This article is reproduced from the autocarweekly public account
Author: Finance Street Old Li
Changan Automobile has been quietly making big money this year.
There is a rule in the capital market that those who shout outside every day are mostly losing money and gaining hype, while those who conduct low-key research and development are mostly making money quietly. Changan Automobile belongs to the latter, using all its strength to explore every segmented market. On September 6th, Changan Automobile’s second-generation CS55PLUS was launched, priced at RMB 106,900 to RMB 121,900. Since it was pre-sold on August 5th, orders have exceeded 20,000.
When Old Li saw the CS55PLUS, he immediately thought of the CS55 that was launched in 2017. Within half a year, the CS55, which was launched in 2017, exceeded 100,000 units in sales. Only three years later, Changan Automobile launched the CS55PLUS. In fact, it is rare for automobile manufacturers to change their models every three years. From CS55 to CS55PLUS, the product changes are huge, but the changes in Changan Automobile are even greater.
Today, Old Li will talk to everyone about what happened to Changan Automobile in the past few years, why Changan Automobile is unique in the automobile sector of the secondary market, and where Changan Automobile is heading for the future.
From the “PLUS Plan” to the “UNI” Plan
Competition between automobile companies is ultimately a competition of product strength. This round of leap by Changan Automobile is essentially a leap in product strength.
In the past thirty years, the competition between BBA was a competition from product to brand. Chinese brands today also follow this rule. The competition between Chinese automobile companies is based on products, from Great Wall to Geely, and from Geely to Changan.
Before 2017, Changan Automobile experienced a peak in product development. The Eado sedan and the CS series SUV, among others, drove Changan Automobile to a new sales peak. However, after 2017, as competitors’ product strength improved, Changan Automobile’s development gradually slowed down. However, the Changan Automobile executives, who have experienced many business battles, keenly caught the problem of its product cycle.
Before the 2018 Beijing Auto Show, Changan Automobile Chairman Zhang Baolin declared “if the times have left you behind, it has nothing to do with you,” announcing that Changan Automobile was embarking on its third start-up, rethinking where users are and where the technology is, and how Changan Automobile will make breakthroughs and innovate. Also in that year, Changan Automobile announced that it would achieve the first place in the size of China’s domestic brands and be in the top ten in the world by 2025.The third entrepreneurship of Changan Automobile is centered around product revolution and transformation into a technology company. There are mainly two major initiatives. The first is upgrading existing Changan products with the “PLUS” plan, which involves a comprehensive upgrade of each Changan vehicle based on the current technical system. CS55PLUS, released this time, is part of the “PLUS” plan.
The second initiative is to create the UNI series of high-end products under the Changan V label to expand into new markets. As the name suggests, UNI derives from the first three letters of the English word “Unique,” and its Chinese name means “attraction.” The mission of UNI is to expand the user base of Changan’s classic products by attracting new users with unique product DNA.
Li’s friend participated in the formulation of Changan’s third entrepreneurship plan, and from setting goals to implementing the plan, it only took two years to bring the product revolution to fruition. The most impressive aspect was the million-dollar end-of-year bonus for the Changan Automobile “PLUS Plan” project team that went viral across the internet.
In terms of implementation, there are some differences between the two initiatives. The “PLUS” plan mainly achieves a boost in product performance by using a new design, installing blue whale powertrain systems, and intelligent technology systems for the previously produced sedans and CS series SUVs. The “UNI” plan breaks the existing system and incorporates new concepts, new designs, and new technologies into high-end products. The entire UNI series is sci-fi inspired, featuring numerous new technologies, including L3 level autonomous driving systems, and is dubbed the “future technology producer.” In other words, the success of this series will either make or break Changan’s efforts.
Fortunately, both of Changan’s major product revolution initiatives have been successful. In the first half of the year, the CS75 series sold a cumulative 174,000 units, a year-on-year increase of 58.9%, including 128,000 CS75PLUS units sold; the Yidong PLUS had a sales volume of 91,000 units, and monthly sales of over 12,000 units in the first half of the year.
The UNI-T and UNI-K models of the UNI series have already been launched and attained good market results. The sales volume of UNI-T has reached tens of thousands of units, and the follow-up product UNI-V is also about to launch. In the future, the UNI series will introduce three or more new models, which many researchers believe will not only be a high-end product line but also a complete transformation of Changan.
In the automobile industry, sales are still the king.
