China’s penetration rate of new energy vehicles may reach 22% this year

Article by Wang Pan, edited by Wu Xianzhi

On January 17th, the China Passenger Car Association predicted that the penetration rate of new energy vehicles may reach 22% this year. “The previously expected sales volume of new energy passenger vehicles in 2022 of 4.8 million units should be adjusted to over 5.5 million units or more.”

The increase in the penetration rate of new energy vehicles not only indicates an increase in market recognition of electrification but also accelerates the process of intelligence and networking.

Huawei and Tencent are the only two “non-car manufacturing” factions among the four giants in the car networking BATH. The difference is that, in the “Celsius” model, car companies have become workers. After the launch of its new brand AITO in December 2021, Celsius faced an embarrassing situation of “when the bird flies high, the good bow hides; when the sly rabbit dies, the running dog is cooked”.

Now, it is no longer important to discuss whether Huawei makes cars or not, as phones are experiencing a slowdown due to the chip shortage, and car manufacturing can take over the consumer business gap.

In contrast, the reasons why Tencent unequivocally does not manufacture cars are much more complex. One basic point is that Tencent’s smart travel is placed under the entire B-to-B strategy. Therefore, when understanding Tencent’s smart travel, it should not be limited to the car networking field, but should also consider its various enterprise services for car companies, especially digital transformation.

Simply put, Tencent’s ambition is far more than just “getting on board”.

Tencent’s Smart Travel in the B-to-B Context

Tencent knows its boundaries and ultimately decides not to make cars.

First of all, under the “930” reform, Tencent’s B-to-B strategy cut off the idea of making cars. In hindsight, from personnel to layout, several organizational restructuring have avoided “making cars”.

“Choose what to do and what not to do.” When asked about Tencent’s car-making doubts in April this year, Tang Daosheng gave a clear reason: Tencent will not touch the hardware field. It did not make mobile phones in the early years and it will not make whole cars now.

In terms of time, the “930” reform set the tone for Tencent’s vehicle networking business in 2018. The Cloud and Smart Industry Group (CSIG) was newly established, and the Smart Travel Business Unit is a second-level department under it, becoming Tencent’s unified window for customers in the automobile industry.

As for personnel configuration, it is very “Tencent”. Many personnel involved in the project are not from the Smart Travel Business Unit. In the words of the head, Zhong Xuedan, “many cross-departmental personnel are invited over by us.”

Different from other internet giants who are car manufacturers, Tencent’s small front-end, large-middle-end mode mostly uses a collaborative mechanism when carrying out vehicle networking business. Especially after the B-to-B strategy was implemented, the Smart Travel Business Unit and AI, LBS services, TME (Tencent Music), WeChat and other departments have extensive cooperation.

A knowledgeable insider explained that Tencent will establish joint project groups for different projects to achieve cross-departmental collaboration. For example, in terms of in-car voice technology, the Smart Transportation Business Group will collaborate with the Smart Platform Business Group to establish a joint project. As for in-car entertainment, it will establish a special team with TME. Because of the existence of collaborative mechanism, it is difficult for the outside world to describe Tencent’s Smart Transportation Business Group in terms of personnel and structure, and therefore there is a large part of people without “official registration”.

While most of the industry peers follow the “one carrot, one pit” model.

For instance, in May 2019, Huawei established its Intelligent Automotive Solutions BU, which is also a first-level department under the group. It has more than 500 employees. Within two years of its establishment, Xendrive Intelligence has more than 500 research and development personnel. Needless to say, in April 2018, Alibaba reorganized its original Automotive Business Unit into the Automotive and Intelligent Transportation Business Unit.

Another impact of the “930” reform is that the focus of Tencent’s Smart Transportation Business Group has shifted to providing technology services to enterprises. Importantly, both autonomous driving and connected car businesses, which are also related to the automotive industry, are included under the Smart Transportation Business Group. Tencent’s Vice President and President of Tencent Smart Traffic and Transportation, Zhong Xiangping, has repeatedly emphasized that “connected cars and autonomous driving are equally important businesses for Tencent”.

With separate management, collaborative effort and a focus on business-to-business relations, Tencent is positioning autonomous driving and smart vehicle businesses as “products” for B2B, rather than bundling them together as a package solution.

Another reason for not producing cars is to consider that car manufacturers are an important customer group for Tencent. In other words, Tencent cannot both serve and compete with car manufacturers.

In the view of Li Bo, General Manager of Tencent’s Smart Transportation Business Group, almost all the giants involved in the connected car industry have to some extent also become involved in car manufacturing, but Tencent does not have the talent reserves for hardware, nor has its investment covered car manufacturing. “They (car manufacturers) are least concerned about Tencent making cars.”

