Hosted by China Electric Vehicle Top 100, and co-organized by Tsinghua University, China Society of Automotive Engineers, China Association of Automobile Manufacturers, China Automotive Technology & Research Center, and China Automotive Engineering Research Institute, the China Electric Vehicle Top 100 Forum (2023) opens in Beijing.
The forum has invited representatives from relevant government departments, automotive institutions and leading companies in the fields of energy, transportation, urban development, and communications, to have in-depth discussions on various topics, including the global automotive industry development landscape, high-quality development paths for new energy vehicles, China’s intelligent connected vehicle development strategy, supply chain development trends for core industries such as power batteries, next-generation automotive consumption transformation trends, automotive and energy collaborative development strategies, new transportation energy security system, commercial vehicle transformation direction, automotive aftermarket innovation path, and automotive digitization and intelligent manufacturing model.
At the 2023 China Electric Vehicle Top 100 Forum, Xu Changming made the following points in his speech:
- The rapid growth of the electric vehicle market is driven by strong market forces, such as leading companies’ cost advantages, diversified use cases, increasing consumer adoption of NEVs, and a mature industry chain. However, in order to maintain sustainable and healthy operation, appropriate policy support remains crucial. For example, the price of a Tesla Model 3 is reduced by ¥51,000 in comparison to its counterparts such as Audi A4 and BMW 3 Series due to policy advantages.
- The market share of domestic electric vehicle brands has increased from 30% in the past to 84.7% today, with a share of 45.3% already achieved in 2021. Once the domestic brand’s market share exceeds 50%, a quantitative change will be realized, and more high-end markets will gain competitive advantages.
- As the driving range of electric vehicles continues to improve, and their use cases expand, consumer purchasing intentions are also increasing. For example, the average driving range of pure electric vehicles in the market is 493 kilometers, which already satisfies the daily driving needs of many users.
- Domestic automotive companies are moving toward the high-end market, such as NIO and Mercedes-Benz models with average prices ranging from ¥475,000 to ¥480,000, and Li Auto’s ¥378,000 price surpassing Audi and approaching BMW levels. This indicates that domestic automotive brands have established a firm footing in the high-end market.
- Electric vehicles and internal combustion engine vehicles will not completely replace each other in the foreseeable future. Each has its own characteristics and pros and cons, such as internal combustion engine vehicles having advantages in refueling and driving stability, thereby maintaining a certain market share. Therefore, electric vehicles and internal combustion engine vehicles will have their own user groups and market positioning in future development.The following is the original speech text:
Good morning everyone! I’m delighted to have the opportunity to share my views on the development trends of electric vehicles and their impact on the automotive market.
Originally, I was told 20 minutes, then yesterday it was changed to 15 minutes, and just now, Professor Wu compressed it to 10 minutes. I’ll try to share within 10-15 minutes. I think the six of us have about 80 minutes in total, so it should be close to 15 minutes.
I will share two viewpoints: First, market driving forces will play an increasingly important role in the future development of electric vehicles, but the sustained and healthy operation of the EV market still requires appropriate policy support. This is our judgment of the current market. Second, the rapid development of electric vehicles is promoting the transformation of competitiveness of homegrown car brands from quantitative changes to qualitative changes.
We’ve seen this chart before; the past two years have seen leapfrog development, from 1.25 million units to 3.25 million units. Last year, we added another 3 million units, and in just two years, we’ve grown from over 1 million units to over 6 million units, adding 5 million units. We call this the “domestic demand caliber”, which is the sum of domestic sales of domestically-produced cars and imported cars. If we count production, it should be even higher as our exports far exceed imports. The penetration rate of passenger cars reached 26% last year, and it has been hovering around or exceeding 30% for five consecutive months.
What will happen in the future? We say there are four market-driven forces that will play a crucial role in the development of electric vehicles.
- Leading companies have the ability to maintain stable prices or even reduce prices, enhancing the competitiveness against gasoline cars.
