news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

text: ren zeping team

i guess you all read a lot of news like this. china's auto industry sales have hit new highs.in 2023, china has become the world's largest automobile producer, seller, and exporter, with sales of 30.16 million, 30.09 million, and 5.22 million vehicles, up 11.6%, 12%, and 57.4% year-on-year, respectively. in particular, new energy vehicles have achieved explosive growth, with sales of 9.49 million vehicles, up 37.9% year-on-year. exports have also surpassed japan's 4.42 million vehicles to become the world's largest.

but on the other hand，behind the rapid development of the industry, there is a tragic situation that the industry is generally losing money.the market share of fuel vehicles has been declining, and electric vehicles are generally suffering from heavy losses.

there is a huge gap in profitability between chinese and overseas automakersin the first half of 2024, the total profit of china's 18 listed automakers was only 48.8 billion yuan (includingbyd, wei xiaoli,gac、saic、great wall、auspiciousetc.), whiletoyotaone company achieved a net profit of 125.3 billion yuan, volkswagen achieved 79.5 billion yuan, and even the old traditional car company general motors achieved a profit of 42.1 billion yuan.

are you shocked? as the largest automobile producer and seller in china, the combined profits of all chinese automakers are less than half of toyota's.while seeing the achievements, we must also see the problems and hidden worries and not be complacent.

as an industry that has achieved global leadership in technology, market and export, china's new energy vehicles have made great achievements in overtaking others.why are profits so slim that companies are struggling on the brink of life and death?? this has to cause us to think deeply.

1 china becomes the largest automobile producer, seller and exporter

on the one hand, china's total automobile sales have hit new highs, and new energy is booming.in the first half of 2024, china's auto sales reached 13.96 million units, a year-on-year increase of 5.7%; among them, new energy vehicle sales were 4.903 million units, a year-on-year increase of 34.3%, and the market share reached 35.12%. it is estimated that in 2024, auto sales will be close to 32 million units, and new energy sales may exceed 13 million units, with a penetration rate of more than 40%.

car exports are hitting records and china has replaced japan as the dominant country in the global auto market.in 2023, china will surpass japan to become the largest automobile exporter. in the first half of 2024, automobile exports will reach a record high of 2.79 million units, a year-on-year increase of 33%. among them, new energy vehicles will account for 605,000 units, a year-on-year increase of 13.2%. it is estimated that automobile exports for the whole year are expected to exceed 7 million units.

china's automobile production ranks first in the world, nearly twice that of the united states, and new energy vehicles account for half of the world's market.since 2020, china's automobile production has accounted for more than 30% of the world's total for four consecutive years, with a production of 30.16 million vehicles in 2023. in terms of new energy, global new energy sales will reach 14.653 million vehicles in 2023, and china's new energy sales will reach 9.495 million vehicles, accounting for 64.8% of the world.

2. the industry is generally loss-making and profitability is not strong

the other side，the profitability of china's auto industry is extremely poor. compared with overseas automakers, domestic automakers are already in trouble, whether in terms of net profit, gross profit margin, net profit margin, or net profit per vehicle.。

in terms of profits, chinese auto companies have poor profitability.from january to june 2024, the total net profit of listed chinese automakers was only 48.8 billion yuan, less than half of toyota motor and equivalent to 60% of volkswagen group's profit.they account for 31% of global production and sales, but only receive 9% of the profits.byd, china's most profitable automaker, has a profit of 13.6 billion yuan, ranking 10th in the world. it is also the only chinese automaker to enter the top ten in the world in terms of sales and profits. but it is still lower thanfordjapanese and american automakers such as honda and others that rely on fuel vehicles are in urgent need of increasing profits.

judging from the gross profit margin and net profit margin, domestic auto companies are seriously dividedonly four automakers, geely, great wall, baic, and byd, have achievedinternational level(gross profit margin 15%, net profit margin above 4%), most state-owned auto companies are in a difficult situation to make profits, and new forces are generally struggling on the line of life and death. even ideal auto, which had excellent performance in 2023, and seres, which was empowered by huawei, had a net profit margin of less than 3% in the 2024 interim report.

in terms of single-vehicle net profit, there is a big gap between the overseas car companies andonly great wall and geely have a net profit of rmb 10,000 per vehicle among chinese automakers. german bba is over rmb 35,000, american gm is rmb 32,700, japanese toyota is rmb 32,000, and korean hyundai is rmb 10,000.kiathe prices of great wall and geely are 24,000 yuan and 12,800 yuan respectively, and the gap is obvious compared with the international level.