Since 2010, when almost every growth opportunity arises, there have been internal discussions at Tencent about whether or not to pursue them. Li Bo believes that the to B strategy dictates choosing what to pursue and what not to pursue. “Establishing CSIG is to help partners…We shouldn’t be a referee and a player at the same time, so we choose a position and do not join the competition.”

As it does not constitute potential competition with car manufacturers, “getting on board” is much easier.

Lyu Dake, Business Director of Tencent’s Smart Transportation Business Group, used the term “connector” to summarize: “The entire CSIG and related departments position themselves as connectors for automakers. If they produce cars or hardware, they may lose this positioning and value as a connector.”

From a utilitarian perspective, the value of providing technology services is not lower than that of making cars.The China Industrial Economic Research Institute predicted that the scale of the autonomous driving market in 2021 will exceed 235 billion yuan, while iResearch predicted that the scale of the vehicle networking market during the same period will be 369.7 billion yuan. From this comparison, we can roughly infer that Tencent’s “connection” is actually invaluable.

Looking back at history, Tencent’s vehicle manufacturing is not worth looking forward to. Tencent has a strong “soft” power, but is more like a “frequent visitor” in the hardware field, with few successful attempts. These cases in the hardware field all indicate that Tencent’s channel and supply chain are weak, its product positioning is biased, and its resource investment is insufficient.

Not manufacturing vehicles is actually the result of Tencent’s organizational structure, personnel scale, overall strategy, and hardware experience working together, not to mention that not manufacturing vehicles does not mean Tencent will be absent from the era of intelligent vehicles.

Getting on board is not easy

Giving up vehicle manufacturing does not mean that Tencent has given up on intelligent vehicle technology. On the contrary, Tencent has invested a lot of effort into it.

Tencent officially entered the vehicle networking market in 2017, mainly cooperating with GAC, Changan, and Liuzhou Motors, which are also frequently mentioned later in the company’s “to B” strategy.

Early on, “bringing internet service capabilities into the car, such as map services and voice interaction” was Tencent’s idea. According to Zhong Xuedan, when Tencent started vehicle networking, it encountered two problems that are widely faced in the industry. One is low map accuracy, and the other is a huge challenge in noise reduction and recognition for voice interaction.

Tencent’s map and voice recognition products were born in the context of mobile ecology and have been successful in many scenarios. However, unexpectedly, when they were applied in vehicles, they were not well received. Unlike the rigid demand for maps and voice interactions, the process of using WeChat in cars was extremely bumpy.

WeChat has established a sufficiently large user base in the mobile era, and “there is no problem if users don’t get on board, WeChat’s user base will not decrease,” said a senior executive of an autonomous driving company. He believes that the industry is not mature yet and the risk of getting on board easily is high. “When the vehicle side is very mature, just come and pick the fruit.”

The book “The Innovator’s Dilemma” once mentioned the theory of disruptive innovation and sustainable innovation: WeChat became the industry leader through several disruptive innovations. Under the expansion of market share, any small problem will be magnified by the huge user base of 1 billion.

Even if there are tens of thousands of reasons to prevent WeChat from getting on board, car manufacturers cannot sit still as users increasingly demand WeChat on board. Chen Ji (pseudonym), who is responsible for Tencent’s coordination with car companies in the long term, believes that domestic independent brands are still in the stage of catching up, and pay more attention to the needs of younger consumers. Smaller car makers have lower burdens in trying innovative things.

Getting on WeChat in cars is far from being as easy as imagined.

Zhou Feng, the general manager of the Strategic Planning and Technology Development Department of Dongfeng Company, directly participated in the cooperation with Tencent’s senior executives. At the time, many people suggested that WeChat should be moved to cars, but unexpectedly, the first person to oppose it was WeChat itself.

Zhou Feng recalled that Zhang Xiaolong believed that “if playing with a mobile phone or WeChat makes the car unsafe, then it’s absolutely not worth it.” In addition to safety, an insider also mentioned that in the mobile era, someone taught Zhang Xiaolong how to use WeChat every day. If he casually got into a car, “a bunch of people would pop up to teach Zhang Xiaolong how to get in the car.”

After multiple tests, the team finally formed a methodology with a “software-defined hardware” approach: a dedicated button is set on the steering wheel to awaken WeChat. This solution is now being adopted by more and more automakers.

