2024-08-11
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Source | Bohu Finance (bohuFN)
Author | Chen Pingan
In the context of the Chinese Internet, involution is a word that depends very much on one’s perspective.
For example, it is well known that the current Chinese auto market is "the most competitive in the world, bar none". How competitive is it? A plug-in hybrid electric vehicle the size of a B-class car, which claims to have the world's highest thermal efficiency engine, the longest driving range and the lowest fuel consumption per 100 kilometers, is priced at 100,000 yuan. Consumers are of course happy to see this happen, and the price war has forced BBA to join in, and automakers have to sell cars at a loss.
But everyone understands the principle of "fishing in a dried-up pond". For consumers and car companies, is this internal competition that prevents car companies from making money really a good thing?
The disagreement over "involution" has plunged the domestic auto industry into an unprecedented debate.auspiciousYang Xueliang, Senior Vice President of the Holding Group;GAC GroupBigwigs including Chairman Zeng Qinghong formed a group to speak.
Yang Xueliang blasted the involution, saying, "The industry is well aware of the serious non-compliance with the atmospheric pressure tank and emissions standards. I believe there will be a fair, just and open legal conclusion, and the truth will be revealed to the world."
Zeng Qinghong said, "We should have a big picture, a long-term strategy, rather than just focusing on the present."
This time it's your turnGreat Wall MotorsChairman Wei Jianjun. On August 7, Great Wall Motors Chairman Wei Jianjun was interviewed by the central media and said:
"Some industry bosses are now calling for improper, unfair and fraudulent rolls."
"I will definitely be a defender of the order in the auto industry."
"We can audit the entire auto industry to see who has problems. Great Wall Motors will cover the audit fee."
Frankly speaking, whether it is Wei Jianjun, Yang Xueliang or Zeng Qinghong, their speeches are not pleasing to netizens. Being scolded or even cyberbullied is something that has already happened. But when we are practicing the ideal of overtaking others in the Chinese automobile industry, it is indeed necessary to be serious about whether the road under our feet is solid enough.
Perhaps a considerable number of industry professionals or car owners often have such a contradictory mentality: on the one hand, they are proud of the rise of the domestic automobile industry, and on the other hand, they are worried about the survival of car companies.
In the past few years, many car companies have filed for bankruptcy liquidation, including WM Motor, Byton, Skywell, and Aiways. Those who remain at the table are not having an easy time either.NIO、Xiaopeng、Zero RunFor the three companies, according to their respective annual reports, they will suffer losses of 20.72 billion yuan, 10.38 billion yuan, and 4.22 billion yuan respectively in fiscal year 2023. Among them, the net losses of NIO and Xpeng increased by 43.5% and 13.6% respectively compared with the previous fiscal year.
Generally speaking, the industry consensus for a healthy gross profit margin is around 20%. However, the gross profit margins of NIO, Xpeng, and Leapmotor in 2023 are 5.5%, 1.5%, and 0.5%, respectively.
Ideal AutoChairman and CEO Li Xiang previously stated in an interview with a reporter from 21st Century Business Herald that the competition in the new energy vehicle industry is very fierce, and even the top two companies can engage in price wars, which is simply not seen in other industries.
This situation is not just a headache for new players. According to the National Bureau of Statistics, the revenue and profit data of industrial enterprises above designated size from January to June, the profit margin of the automobile manufacturing industry in the first half of this year remained the same as in 2023, at 5.0%, which failed to outperform the average profit margin of the entire industrial enterprise.
This also means that the operating conditions of the entire industry are not optimistic.
Excessive price wars harm not only the interests of enterprises, but also the interests of consumers. The most typical example is that car owners who have just picked up a new car will encounter official news of a price reduction of tens of thousands of yuan within a few days. In the past one or two years, this situation has been common.
On the other hand, crude price wars are also eroding the quality of cars. Both fuel cars and new energy cars cannot make up for the manufacturing cost loss through software charges like Internet companies do. Selling cars is the only way to make a profit. Under the pressure of price wars, manufacturers will inevitably pass the pressure on to suppliers. Previously, a second-tier supplier revealed that the continuous price pressure from manufacturers has indeed caused greater quality fluctuations than before.
This is why Wei Jianjun does not believe that cost-saving alone can lead to endless price adjustments. "Our Great Wall's industrial chain is broad, deep and vertical. Our costs are not higher than anyone else's. If Great Wall really can't make money, others can't make money either."
Let's go back to the meaning of car companies. Whether it is providing users with excellent products or stabilizing employment, continuous profitability is needed as a foundation. A simple and crude price war can certainly attract everyone's attention in the short term, but a decision without underlying logic is obviously a short-sighted behavior.
From this perspective, many of Wei Jianjun's comments that netizens have complained about in recent days seem very reasonable:
“When the waves of involution break through the bottom line of costs, if you only rank by sales volume, what’s the value of that? Why don’t you rank by quality?”
Price wars are also a marketing strategy. Whether it is to attract users through pricing or to create a hit product through rhetoric, there is nothing wrong with it. The key is whether the means are formal. In this matter, the industry has formed a consensus and action that is much larger than everyone imagines.