it is worth noting that due to the intensification of industry internal competition,ideal auto was able to maintain a per-vehicle net profit of 30,000 yuan in 2023, but it fell to 9,000 yuan in the first half of 2024; byd, the leader in electric vehicles, also slightly dropped from 10,000 yuan to 9,800 yuan. the per-vehicle net profits of saic, changan, baic, and gac in the second echelon hovered between 2,000 and 3,000 yuan, and the new forces led the car companies to generally "lose money on every car they make."

judging from other indicators, the entire automotive industry is not optimistic.the median gross profit margin of 18 listed automakers has dropped by more than 5 percentage points in 10 years. although it has rebounded in the first half of 2024, the gross profit margin of only 10.53% reflects that automakers are facing tremendous pressure. the return on net assets (roe) has dropped to 2.31%. the return on total assets (roa) has fallen to 0.75%.

3 why are most car companies struggling on the brink of life and death?

3.1 lack of scale effect

globally, profitable car companies all have one characteristic: high sales volume.. except for the single-vehicle net profit of more than 10,000 yuanteslathe annual sales volume is 1.81 million units, and the sales volume of the rest are all above 3 million units. among them, only byd, a chinese brand, has reached this scale.

automobile is a high-investment, r&d-intensive industry that values ​​economies of scale。the main fixed costs are r&d and sales.r&d investment affects the speed of vehicle model iteration, technical strength, and long-term brand power. sales investment directly affects current sales.

comparison between byd, the domestically-produced car brand, and toyota, the world's no. 1: in 2023, toyota's r&d expenses will be 64.1 billion yuan, and general expenses such as sales and administration will be 185.5 billion yuan; the average cost per vehicle is 22,000 yuan. byd's r&d expenses will be 39.6 billion yuan, and general expenses such as sales and administration will be 38.7 billion yuan; the average cost per vehicle is 25,900 yuan. toyota's combined r&d and sg&a investment is 3.18 times that of byd, but due to its scale advantage, the cost per vehicle is still 14.3% lower than byd.

the cost advantage of a bicycle is further magnified by the scale effect and becomes a profit advantage.in the first half of 2024, toyota's sales volume was 3.5 times that of byd, but its net profit was 9.2 times that of byd.the lack of profits and economies of scale is due to the difference in market size. chinese automakers need to speed up their global expansion.。

3.2 insufficient independent brand power

there is still a gap between the premium ability of domestic brands and that of joint venture brands.joint venture brands are the "cash cows" of many traditional automakers. with the change in consumption concepts in the chinese market, joint venture brands have gradually weakened; after the start of the electrification era, domestic brands have rapidly expanded their advantages. from 2020 to 2023, the market share of domestic brands will soar from 36.5% to 61.9%. the decline in the share of joint venture brands has led to a decline in profits for traditional automakers, but the profits brought by domestic brands are not enough to make up for it.

at present, users are generally still in the stage of "pursuing cost-effectiveness" when choosing domestic brands.the market is still gradually exploring the mid-range and above self-owned brands. taking byd, which has the highest sales volume, as an example, the net profit per vehicle is close to 10,000 yuan, but the models that sell in large quantities are still economical and affordable. great wall and geely, which ranked first and second in net profit per vehicle, also focus on the 150,000-200,000 yuan range, and their degree of high-end is not as high as that of joint venture brands.

electric brands are showing signs of improvement in their high-end development, but are suffering from internal competition.for example, independent new energynio, the premium ability is recognized by the market, and the sales volume ranks first in the electric vehicle market above 300,000 yuan. however, due to the huge r&d investment, the net profit of each car of the car company is still not optimistic. similarly, the net profit of each car of ideal will reach 30,000 yuan in 2023, which is comparable to that of overseas car companies, but due to the fierce competition among domestic car companies, it has to join the price-for-market competition.