Rest is for a better advance.Old Li, a partner, often says that when the trough comes, the peak is not far away. This sentence is also very suitable to describe Changan Automobile. From 2017 to 2019, it was a low point for Changan Automobile, with sales declining for three consecutive years. Later, under a new round of product offensive, Changan Automobile ushered in a growth cycle, with sales bottoming out and turning around, rather than rebounding.
Since the first half of last year, the Old Li team has been researching Changan Automobile, and the reason for the research is simple. Firstly, Changan Automobile has already bottomed out and turned around in 2020. Secondly, from the perspective of the product cycle, Changan Automobile should have entered a growth period. The past year has been a period of simultaneous research and layout, but it wasn’t until the second half of last year that there were results.
This year, the stock price of Changan Automobile has also performed well. The stock price expectation is actually reflected through performance:
From the sales data, in the first half of this year, Changan Automobile achieved sales of 1.201 million vehicles, a year-on-year increase of 44.5%, and the market share increased by 1.2 percentage points year-on-year, returning to the fourth in the domestic auto group sales ranking. Changan’s Chinese brand passenger car sales volume was 660,000 vehicles, a year-on-year increase of 68.3%, returning to the first in Chinese brand passenger car enterprises.
From the financial indicators, Changan Automobile’s revenue in the first half of the year was 56.785 billion yuan, a year-on-year increase of 73.22%. Its net profit attributable to the parent company was 1.729 billion yuan, a year-on-year decrease of 33.55%, and its non-net profit attributable to the parent company was 740 million yuan, a year-on-year increase of 128.3%. Among them, revenue in Q2 of 2021 was 24.758 billion yuan, a year-on-year increase of 16.7%, and non-net profit attributable to the parent company was 20 million yuan, reversing the loss year-on-year.
Among Changan Automobile’s various financial indicators, except for the net profit attributable to the parent company, all achieved significant growth. In the first half of this year, Changan Automobile also mentioned the reason for the decline in net profit attributable to the parent company in the financial report. The main reason was the non-recurring gains and losses caused by Changan New Energy and the sale of Changan PSA equity in the first half of last year. If the non-recurring gains and losses are excluded, Changan Automobile’s non-net profit attributable to the parent company increased by 128.3% year-on-year, which is also a very impressive data.
What the secondary market most hopes to see is that companies keep “fiddling around.” Only by doing so can they get out of the cycle and have new expectations. Changan Automobile is the company likeliest to “fiddle around” among many state-owned auto companies. Starting from the “Third Innovation and Entrepreneurship Plan,” Changan has entered a comprehensive reform period, involving multiple dimensions such as corporate governance, brand restructuring, and supply chain restructuring. The company’s reform strategy directly determines the chips in the secondary market.Reforming primarily needs to solve the issue of human resources, just like the current “common prosperity” plan. Mr. Li believes that the main reason for the rapid development of Changan in the past two years is the solution of the “human resource” problem.
While upgrading its products, Changan Automobile has been continuously optimizing its organizational structure and innovatively creating a new organizational structure of “small headquarters + business group + shared platform + incubation and innovation”. It has established software technology companies, early-stage technology centers, and forward-looking technology research institutes, and formed strategic technological organizational power through multiple incentive measures such as project follow-up, deferred bonuses, restricted stocks, and employee stock ownership. Simply put, more equity is given to employees to enable greater enthusiasm and involvement.
In terms of capital operation, Changan Automobile will open a list of technology projects, build an innovation incubator, and explore new ways of allocating resources in the market, with an inclusive attitude towards innovation, aiming to achieve the goal of becoming a new source of automotive technology innovation. To put it more simply, it adjusts the allocation of capital and revitalizes state-owned assets.
In terms of brand layout, Changan Automobile has finally completed its four major brands announced in 2018, including Avida Technology, Changan Automobile, Oushang Automobile, and Kaicheng Automobile.
In terms of the industrial chain, Changan Automobile has announced the new energy “Shangri-La Plan” and the intelligent interconnection “Beidou Tianshu Plan”. Friends who have been paying attention to Changan Automobile will find that at every strategic release conference, Changan Automobile has always delivered a “grand narrative” that demonstrates its determination for reform, followed by silence.
Mr. Li believes that facing the changing market, the high-level strategy of Changan Automobile is correct: look up at the stars, and work earnestly on the ground.