BYDLi Yunfei, general manager of the Brand and Public Relations Department, once made a comment on playing cards, meaning that a price war is like playing cards together. You should do what you can. When someone plays the cards, you should follow if you can, but don’t follow if you can’t. Don’t get angry and don’t overturn the table.
Interestingly, this metaphor has a follow-up. For example, Li Ruifeng of Great Wall said, "If someone cheats at the poker table, you must stand up, knock on the table, or even flip it over." Yang Xueliang of Geely has a similar view, "We hope that poker players strictly abide by the rules. If some poker players are found to steal cards, change cards, or play fake cards, they should consciously and proactively accept the punishment, and should not be angry and demand that the players who abide by the rules be kicked out."
The industry has indeed suffered from vicious internal competition for a long time. For example, the well-knownIdeal MEGABlack PR incident. After the Ideal MEGA was released, many malicious photoshopped images of MEGA appeared on the Internet, with words such as "葬" (meaning funeral car) and "new energy funeral car" pasted on the car body. Now, many car companies, including Great Wall, have issued rewards for black PR behavior.
But the most shocking incident in the industry is the "fuel tank gate" incident. In May 2023, Great Wall Motors issued a statement saying that it had submitted reporting materials to the Ministry of Ecology and Environment, the State Administration for Market Regulation, and the Ministry of Industry and Information Technology.BYD Qin PLUSDM-i, Song PLUS DM-i uses a normal pressure fuel tank, and is suspected of not meeting the emission standards for evaporative pollutants from the entire vehicle.
The core issue surrounding this incident is unfair competition.
In order to comply with the National 6B standard that will be implemented in July 2023, the common solution for hybrid vehicles is to use a high-pressure fuel tank. Domestic manufacturers including Ideal have taken this approach. High-pressure fuel tanks are of course good, but the only drawback is that they are more expensive: according to Jiemian News, high-pressure fuel tanks are about 1,000 yuan more expensive than normal-pressure fuel tanks, which is more than 50% more expensive.
Although BYD subsequently announced that it could meet emission standards through plug-in hybrid technology, there has been no official conclusion to date.
Therefore, the "fuel tank gate" incident was also compared to the Chinese version of "diesel gate" by industry insiders at the time. The latter was settled with Volkswagen paying more than 32 billion euros (as of 2022) in fines, compensation and settlements.
This is also another key point in the industry's discussion on "involution" - fair competition. In Li Shufu's words, "If the level of marketization is high, the laws are sound, the law enforcement is strict, and the competition is transparent and fair, then this is a good thing; otherwise, it is a bad thing."
An indisputable fact is that competition in the automotive industry should obviously return to the right track, rather than letting bad money drive out good money: not only to increase prices, but also to increase technology and research and development, so as to bring the market back to a virtuous cycle.
Wei Jianjun even proposed to launch an audit storm in the industry. "First, we will audit Great Wall. We will audit every company to see which companies have problems. Great Wall will cover the audit fees."
Mocking joint venture car companies, especially their electric cars, can be considered politically correct on the Chinese Internet. There is no denying that foreign car companies have not responded enough at the node of electrification: software technology is backward, the iteration cycle is too long... After the "bloody battle" in the domestic market, domestic players are better in many details and configurations. An obvious example is that now you can buy a good car that you would never dare to think of in the past with a budget of 250,000 yuan.
However, another voice is also spreading on social media: unfriendly to foreign-funded and joint venture car companies, not only to complete vehicles, but also to parts and components, or other technology companies. There was even a view of "driving them out".
In fact, those foreign car companies we have ridiculed: Hyundai,Toyota, and now they are all living well. In the first quarter of 2024, Hyundai Motor's sales were 66.87 trillion won and its operating profit was 6.98 trillion won, surpassing Volkswagen Group's operating profit for the first time. Toyota Motor's revenue increased by 14% year-on-year to 11.07 trillion yen; its operating profit was 1.11 trillion yen, a year-on-year increase of 77%.
Our car companies have broken down competition into every capillary. In addition to products, they have also suffered from declining gross margins, long profit cycles, and survival estimates measured in years.
As Wei Jianjun said in the interview, "The future development of China's automobile industry is not about doing everything, but must be based on global resource complementarity. No company can be separated from the global market. Learning from established car companies is to better participate in global competition and to better surpass them."
Take Toyota as an example. In the past, Toyota's entry into the North American and Southeast Asian markets was not smooth sailing. In order to achieve better localization, Toyota chose to establish joint venture factories with local companies to accumulate production and compliance experience. In Southeast Asia, after the joint venture factory was built, Toyota quickly increased its market share by cultivating high-quality dealers and introducing TPS to accelerate the localization process.
The Chinese auto industry has reached a very rare node. We have enough technology, talents and good products. But on the one hand, the vicious internal circulation of the domestic market obviously cannot provide enough ammunition for enterprises; on the other hand, in the process of going global, we need to learn to complement resources with an apprentice attitude.
Wei Jianjun said that he always thought he was the luckiest person, catching up with a good era and being assigned a good career. He said he should cherish the great era of reform and opening up. Because of this, he should have great ideals and a big picture, take on greater responsibilities, develop industries, and maintain industries.
Both consumers and car companies should realize that the industry needs to return to common sense and establish industry norms with sufficient consensus, rather than hoping that Chinese companies will not enter the global market in a way that destroys the industry, as Bosch executives have said.
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