3.3 generation gap in technical strength

in the first half of the new energy electrification, china took the lead.the second half of the intelligentization has just begun. intelligent driving is the first major field of ai super application, and my country still has a long way to go.。

automotive semiconductors urgently need to break through bottlenecks, achieve independence, and respond to the variability of overseas policies. the main manufacturers of global automotive mcu chip foundries are tsmc, samsung, and umc. the 2020 "chips act" and a number of restrictions and investment bans issued overseas since 2022 target eda chips, involving software, chips and many other fields. car companies are stepping up their chip inventory, and the increased costs have led to a sharp drop in profits in the past three years. with core technologies controlled by others, chinese car companies are in a passive position.

from 2023 to 2024, the progress of autonomy in the fields of automotive power semiconductors and mcus will be considerable, and some independent car companies have achieved self-developed main control chip design and intelligent driving model verification.there is still a certain gap in the fields of ai computing chips, upstream eda design, and wafer manufacturing.in the first half of 2024, more than 50% of asml's customers will come from china. nvidia gpu is still the first choice for domestic intelligent driving computing centers. in the ai ​​era with surging computing costs, if the autonomy in key areas cannot be achieved, the chinese automotive industry will face greater r&d burdens and supply chain risks.

3.4 intensified industry internal competition

involution is the synthetic fallacy of price war and market grabbingtrading price for volume is one of the strategies to capture the market. in creating incremental volume, this strategy is conducive to stimulating market vitality.but a prolonged, unrestricted, all-round industry price war is destructive.。

since 2023, the industry price war has been out of controlin january 2023, tesla china announced that its model 3 andModel Ythe price cut from 20,000 to 48,000 yuan fired the first shot in the price war and also triggered a chain reaction. according to the china passenger car association, the overall average purchase price of new energy vehicles in the market will drop from 191,000 yuan in march 2023 to 172,300 yuan in march 2024.

the involutionary trend has continued to this day.there are even signs of worseningin the first half of 2024, almost all major automakers implemented a price reduction strategy, and new models with preferential prices accounted for almost half of the total number of models launched in the same period. according to the data, as of june 2024, the overall terminal discount rate of automobile sales reached an astonishing 21.2%.

in the short term, prices have come down and sales have gone up.. but the long-term results of the synthesis are:the growth rate of revenue cannot keep up with the growth rate of costs, exacerbating the dilemma of declining profits.r&d costs have increased, but there is no scale effect to spread the costs; plus it is difficult for independent brands to raise prices, the price of each vehicle has been reduced, sales have increased but revenue has not.it is more difficult for car companies to survive。

4 how can the industry get out of the predicament? four solutions

4.1 going overseas: it is better to go outward than to go inward. there is ten times more room for going overseas.

byd's overseas sales account for 14%, toyota's 85%. haier and midea's overseas revenue accounts for more than 50%. following the textile and home appliance industries, the globalization of the automotive industry is inevitable.

the overseas market has a trillion-level space and is the key to achieving economies of scale.going abroad to compete with american, german and japanese automakers is a major trend. it can not only create incremental growth under the background of stock, spread the fixed costs of automakers, but also enhance the influence and premium power of independent brands. in the first half of 2024, 2.793 million vehicles were exported, with an export value of us$55.16 billion; it is estimated that the annual export is expected to reach 7 million vehicles, with an export value of nearly 1 trillion yuan.

the incremental market for new energy vehicles going overseas is vastin the first half of the year, 605,000 new energy vehicles were exported, accounting for 21.6%. it is estimated that the annual export volume may reach 1.6 million. under conservative growth rate estimates, with the increase in penetration rate and the increase in the average price of exported vehicles, it is expected that by 2030, the scale of china's new energy vehicle exports will exceed 1 trillion yuan.

chinese car companies already have the technical capabilities to go overseasthe representatives of traditional car companies going overseas are bmw and toyota. bmw's racing technology and toyota's small-displacement energy-saving are the foundation for the success of going overseas in the era of fuel vehicles. chinese brands have sufficient electrification background and leading intelligent technology.

we should encourage automakers to increase overseas investment and enhance brand awareness abroad, exporting advanced intelligent technologies, prompting more and more foreign capital to reach strategic cooperation with domestic brands, forming a new wave of "reverse joint ventures". in order to promote better overseas investment by domestic automakers, they can build factories in export areas that are friendly to china's export policies and provide support and incentives for new energy infrastructure.