Under the state-owned system, losing money and making a lot of noise is useless for the secondary market. No matter how much it is promoted, everyone thinks that there will be a certain degree of comfort under the state-owned asset system, and making a fortune by keeping quiet is the best way to impress the secondary market. Real gold and silver are all in the sales volume and financial reports. Naturally, everyone will come to buy.
Centering around this strategy, the implementation path of Changan Automobile this year is very simple, which is to focus on sales volume, market share, and then to improve profits. Fortunately, Changan Automobile has achieved all these goals, and many institutions have also made a lot of money in the secondary market.
Continuous innovation is the driving force
There are two main ways to look at changes in a company in the secondary market. The short-term is to look at technical aspects. Many friends have been enjoying this. The long-term is to look at the fundamentals of the company.
For a car company, its core fundamentals are mainly technology, products, and brand operations, and each major direction can be further developed.
Changan Automobile has made a lot of layout in the field of technology, but the promotion is very small. It was not until last year that Mr. Li found out through in-depth research that Changan Automobile’s technological reserve surpasses that of private enterprises.
Architecture is the core foundation for a car company to achieve scalable development. In the past two years, Changan Automobile has been laying out architecture. Inadvertently, it has formed a three-platform architecture system of “CHN+SDA+Ark”, covering large, medium, and small platforms, as well as multi-power systems. In the next five years, Changan Automobile will launch 26 new smart electric vehicles based on these three platforms. This is something that no new force can achieve, and the power of architecture is once again reflected.
The secondary market is most looking forward to the CHN architecture, because it integrates the advantages of Changan, Huawei, and CATL in the fields of vehicle integration, software technology, and battery. Therefore, based on this platform, Changan will develop a total of 11 new products including sedans, SUVs, MPVs, and other new species in the next three years. This means that the new architecture will not only be used for Avatar Technology but also cover other brands. This strategy immediately reminds people of Geely’s HA architecture.
In addition to the CHN architecture, Changan Automobile also upgraded two existing architectures. In the field of new energy, the three pure electric chassis EPA0 (entry-level rear-wheel drive), EPA1 (medium-sized front-wheel drive), and EPA2 (large four-wheel drive) have been integrated and upgraded into the SDA platform architecture, mainly to create economy-priced products. In the field of fuel vehicles, Changan Automobile will upgrade the original Ark architecture, improve power by 30%, reduce energy consumption by 30%, and achieve various electrification power upgrades from ICV to HEV, REEV, and PHEV.
To be frank, architecture is a mysterious thing, and new forces rarely mention it, and users cannot understand it. Therefore, everyone has weakened their understanding of architecture. For a car company from 0 to 1, the most important thing is products, not architecture. For example, NIO, Ideal, and XPeng rarely mention architecture in the past because it is not their advantage. For companies from 1 to 10, architecture is the most important thing. Without architecture, they cannot create multi-category products or reduce costs through scalability.
### Translation
Recently, Laoli has discussed Changan Automobile with many researchers. Different perspectives have been given by the researchers compared to the first half of the year. In the past, when people mentioned Changan Automobile, they would mainly think about the limitation of the company’s development due to the system. Now people are thinking whether the system can become an accelerator for its development. The key point of change lies in the new brand – Avita Technology.
Changan has always controlled the spreading rhythm of Avita Technology. Its R&D and product promotion speed are very fast. According to Laoli, Changan’s high-level officials have been holding opinions on “scheduled cars”. They hope to create a “released immediately after launching” atmosphere for the industry, and improve the user experience by taking Avita Technology as an opportunity.
The product development rhythm of Avita Technology also confirms this fact. Its first model, the E11 prototype, was offline in the first half of this year. It is positioned as a high-end midsize crossover SUV, priced at about 300,000 yuan. It forms competition with similar models such as Model Y and ES6. Avita Technology’s products are expected to be officially released this year, which means “released immediately after launching”. Therefore, in Q4 of this year, adding the “PLUS” plan and “UNI plan” sales release, as well as the launch of Avita Technology, Changan’s performance in the secondary market will be very impressive.
Changan’s risk lies in the “chip shortage”. As Laoli mentioned in his previous article, due to the relatively scattered chip procurement of Changan, the chip shortage problem is relatively serious. Therefore, in Q4 of this year, the chip shortage problem will to some extent affect the sales release of Changan’s brand while the sales of Avita will directly depend on Huawei’s supply capacity. Huawei has also come to the time to pay for the past “boasts”.
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.