The left graph (PPT) shows the accumulated data from each consecutive quarter; Tesla’s per-unit profit is USD 10,426. Last year, they had 1.31 million vehicles worldwide, so multiplying by ten thousand gives us about USD 15 billion, nearly at that level. Multiply per-unit profit by 7 to get CNY 70,000, deduct CNY 30,000, and there is still CNY 40,000 room left. Moreover, the marginal cost of Tesla has been decreasing significantly due to its massive R&D investment in chips, operating systems, and software. As sales volume increases, the cost per vehicle will continue to drop. In addition, BYD, with the largest global sales, had a per-unit profit of more than CNY 8,800 last year, and their profit in the fourth quarter was undoubtedly over CNY 10,000. These companies should have the ability to maintain stable prices; we didn’t think they would drop as quickly as they did, but the price of an industry is determined by the industry leader. When Tesla lowered its prices, everyone said they wouldn’t follow, but in the end, it seems everyone did. Lowering the price improves competitiveness against gasoline cars. Currently, not many gasoline cars can lower their prices, and many are doing so only passively.2. The usage scenarios are becoming more diverse. Initially, pure electric vehicles were used in urban areas without range anxiety. Later, they were used in suburban areas, and now they can be used within a province without much range anxiety. In the right-side chart (PPT), the average range of pure electric vehicles on the market (excluding A00 class vehicles) is 493 kilometers, or about 296 kilometers (60%) in winter and 394 kilometers (80%) in summer. This means that vehicles with a range of 500 kilometers can now travel an average of 296 kilometers in winter. Of course, this does not include the far northern regions, such as the Northeast and the Northwest, where it may be quite challenging. A few days ago, we attended a meeting discussing how to promote electric vehicles to public institutions. Regions such as Heilongjiang, Xinjiang, and Inner Mongolia still find it difficult to adopt EVs in winter, not only due to reduced range but also because sometimes the vehicles won’t even start. However, for most areas south of Beijing, the winter range should be around 300 kilometers. Taking Guangzhou as an example, drawing a 200-kilometer circle from downtown to the prefecture-level cities in Guangdong covers most of the area. As long as there are charging facilities in these cities, there is basically no range anxiety for intra-provincial trips, thus making the usage scenarios more diverse. Currently, inter-provincial travel is still not feasible for pure electric vehicles, especially on highways.
Additionally, plug-in hybrids have further expanded the usage scenarios. Previously, pure electric vehicles mainly served as the second car in a household, but families with only one car were still hesitant about purchasing pure electric vehicles. However, BYD’s invention of the DM-i vehicle solves this issue. Within the city, it operates as an electric vehicle, while outside the city, it functions as a hybrid. With a full tank of gas and a full charge, its range exceeds 1,000 kilometers, which appeals to families with only one car. According to our survey conducted in November and December of last year, out of 100 BYD DM-i owners, 73 have only one vehicle in their household. Overall, 84% of households have just one car while only 16% own two or more. Therefore, this plug-in hybrid solution significantly expands the market by catering to both single-car and multi-car households.
- The number of consumers proactively choosing NEV is growing rapidly. Two years ago, people bought pure electric vehicles due to license plate restrictions, but that’s no longer the case. Now, 22.3% of buyers are in cities with neither purchasing nor driving restrictions, voluntarily choosing to buy electric vehicles. This figure includes both pure electric and plug-in hybrid models. For example, the penetration rate in Wuxi last year was 33.4% and in Nanjing, 30.5%. Based on our survey data, South China and East China are the fastest-growing regions for electric vehicle adoption with the highest penetration rates, accounting for roughly 55% of the national total. These rapidly developing areas include Guangdong, Jiangsu, Zhejiang, Shanghai, Fujian, etc., as they do not face significant challenges in winter. The number of consumers proactively choosing electric vehicles in these areas is on the rise.4. The industrial chain is becoming more complete and robust, creating a positive interaction. Before 2020, people were not confident in the support that component and upstream companies provided for electric vehicles, as there was no record of an electric vehicle selling over 10,000 units in a month. But from 2021, people have become more and more trusting, resulting in a stronger supplier system. Last year’s production was 6.88 million units, and this year it is estimated to reach 8.5-9 million units, with the supply chain expanding accordingly.
Market forces are increasingly driving the development of electric vehicles, but policy support remains essential, and significant reductions cannot be made immediately.