4.2 brand: focus on high-end products and accumulate technological advantages

domestic brands must take over the market share of joint venture brands and move towards high-end products.

breaking through the high-end market is a springboard to achieve profit leapdomestic brands have the strength to completely replace joint venture and foreign brands in the mid- and low-end markets, and have surpassed foreign and joint venture brands in the field of electrification.but we must avoid falling into the trap of "self-winding". focus on value war rather than price war.

the significance of value war goes beyond price war:the automotive industry is accelerating its shift to user experience as the core of competition.how to capture the user's mind is the key to value creationat the beginning of the 21st century, the chinese market was in line with the world, and the market favored joint venture brands with leading engine technology. as people born in the 1980s, 1990s, and 2000s became the main groups of automobile consumers, users' focus shifted to intelligent, self-pleasing, customized, and differentiated travel experiences.

technology is the key to success. japan gained a foothold in the era of fuel vehicles because it had self-developed low-displacement engine technology. bmw became a high-end brand because of its coupe technology. today, chinese new energy vehicle companies are one step ahead in intelligence. based on their technological advantages, they are consolidating user stickiness, adapting to changes in market demand, and then gradually moving towards high-end development.

secondly, create a new ecosystem and focus on user experience to further empower automobile brands.whether it is huawei's commitment to becoming the "bosch" of the smart car era, nio's manufacturing of mobile phones and self-developed chips, or xiaomi's "people, cars and homes" layout; in essence, they are all aimed at deeply locking in user needs, providing convenience to the greatest extent, and creating a new intelligent ecosystem.

4.3 r&d: taking the lead in conquering the technological heights of intelligent driving

mobile phone chips were once stuck in a bottleneck, and driverless cars and ai chips cannot repeat the same mistake.the era of artificial intelligence is still in the first half, focusing on large models and computing power; the second half will focus on super applications and expand commercial scenarios on the to c and to b sides.smart driving will be the largest area of ​​super applications in the ai ​​era, and it is also the trillion-dollar track that is currently closest to being implemented.

on the one hand, autonomous driving has matured in terms of technology. l3 passenger cars have entered the market since 2023, and l4 autonomous driving taxis have been put on the road without supervision in china. in addition to waiting for the opening of policies and standard details, the next problem in technology is to reduce "corner cases" from the algorithm training layer.

on the other hand, the premise of algorithm optimization is still inseparabledata and computing powertwo major factors: china has a vast amount of travel service and pilot operation data for training;however, car companies still rely on overseas suppliers for computing power, nvidia is the only one in the market. affected by export controls, the gpu performance that domestic car companies can obtain in the future will lag far behind that of overseas car companies. therefore,adhering to the tough substitution in the field of graphics computing and achieving automotive semiconductor autonomy is a top priority。

"ai new infrastructure" is also critical, requiring car companies, hard technology companies, travel companies, data services and communications industries to jointly participate in the development of intelligent driving.the development of intelligent networking cannot rely solely on car companies. to achieve full coverage of road testing, cloud testing, edge computing, satellite maps, big data operation and maintenance, and traffic models, it is necessary for industry leaders and research institutions to work together to jointly develop and cross-validate, and take the lead in realizing mature unmanned driving solutions.export the experience gained from technological advantages to overseas markets to achieve dimensionality reduction。

4.4 anti-involution: the industry needs a healthy competitive ecology and development environment

a positive ecology and healthy competition are the path to sustainable development. anti-involution and retaining profits are the key to breaking the impasse.if the internal competition stops, the industry's profits will have room for explosive growth. conservatively assuming that 75% of domestic automakers can maintain a net profit of 10,000 yuan per vehicle, the industry's total annual net profit will exceed 220 billion yuan.

the first thing is to be prepared for danger in times of peace.the achievements made by china's automobile industry are undeniable. after a decade of overtaking, its technology and brands have become competitive globally, and the rise of independent car companies is also beginning to show signs of growth.but we must also objectively recognize that our profit level is lower than the global level.a business that only makes money by selling is unsustainable, and the automotive industry urgently needs a healthy competitive environment. it is imperative to avoid the old path of photovoltaics and steel, which "only have technology and production capacity, but no market and profit".

secondly, refer to japan’s automobile development ecosystemtoyota, honda and suzuki, as the pillars of japanese automakers, have maintained healthy competition for a long time. even when japan entered a recession at the end of the 20th century and the overseas market shrank, there were very few internal fights or price wars, which generally maintained the healthy development of the japanese auto industry. this is also an important reason why toyota, honda and suzuki can still rank among the top ten automakers in the world.

finally, only by maintaining a healthy competitive environment, forming a benign and cooperative ecology among peers, and achieving a win-win situation can we maintain high r&d investment.only by doing so can we solve the hardware bottleneck problems, driverless car problems, and new energy diversified technology route problems that may restrict future development, and realize the goal of becoming a truly powerful automobile country.