In August 2019, the flagship CS75 PLUS car introduced by Changan was equipped with WeChat according to this solution – full voice interaction, combined with the WeChat-exclusive button on the steering wheel, the driver hardly needs to look at the screen, nor touch it with their hands, to send and receive WeChat messages. As a result, the market reaction was strong and some user-oriented car companies received constant feedback from users asking “why can’t you do what that car model did?” From this perspective, user demand is one of the most important driving forces for WeChat to get into the car.

However, some automakers object from the cost and production perspective. Adding a button to the steering wheel seems small, but for car companies that engage in large-scale production, the design phase has been frozen and delivered to production. Much less drill a hole and install a button, even adding a WeChat icon would cause enormous time and money costs.

Automakers did not understand why Tencent insisted on adding a WeChat button to the steering wheel, and it was not until multiple communications later that they found out it was due to safety issues. Wang Wanxin, general manager of Tencent’s car networking, said that the only consideration for getting WeChat on board is to “let consumers drive more safely and not let frequent viewing of WeChat affect their driving safety.”

As safety and economic benefits were at odds, Tencent spent a lot of effort in mediation. And after much coaxing and cajoling, manufacturers were finally convinced. Great Wall once made a car model specially adapted for WeChat. Meanwhile, the WeChat team fully cooperated and constantly adapted to customer demands.

Chen Ji remembers that at the time they had to make changes while using it.

“Your design is too difficult to use. After WeChat was introduced, I still have to yell to receive, hang up, or cancel,” after Great Wall received user feedback, they had to revert to the previous plan: setting a WeChat button and adding a logo. As a result, they even created a video specifically to guide users on how to operate the button.

WeChat on cars doesn’t seem as “smooth” as it is on mobile phones, and Tencent car networking team was asked one time, “why is your WeChat in cars so simple?” The answer they got was, “if we made it too good, with so many functions, it will distract users’ attention and potentially cause safety accidents.”Although product functionality expansion has been limited by security considerations, Tencent and car makers have realized that safety is the most important issue, providing a new idea for the large-scale deployment of WeChat. Some platform-oriented car makers, such as Great Wall Motors, quickly spread their cooperative framework across their entire range of models.

All signs indicate that even WeChat, which has been successful in the mobile era, still has to start from scratch in the car-side scenario.

Breaking down into pieces

Photon Planet has learned from more than ten industry insiders that many technical service providers hope to provide a complete solution because of technical considerations.

When Chen Ji was connecting with car makers, he found that many car makers could only accept WeChat at the application level. However, in fact, even in the car-side scenario, WeChat needs to link the entire ecosystem due to positioning information, different sound quality, and even small program pop-ups.

This industry misconceptions is gradually being understood by car makers as more and more products go on the market.

A certain startup car networking company is nervously preparing for their first battle. The company has just been established for half a year, and they need to recruit people while also changing the mindset of traditional car makers. Solving core problems has made this startup company exhausted, and their own system still lacks many in-car ecosystem changes.

It’s like when you’re moving in, you only bring out a framework with the main structure completed, without internal and external whitewash, let alone any decoration. Of course, consumers won’t buy it.

The person in charge of R&D of the above-mentioned enterprise told Photon Planet that after the team realized the problem, the company introduced Tencent Car Alliance to solve many problems, not only WeChat, but also maps, voice, and multimedia. In April 2020, the new car with the new system finally went on the market.

After the epidemic, both car networking and autonomous driving underwent a significant turning point, with capital beginning to favor new car makers, while intelligentization gradually became an industry consensus. This is not only an opportunity but also a challenge for technical service providers.

The biggest difference between car makers and internet companies is actually at a metaphysical level, such as understanding the underlying logic of products. This difference often leads to their opposite viewpoints when looking at downstream products. In order to bridge the gap between the two camps and maintain cooperation, those who have both traditional manufacturing and internet backgrounds have become rare talents, and Chen Ji is one of them.

Even after years of immersion in the Internet, as the person in charge of connecting with Great Wall, he still encountered some problems in pushing the QQ Music onboard project forward.

In 2018, when Chen Ji began connecting with Great Wall Motors, QQ Music was planning to go onboard. His department colleagues eagerly presented the plan to the car manufacturer, but the result was met with disappointment. Because car makers believed that “music needs to retrieve gear information,” it can be put onboard, but at least when it is in reverse gear, the music needs to be turned off.In his opinion, thinking from a mobile perspective is unable to form a positive interaction with car companies. In the eyes of internet people, there has never been a scene of shifting gears on mobile phones, while car companies regard turning off the music as a mandatory requirement.

Chen Ji could only spend time at the car factory with his colleagues attempting to view their products from the perspective of car companies. Relying on finding solutions by squatting at car companies is only idealistic, the reality is that even if he knows where the problem lies and how to solve it, once the car model changes, or even switching to another car manufacturer, his plan becomes ineffective again.