This slide from last year (PPT) shows that the current electric vehicle, the Tesla Model 3, compared to its competitors like Audi A4 and BMW 3 Series enjoys benefits of CNY 51,000, does not pay CNY 12,000 consumption tax, and is exempt from vehicle purchase tax. Last year, there were subsidies, which have disappeared in the second half of this year, but the total benefits still amount to around CNY 40,000. This amount significantly affects sales. Future policy support, not limited to exemption from vehicle purchase tax, is essential for consumers considering electric vehicles as the direction of future development, and it’s crucial for the government to encourage this. So, I think moderate policy adjustments are necessary to ensure sustainable and healthy development.
Second, the rapid development of electric vehicles is promoting the transformation of self-owned car brands from quantitative to qualitative change.
A share of over 50% for independent brands signifies a qualitative change, while a share below 50% represents a quantitative change. There has been no change in the share of independent brands in the gasoline vehicle market, and their competitiveness remains stable at 30%. With 84.7% share for independent brands in the electric vehicle market as compared to a 50% share for joint venture brands in gasoline vehicles and only 5% in electric vehicles, the share of independent brands has increased consecutively in the past two years, with a 6 percentage points increase per year, from 33.3% to 39.3% to 45.3%. We conservatively estimate that the share should reach 48% this year and exceed 50% next year, becoming a certainty.
The increasing share of independent brands is not just in the low-price segment, where gasoline vehicles dominate. For example, in the below CNY 100,000 gasoline vehicles, the independent brands hold 60.4%, 42% for CNY 100,000–150,000, 9.6% for CNY 200,000–300,000, and 3% for CNY 300,000–400,000 price segments. In contrast, independent brands represent 66% of CNY 200,000–300,000 electric vehicles and 47.6% of CNY 300,000–400,000 electric vehicles, demonstrating a strong presence in the high-end segment.
Comparing the sales volumes of independent and international brands reveals that independent brand sales once peaked at 8,810,000 units, with a decline after 2017 as SUV sales stagnated, and absolute sales volume dropped. However, in the last two years, the absolute volume has been increasing, from 6,580,000 to 7,980,000 to 9,690,000 units, with this year set to rise even further. Joint venture brand sales have decreased from the peak of 14,990,000 to 11,730,000. These two lines are expected to intersect this year, or at the latest by next year.In fact, the breakthrough of self-owned brands is observed in two indicators: market share and price. From the price perspective, the prices of joint venture brands are also rising, from 154,000 yuan to 166,000 yuan, while the prices of self-owned brands have risen from 105,000 yuan to 140,000 yuan last year, and will surely be even higher this year. The relative ratio between these two has been increasing. If 100% stands for joint venture brands, then last year, the self-owned brands reached 84%. Speaking of specific brands, last year, for instance, NIO’s average car price equaled Mercedes-Benz at 480,000 yuan and 475,000 yuan, respectively; Li Auto surpassed Audi at 378,000 yuan, coming close to BMW; BYD’s 176,000 yuan surpassed Honda’s 175,000 yuan, whereas Toyota’s 185,000 yuan revealed the gap between regular and high-end brands. Therefore, we can say that the so-called brand breakthrough is shown through a growing market share and higher prices, highlighting the competition in the industry, thus indicating an ongoing change.
Thirdly, although today’s discussion is about electric vehicles (EVs), I would like to express my standpoint and urge the industry to have a more accurate and objective perception. Nowadays, people tend to compare EVs and gasoline vehicles with smartphones and feature phones, expecting a replacement within three or four years. However, I find this highly challenging as EVs hold their advantages and disadvantages, just like gasoline vehicles. EVs satisfy four factors: cost-saving, technologically smart and fashionable, better acceleration experience, and more diverse scenarios. However, their drawbacks lie in inconvenient energy replenishment and poor endurance stability, among others. Some people are willing to buy EVs, sacrificing an average charging time of 58 minutes outdoors, while quite a few are not ready for this trade-off, and wouldn’t mind spending more on gasoline. Some people do not have high demands for intelligence and prioritize a better vehicle quality. Under these circumstances, each type holds its unique advantages, catering to specific user groups. With the increase of 2 million EVs in 2021 and another 3 million in 2022, the sales volume of self-owned A-class 10-to-15 thousand A-class SUVs remained intact, while joint venture brands also experienced a marginal decline. This indicates that there is a specific user group for each category without impact on the overall market.This marks the conclusion of everything I wanted to share with you all today. Thank you everyone!
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.