Shanghai “May 5 Shopping Festival” is in full swing, and automobiles are still one of the biggest selling points. Seen from the domestic consumer market in recent years, automobiles have become increasingly popular means of transportation. NEVs and domestic brands have gradually become leading players in the market, coupled with the tide of intelligence triggered by the technological progress, pushing the automobile industry into a new transformation period. More and more possibilities are expected, and new challenges cannot be ignored. Gu Chunting, vice chairman of Council for the Promotion of International Trade Shanghai, said that NEVs in China were accelerating to seize the commanding heights of the industry with a sense of urgency, with production and sales already accounting for more than half of the global market share.

According to big data from the Consumer Market Lab, only in the first three days of the “May 5 Shopping Festival”, the sales of NEVs in Shanghai increased by 159.0% YOY. All kinds of high-end imported brands can’t wait to get off their high horses and launch “NEV Festival” simultaneously. Mercedes-Benz, BMW, Audi, Land Rover, Volvo, etc., all offered their latest NEV models, with different preferential measures such as subsidies, free charging piles, free maintenance, etc., expecting to get a slice of the cake in the still expanding market.

Gu pointed out that NEV production and sales in China have already accounted for more than half of the global market. Take Shanghai as an example, the sales volume of NEVs reached 125,460 in 2020, accounting for 11% of the total in China. In 2021 Q1, the output value and production of NEVs surged by 4.2 times and 3.8 times respectively. The end consumers are becoming more and more accepting and tolerant towards NEVs.

China Becomes the Largest Market in the World

Zheng Xin, associate professor in the School of Economics and Management, Tongji University, who has been studying the automobile industry for a long time, said in an exclusive interview with a reporter from Ta Kung Pao that with continuous and strong policy support, China’s NEV industry has gone through the stage of extensive development (2013-2015) and that of capacity clearance (2016-2018). Now in the stage of gradual maturity (2019 to present), China has become the largest electric vehicle market in the world. Meanwhile, according to the development plan of China’s automobile industry, the sales volume of NEVs is targeted to account for 25% of the overall automobile market by 2025, which means an increase from more than 1 million vehicles to more than 6 million vehicles, signifying more business opportunities for producers.

In view of this, NEVs have become the development focus of all automobile enterprises. GAC Group plans to achieve a 20% share of NEVs sales for the whole Group by 2025. SAIC Group, the largest automobile enterprise in China, has also unveiled more than 160 new vehicles, including more than 10 debut models, one-third of which are NEVs.

The multiple benefits of policy and market have also generated a large number of new players in the industry, such as NIO, LI, XPEV, WM Motor, Hozon, SERES, Leap Motor, ARCFOX and Geometry. In addition, IM, R, Hengchi, HiPhi, Voyah and HYCAN also made their debut at this year’s auto show.

Zheng Xin believes that the new forces will inevitably threaten and promote the traditional automobile manufacturing enterprises. That is to say, from this year, we can witness that Volkswagen, GM, Mercedes-Benz, BMW and other traditional automobile companies are determined to transform and adjust. Competition is bound to intensify in the short term, but it is not clear who will win in the “battle” for initiative of the future market and consumer mentality.

High-Tech Debut Draws Attention at Auto Show

It is worth mentioning that automobiles have become more “people-friendly”. Take the auto show as an example. In the past, the most attractive thing for visitors was to wait in long lines before cautiously touching the imported luxury automobiles. Luxury automobiles are still unreachable this year, but people are more likely to line up in front of domestic booths, because most of the exhibits here are open and more “fun”: automatic adjustable seats, fully functional touch screens, more and more radars, control platforms like computer games, even interconnection and interaction with mobile phones.

All this is from intelligence. Experts generally mention that the automobile industry is experiencing a critical moment in the industrial transformation of “four modernizations” (intelligence, networking, electrification and sharing). Zheng Xin said that the “four modernizations” complement each other and develop together. In the future, only when the NEVs are combined with intelligence will they survive, otherwise it will be like a person without brain. Therefore, despite the fact that different trades are separated as by mountains, traditional automobile companies have fully initiated the intelligent layout.

Zhang Jie, general manager of Chang’an Automobile Software Technology Co., Ltd., predicts that by 2035, the scale of global intelligent automobile industry will have exceeded USD 1.2 trillion, and that of China’s intelligent driving automobile industry will have exceeded USD 200 billion. Mobile phones, automobiles and families are expected to be integrated seamlessly.

Six Major Directions of Automobile Technology Development in China

1. The total carbon emissions of the automobile industry will reach the peak around 2028 ahead of the commitment of national carbon emission reduction, and the total emissions will have decreased by more than 20% from the peak by 2035

2. NEVs will gradually become mainstream products

3. The technological system of ICVs in the solutions of China will be basically mature, and ICV products will be applied on a large scale

4. The autonomy level of key core technologies will be significantly improved

5. A smart automobile travel system will be established

6. The technological innovation system will be optimized and improved, and the level of original innovation will be capable of leading the world

Sci-tech Enterprises Join the Competition, Accelerating Mass Production of Intelligent Driving

Under the wave of automobile manufacturing, a number of Internet giants including Alibaba, Huawei and Baidu are going into action without delay to compete for market share. Experts point out that in the short run, the joining of Internet technology enterprises in automobile manufacturing will undoubtedly attract the attention of the capital market and consumers. However, it is a new supplement for the time being rather than exert a subversive impact on the traditional automobile industry. Despite this, it’s still possible for China’s smart automobile industry to take the preemptive opportunities in the future international competition.