“The production of cars is actually the result of mutual compromise,” says car engineer Chen Quan (alias), who has ten years of experience in the workshop. To him, let alone the gap between technology companies and car companies, there are frequent disputes between different departments within car companies. “The exterior design team who make the hood and the team who make the headlights never interact with each other.”

Chen Quan believes that the biggest problem with technology companies making cars is thinking that technology can guide everything while ignoring the sedimentation ability of car companies, leading to many new entrants frequently encountering safety hazards.

When he analyzed the Tesla “brake recall event”, he speculated that there might be a certain deviation between the packaged system of Bosch and Tesla’s requirements, leading to errors in signal judgement concerning power recovery, movement and braking.

“Both car companies and internet companies value safety, but how to do it really varies a lot.”

Chen Quan has always believed that “piling up sensors for autonomous driving is not feasible”. With the deepening of intelligence, returning to vehicle safety is a matter of time. He summarized that while the autonomous driving of new entrants is good, control problems cannot be ignored, and this part happens to be the advantage of traditional car companies.

Internet companies cannot reverse engineer, and if the original vehicle controller algorithm does not have an open interface and active control function, even if Baidu is strong, it cannot obtain the DBC file (Dynamic Body Control System) without cooperation with car companies.

Traditional Car Manufacturers Speeding Up Internetization

The rapid growth of NIO has led outsiders to think that traditional car companies are in a sunset period, and many people have generally described this as “genes.” According to sources from several car companies, they believe that they lack the “Internet” mainly in terms of market model and organizational form.

Zhan Suchi, the vice president of the management department of Dongfeng, believes that traditional car companies do not lack the foundation of the Internet, but has a late start in consumer internet. Relying on 4S shops makes it difficult for car companies to perceive market demand and they are not clear what users want.

It is not easy for traditional car companies to establish direct contact with users. Under the mindset of “engineers”, most companies believe standardization is the best solution, ignoring the feelings of the product when it reaches the hands of users and completely relying on 4S shops to handle sales, leading to “some information being blocked and selectively transmitted to us”.”We have 52 million vehicles in stock, but we used to have no idea what happened to them,” said Dongfeng. Almost all traditional car companies face similar problems. While digital marketing can solve the problem, years of deep-rooted inertia and complex interest relationships make it difficult for enterprises to take even a step forward. Moreover, B2C capabilities cannot be developed overnight, so Dongfeng turned to Tencent.

During the cooperation process, Dongfeng’s subsidiary brand Voyah rebuilt its customer marketing system by guiding traffic with Tencent’s content and social ecology, such as fissioning into Voyah’s customer group in WeChat’s social ecology.

In the traditional sales model, users would go to the dealership to see the car and then test drive it, so the test drive rate was an important indicator for salespeople. After the digital transformation, the test drive rate was replaced by the conversion rate. Dongfeng found that “users go to the dealership just to see if they can get a cheaper price,” so test drives were not as important.

As observed by the outside world, the cooperation between car companies and internet companies is not as beautiful as it seems on the surface. Both are leaders in their respective industries, and when they encounter differences, either side being too strong can easily lead to conflict.

“We put ourselves in a relatively lower position,” when asked how to resolve differences with car companies, Li Bo’s answer was unexpected, “you will find that whether it is a car or a marketing platform, you rarely hear Tencent promoting itself on the outside.”

In the process of cooperating with internet companies to solve marketing problems, many car companies realize that the organization form is more important. Chen Quan calls it the “inertia of the manufacturing industry.” He has done several technical occupations and years of experience tell him that making a car is something that requires coordination.

“For example, if you want to add a zero-gravity device to make the seat more comfortable, you need to find someone who makes the car space. The person in charge of car space will ask you to find the person who makes the interior, and the person in charge of the interior will ask you to find the person who makes the space size, and in the end, all of it is thrown to the person who makes the structure.” Compared with the flexible organizational model of internet companies, this model is somewhat clumsy.

In the process of cooperating with Tencent, car companies realized that the “flexibility” of internet companies can be summed up in one sentence: the organization undertakes strategy.

“A full-body surgery is too difficult, and the resistance is too great,” a person in the industry told Photon Planet. In recent years, traditional car companies would let a deputy general manager go out and do a new brand from scratch without any burden, such as Dongfeng’s Voyah.

