
Moreover, the Xingyue L was transformed with a hybrid of “Thor”, and the Lynk & Co 01 also launched the EM-P version. Geely has clearly accelerated the pace of exchanging “old” with the “new” and saw the year-on-year increase of new energy sales volumes nearly quadrupled in the first half of the year, the highest fluctuation in traditional car companies.
Other sub-brands or new models of traditional car companies will continue to emerge, and the skyrocketing research and development costs inadvertently confirm this trend. Last year, the highest research and development investment was by “NIO” at 4.591 billion yuan. However, this year is only the first half. Byd’s R&D investment reached 6.47 billion yuan, a year-on-year increase of 46.63%, and Great Wall Motors was approximately 5.8 billion yuan, a year-on-year increase of over 100%. Among the major traditional car companies in China, those with good new energy sales volumes and those with temporary disappointing R&D investment will experience a surge.
In the matter of “creating a second number,” traditional car companies are no longer satisfied with traditional methods, and cooperation with Internet technology giants and power battery leading companies has become a new direction. The emergence of new brands like “Qianjie” and “AVETA” complement with a variety of superior resources, allowing their products to have an innate paper-based strength. Although the types of vehicles are singular, the target audience is not narrow.
New forces can only choose one direction to focus on, whereas traditional car companies try placing stakes and experimenting with different vehicle types and brands. Volume determines behavior. Geely, who had buried its head in the soil for many years in the past, has the confidence to sever its fuel product line, while other traditional car companies are still adopting a two-pronged approach. Time and money are both advantages, and traditional car companies can be continuous in laying out their future, such as “fighting for minerals.”
The prices of upstream raw materials skyrocketed this year with mainstream car companies responding with successive price raises, while the net profit of power battery companies fell sharply in the first quarter: CATL fell by 23.62%, and Guoxuan High-Tech and Xingwangda dropped by 32.47% and 26.13% respectively. Zeng Yuqun pointed out that the short-term surge in raw material prices is due to speculative investment in upstream mineral resources.No one can deny the existence of hype, but relying on oneself is still the safest choice. At the beginning of the year, BYD reached an acquisition intention for six lithium mines in Africa, with a lithium ore reserve of 25 million tons, which can meet its demand for the next 10 years. BYD’s long-term equity investments in lithium battery companies have reached three, while its old rival, CATL, has invested in four. Car industry giants Volkswagen, Toyota, Daimler, GM, Ford, and others have all increased their “mining” efforts this year.
As early as April, Musk vowed to personally open a mine. After signing the first nickel supply agreement in the US at the beginning of the year, Tesla was rumored to have acquired Tianqi Lithium in June and signed a $5 billion contract to purchase battery materials from Indonesia in August. According to disclosed data, Tesla has made the biggest moves in “mining” among new forces, and WmAuto Motors has also increased investment in Xinwangda.
The “pack tactics” of traditional automakers are not only reflected in brand and product, but also a multi-point encirclement attack. “Occupying land” in the upstream raw material industry not only grasps their own lifeline, but also builds a barrier for car companies without relevant layouts. As Musk said, lithium mines will sooner or later be mined out, and whoever has the mines will have the right to speak. Perhaps new forces that cannot change their disadvantage in brand quantity and product variety need to find a breakthrough path in “midfield adjustment”. Nowadays, new forces are increasingly like traditional automakers and have started to layout the whole upstream and downstream industrial chain, hoping to control their own destiny.
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.