Li Zhenyu, general manager of Intelligent Driving Group (IDG), Baidu Group said that in the future, the accumulated experience and best capabilities will be further opened up to support automobile enterprises to build their own intelligent capabilities. In the field of intelligent driving, Baidu can shorten the time spent on development capacity building from the previous 7 years to 6 months, pushing intelligent driving technology into the fast track of mass production.

China’s intelligent vehicle industry is expected to seize the opportunities in the international competition. Norbert Meyring, KPMG’s partner in charge of China’s automotive industry, believes that in recent years, Chinese manufacturers have accounted for 80% of China’s NEV market share.

Three Forces Are Driving Industrial Transformation

Experts also acknowledge that, in terms of level, Chinese manufacturers are still in the primary stage and need to further strengthen themselves. In addition, we should also speed up the layout and capacity building with reference to the practices of Tesla and such other advanced international forces. Zheng Xin, associate professor in the School of Economics and Management, Tongji University, believes that there will be three main forces involved in the era of intelligent vehicles competition in the future. One will be the leading technology enterprises like Huawei and Alibaba, which are strategically positioned as “incremental component suppliers (including hardware and software)”, rather than directly competing with traditional automobile enterprises. One will be Geely, SAIC, NIO and other vehicle manufacturers, which will not only increase their layout in autonomous driving, intelligent manufacturing and other technologies, but also strengthen the layout transformation in smart mobile travel and other fields. In addition, there is another force from component giants, who will exert their strength in the whole industry chain through IOT software and hardware, so as to make themselves service providers of intelligent automobile industry chain companies. In the long run, if these three forces perform their respective duties, they will ultimately bolster a rapid transformation of the industry together.

Luxury Automobiles in Europe and the United States Are Less Popular Than They Used To Be

With the popularization of automobile consumption and the popularity of Internet, the traditional high-end luxury automobiles in Europe and the United States are less popular than they used to be. Zheng Xin, associate professor in the School of Economics and Management, Tongji University, believes that in terms of sales in China, luxury automobiles will face not only fierce competition among themselves, but also strong attacks from Tesla, NIO and other new force brands, which are grabbing some share of the luxury automobile market. Meanwhile, they will be confronted with the launch of new models from new joint-venture brands, as well as the upgrading of the self-owned brands in China.

Meanwhile, Zheng Xin said frankly that various innovative marketing modes would continue to emerge and be tried, including the new retail model and the direct selling model characterized by sales agency system. For example, the direct sales model characterized by the sales agency system represented by SAIC Volkswagen ID series, SAIC Audi, etc., the direct selling model represented by Volvo, and undoubtedly, the direct selling model represented by new forces including Tesla and NIO will all have a great impact on the sales and service model of China’s luxury automobile market.

However, this doesn’t mean that luxury automobiles are withdrawn from the market. Norbert Meyring, KPMG’s partner in charge of China’s automotive industry, believes that with the strong support of the Chinese government, the increasing improvement of infrastructure, and the narrowing of the production cost gap between NEVs and fuel vehicles, foreign manufacturers are more willing to compete in the NEV market. It is expected that they will increase their market share through joint ventures in China.

Zheng Xin also pointed out that the luxury automobile market itself would be a market segment seeing relatively continuous growth. China’s automobile market has been gradually mature and entered the stock age characterized by the add-on purchase and the trade-in purchase. At this time, the demand of the luxury automobile market will still be a market segment seeing relatively continuous growth.

The System Can Also Be Monetized by A Buyout or Subscription

With the advent of technological change, a new business model has emerged in the era of intelligence. The latest research report of Huaan Securities indicates that in addition to intellectualization and networking, the business model changes brought about by technological changes draw attention likewise. Previously, vehicle manufacturers were used to make “once-for-all deals” during delivery, signifying that there was no continuous charge after delivery. However, in the future, intelligent automobiles will gradually evolve into three business modes.

Huaan Securities pointed out in detail that there would be three business modes for intelligent automobiles in the future: The first is one-time buyout system. For example, GAC’s Adigo driving assistance system, which can be divided into 12,800 yuan (RMB, the same below), 19,600 yuan and 28,600 yuan according to different functions. Tesla’s FSD can also be bought out by 64,000 yuan at one time. The second is subscription system, like GM’s Super Cruise, Huawei’s ADS and Tesla’s FSD. The third is to look at automobiles from the perspective of space, and a case in point is the concept of “integration of automobile and family” launched by Evergrande.

“The above three cases are just the manifestation of the business model changes brought about by technologies.” Zheng Xin, associate professor in the School of Economics and Management, Tongji University, believes that, in essence, great changes will be made in the following aspects: first, low-frequency interactions will be transformed into intelligent high-frequency interactions. In the era of intelligence, automobiles, people and environment all interact in real time, and such real-time interaction data will also be transmitted to the manufacturers in a synchronous manner, thus forming a new model.

Secondly, Zheng Xin added, “We can already initially feel the transition from on-line and off-line separation to on-line and off-line integration. With the advent of the era of ICVs, on-line and off-line channels must be integrated. The model of direct sales of automobiles has become increasingly possible. Nowadays, in addition to the new forces of automobile manufacturing, many joint-venture brands including SAIC Volkswagen ID and SAIC Audi adopt the direct sales model characterized by the sales agency system, and Volvo adopts the direct sales model, which are mostly the innovation and evolution of the sales model driven by on-line and off-line big data AI algorithms.”