Great Wall is another representative. The company originally had a set of “wolf-rabbit spirit,” and based on its agile and efficient considerations, its transformation process was relatively smooth, completing several organizational reforms.The biggest characteristic is the unitization of business operations on the front end. Chen Xianling, the CDO of Great Wall, told Photon Planet that in the more than 30 operational units of the group, each has its own commodity, project, and marketing director and they are interconnected to ensure independent operations of H6, M6, Baimao, Heimao, Tank 300, etc. without being burdened by hierarchical decision-making of the past.

Having tasted success, Great Wall is unstoppable. The autonomous driving team that existed as early as 2009 became independent in recent years after the Internet era, and similar companies like Xeentech in the car networking field and Nobo Technology with full-stack self-developed ability for intelligent cabins have emerged.

Great Wall learned from Tencent’s “horse racing mechanism” in their cooperation and not only did not avoid multiple concurrent paths, but also constantly invited competition to improve their own capabilities.

“Although WmAuto is a competitive subsidiary of Great Wall in autonomous driving, we will still introduce Huawei and Momenta. On the cabin side, we have Xeentech, but we will still introduce AMP and other manufacturers to compete. Even in a traditionally conservative field, such as seats, we have Nobo Technology, but we still introduce Faurecia and Lear.”

Breaking Down Barriers Between End Devices and Clouds

After 20 years of the Internet, even Tencent realized that “only fast is not enough” is not applicable to the industrial Internet, which is seen as the next huge market by most companies.

Tang Daosheng had previously reflected that some industries had once been fervent, but it was difficult to sustain massive growth through subsidies. If the tide recedes and the pig can no longer fly, when all the giants return to the demand side, it will be too late to see what customers really need.

Faced with various demands during the digitalization upgrade of traditional auto companies, Tencent’s concern is not just whether to build cars or not, but rather to consider the problem of “getting on the car” from the perspective of digitalization of the industry.

In other words, when technology companies flood into the field to confront traditional auto companies, Tencent’s approach is more like that of a comprehensive service provider of industrial digitization, rather than just a car networking or a single map service. This is also understandable, as Tencent always talks about car networking in the context of to B.

Customization demands in the automotive market, intensified industry competition, shortened R&D cycles for new cars, and increased intelligence mean that all companies have a need for digitalization in R&D. The digitization then spreads to the supply chain, making the relevant firms want to reduce costs and increase efficiency by going digital in production and the supply chain.

The emergence of new forces in the auto industry has made traditional auto companies realize that it is not just about selling cars, but about user operation. Connecting to users through social media is more effective than outsourcing services. In addition, new business models, such as OTA, shared travel, and cabin user operation, which may appear in the future, all rely on digitalization.

Because it is not just cars that are being iterated, but also the need for digital transformation of auto companies, we can see that the connection between Tencent and the industry is increasing.# Tencent’s Business Layout in the Automotive Industry

In order to promote the digitization of the automotive industry, Tencent’s business map focuses on cloud and intelligent connected vehicles. This includes both the front-end market (automotive R&D and manufacturing) and digitization of sales, as well as the more complex back-end market (vehicle software ecology).

In terms of vehicle security, SAIC and Tencent have established a joint security laboratory to cooperate. According to Tencent’s latest data, Tencent’s intelligent cockpits have been installed on over 7 million vehicles.

In the mobile era, Tencent has relied on the “Half-Life” to grow big, and the reason why it can succeed is that its partners are all on the same boat. However, in the era of industrial Internet, there are many people and many ships, and they are all separated from each other. What Tencent is doing is actually an upgraded version of “Half-Life.” This may bring completely different business models.

A traditional automotive engineer told Guangzhi Xingqiu, “Internet companies cannot just treat the automakers as advertising spaces and think that they can get on the car as long as they pay.” He even believes that no matter how good the technology is, what tech companies are really after is to get traffic inside the vehicle.

The traditional understanding that “internet companies are eager to get on the car in order to exchange for traffic inside the vehicle” is being challenged. Nowadays, more and more people realize that the future of automobiles is an end-to-end cloud-linked chain, so there is no such thing as who gets whose car. This requires car companies and the Internet to collaborate to create value, connect factory stores and car services, and continue to explore new business value.

Guangzhi Xingqiu found that when Tencent Music gets on the car, automakers can “participate in the sharing of music revenue.” This is very attractive to automakers, as it can not only use mature content ecology to arm themselves but also enrich revenue structure. It is worth mentioning that industries such as online music, which are difficult to monetize in the mobile era, will have a new market in the car space.

When partners cooperate better, Tencent can also benefit from them. In the era of industrial Internet, whether it is an automaker or a tech company, they should realize that no one can win everything, and only by breaking down barriers and moving towards cooperation can they possibly stand invincible in competition.

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.