On June 11, Mou Jiawen, Associate Director of Strategy and Operations at Deloitte, pointed out that comprehensive competition among multiple forces—Chinese and foreign brands, new and established players, and cross-industry giants—will reshape the competitive landscape of China's new energy vehicle (NEV) industry.
In Mou's view, China's NEV market presents five major trends.
First, thanks to favorable government policies, increasingly complete charging infrastructure, and improved battery technology, pure electric vehicles—which have lower operating costs than hybrid models—will dominate the NEV market in the future.
Affected by adjustments in industrial investment policies, investment in hybrid vehicles will gradually decrease. Coupled with declining or even canceled policy support at the market end, the development space for hybrid models will continue to be squeezed.
According to the China Association of Automobile Manufacturers (CAAM), China's overall automobile production and sales continued to decline from January to April this year. However, NEV production and sales reached 368,000 and 360,000 units respectively, up 58.5% and 59.8% year-on-year. Among them, pure electric vehicle production and sales reached 286,000 and 278,000 units, up 66.1% and 65.2% year-on-year; plug-in hybrid electric vehicle production and sales reached 81,000 and 82,000 units, up 36.3% and 43.7% year-on-year.
Mou noted that in addition to pure electric vehicles taking the leading position in the future, the development potential of fuel cell vehicles should not be overlooked.
However, considering China's energy strategy centered on electricity, the constraints of cost and technology on hydrogen refueling station construction, and the high production cost of hydrogen fuel cell systems, commercial vehicles such as medium and large buses, city buses, logistics vehicles, and heavy-duty trucks will be the first areas where hydrogen fuel cells are widely adopted. In the short term, fuel cells are unlikely to be promoted in the passenger vehicle segment.
Data show that in the first four months of this year, China's fuel cell vehicle production and sales reached 237 and 230 units respectively, up 154.8% and 289.8% year-on-year.
In addition, according to Deloitte's NEV consumer survey data, 60% of high-end car owners and 89% of mid-to-low-end car owners believe that pure electric vehicles with a driving range of over 400 km can meet their daily needs. The second batch of the 2019 NEV promotion catalog shows that passenger vehicles generally achieve a driving range of 400 km.
This means that, with rapid technological advancement, driving range will no longer be an obstacle for users purchasing NEVs. Instead, intelligent, connected, and user-friendly functional design will become the key to differentiated competition among NEV products.
The third major trend Deloitte predicts is that comprehensive competition among Chinese and foreign brands, new and established players, and cross-industry giants will reshape the competitive landscape of China's NEV industry.
In terms of current NEV market share, local traditional automobile brands far surpass foreign brands and hold a leading position. However, as foreign, joint-venture, and local new-gen automakers accelerate their development, China's NEV market will enter an era of comprehensive competition after 2020.
"Local traditional automakers with a leading edge will rapidly expand their full-chain capabilities to maintain their leading position. Those that started late, planned late, and are slow to transform can only focus on the manufacturing end of the value chain and become contract manufacturers. For traditional foreign and joint-venture brands, they must accelerate market entry and product launches. If they cannot firmly capture the terminal market, they will face the risk of being eliminated," Mou said.
Mou believes that NEVs have significantly extended the automotive industry value chain both upstream and downstream, and the industry's profit structure is changing accordingly. Upstream power batteries and smart technology, as well as downstream terminal market user services, have become important profit pools.
As a result, future NEV manufacturers will develop into three types: those that cover the entire value chain, those that focus on terminal market distribution, sales, and services, and those that specialize in vehicle R&D, procurement, and manufacturing.
While NEVs are growing against the overall market downturn, NEV manufacturers currently face enormous survival pressure.
From an industry environment perspective, subsidy phase-downs, overcapacity, and the influx of new-gen carmakers are intensifying competition.
In terms of profitability, costs are rising, including huge R&D investment in smart technology, and the transformation to new retail models and service innovation require massive investment. On the other hand, profit models still need to be restructured, and new sources of profit remain highly uncertain—for example, how to innovate services and data applications.
In the process of profit model restructuring, Mou pointed out that the new retail transformation of new-gen carmakers (including piloting direct sales models) is the general trend in the industry.
The direct sales model is the biggest change and impact that new-gen carmakers have brought to the industry. By building and operating their own retail outlets and offering services that cover the entire user lifecycle, they provide users with a refreshing brand experience and solve many problems of the traditional dealership model, such as opaque pricing and poor service experience.
At the same time, however, finding the best balance between user experience and cost efficiency is key to the success of automakers' new retail transformation. For example, the direct sales model is a double-edged sword: while improving user experience, it also brings multiple challenges to automakers, including huge capital requirements and operational complexity, making it difficult to balance user experience and cost efficiency.
Mou expects that for new-gen carmakers that have not yet completed large-scale deliveries, the next two years will be a critical juncture for survival, and the vast majority will be eliminated.
First, the huge capital pressure brought by the new retail model dominated by direct sales; second, weak supply chain management capabilities lead to greater uncertainty and risks during mass production; third, some new entrants are still stuck in "PPT carmaking" and do not possess core technologies for NEVs; fourth, even the most leading new carmakers have not yet achieved profitability. If they cannot quickly prove the sustainability of their profit models, a large number of new entrants will fall into financing difficulties and be eliminated due to broken capital chains.
