China's automobile industry is about to enter a new stage

If we divide the hundred years of auto industry development into four stages: the first one was about the earliest automakers, headed by Mercedes-Benz, becoming luxury car brands with illustrious history; the second stage was about US car manufacturers such as Ford that invented the assembly line, built up price advantage and started marketing their products worldwide; in the third stage, companies represented by Toyota seized the opportunity during the energy crisis, and gained market share with compact, low-emission and high-quality products; and the fourth stage, where we stand now, is the four new trends of OEMs towards electrification, intelligence, connectivity, and shared mobility.

Just as the 3G technology gave birth to the PC Internet era and 4G kicked off the mobile Internet wave, the invention of 5G opens up imagination for the transformation of traditional manufacturing industries, including the automotive industry.

The increasing maturity of 5G (the 5th generation mobile communications) is also pushing the global automotive industry to speed up their journey towards electrification, intelligence, connectivity, and shared mobility. According to industry experts, the cost of single data unit transmission will be reduced significantly because of the greatly increased network capacity powered by 5G. More importantly, because electric vehicles have inherent advantages in term of intelligence development such as the short latency, with the deployment of 5G networks and the acceleration of auto intelligence, more users are expecting increasing intelligence of new energy vehicles.

An Conghui, President of Geely Holding Group, CEO and President of Geely Auto Group, stated that the industry is headed towards electrification, intelligence, connectivity, and shared mobility, while Chinese companies enjoy natural advantages at this stage. For example, when it comes to electrification, China is the largest market, where both the government and consumers have their own needs for environmental protection and air quality improvement; in the field of Internet of Vehicles (IoV), Chinese consumers have the highest acceptance of the Internet, and China owns the largest number of IoV companies and related developers and engineers, which helps the application of the Internet in automobiles.

If we take a global look, the four new trends have become the consensus of mainstream auto companies. Be it large domestic auto groups such as FAW and Changan Automobile, emerging automakers including Neo, Weltmeister and Lixiang, or multinationals like GM and Volkswagen, they have all formulated detailed plans to "embrace the era of electrification." This is an industry overhaul where both old and new players are eager to try it out.

Electrification Comes First, with China Being the Largest New Energy Vehicle Market

China is an early mover in this "electrification campaign". According to CPCA, global sales of new energy passenger vehicles (including PHEV, pure EV and FCEV) reached 2.86 million in 2020, representing a year-on-year increase of 36%. China, as the largest new energy PV market worldwide, accounts for 41% of total.

Other parts of the world are not lagging behind. In April 2019, the European Union issued Regulation 2019/631, setting the most stringent carbon emission standards in history. Norway, the Netherlands, the United Kingdom, France, and Portugal plan to ban sales of gasoline vehicles by 2025, 2030, and 2040 respectively – developing new energy vehicles is the only way out; in an unexpected move, Germany has legislated to increase domestic EV subsidies, and the subsidy for pure EVs priced below 40,000 euros will be increased from 4,000 to 6,000 euros; carmakers are ramping up investment in electrification as well – Volkswagen increased its 2030 EV production target from 15 to 22 million.

China has thus become one of the main battlefields for electric vehicles among global car companies. Volkswagen plans to invest 60 billion euros in hybrid power, electrification and digital fields between 2020 and 2024, 33 billion of which will be spent on electrification.

In fact, Volkswagen has started to develop a new EV platform since 2015 with investment exceeding USD7 billion. The company released its MEB platform in 2018, and the sales of pure EVs based on the new platform were expected to reach 20 million by 2029. In addition to the Volkswagen ID. family, the MEB platform will also be applied to Audi (certain models), Skoda and SEAT.

GM has also released BEV 3, a new generation of electric platform. In the future, most of GM's pure electric models will use this platform, including those from brands like Chevrolet and Cadillac, covering all kinds of vehicles such as small cars, pickups, large SUVs, and even commercial vehicles.

According to a Deutsche Bank analyst, Volkswagen may unseat Tesla as the dominant electric car maker with its BEV sales by 2022. Herbert Diess, Chairman of the Volkswagen Group's board of directors, commented that “Volkswagen made plans last week to reduce battery costs by constructing six European giga-factories, and electric vehicles have now become one of the company's ‘core businesses’”. On the other hand, Daimler-Benz, a traditional luxury car brand, is also speeding up the pace of electrification, launching two new electric platforms, building new energy plants worldwide, and developing the next-generation electric drive technology in-house. It is reported that Daimler-Benz has started its transformation around the 5C strategy. The original five business divisions of the Company have been merged into three major sections, with streamlined organizational structure and independent operations. In the future, the core focus will be on electric vehicles and autonomous driving.

Daimler-Benz has laid out a new energy vehicle production network around the world, with 6 electric vehicle factories and a total of 9 battery plants planned. In the future, the company's production network will continue to expand, which is expected to produce more than 500,000 electric vehicles each year.

Exhibit:

Volkswagen: sales of pure electric vehicles to account for more than 70% of car sales in Europe by 2030

Audi: stop developing new internal combustion engines

Bentley: PHEV or EV models to be available in all car series by 2026, and all products to be purely electric in 2030

BMW: pure EV sales to increase by more than 50% every year by 2025

MINI: all MINI models to be purely electric in early 2030s

Mercedes-Benz: discontinue production or sales of all traditional fuel vehicles and provide hybrid or pure electric versions for all models by 2022

Jaguar: become a pure electric luxury car brand in 2025

Land Rover: launch 6 pure electric products in the coming 5 years

Volvo Cars: fully electrified by 2025, with pure electric models accounting for up to 50%, and transform into a pure electric brand by 2030

General Motors: zero carbon emissions from new cars sold by 2035 and carbon neutrality by 2040

Ford Motor: stop selling any form of internal combustion engine vehicles in the UK and Europe, and achieve full electrification by 2030

Nissan: achieve 100% electrification of new models in core markets in the early 2030s and realize carbon neutrality by 2050

Toyota Motor: new electrified vehicles sales to exceed 550,000in 2025, with over 4.5 million HEVs and PHEVs and over 1 million EVs and FCEVs.

The first-mover advantages of Chinese automakers are showing gradually. BYD has built an extensive presence in the core parts and components manufacturing of electric vehicles. It is reported that BYD has achieved a high degree of vertical integration of the industry chain in terms of new energy core components such as power batteries and electric drive systems: it has the second largest market share in the domestic power batteries market, and released a new generation of power batteries - "blade batteries" in March 2020; it also has the second largest domestic market share in IGBT, and is the only domestic auto company in China that has a complete IGBT industry chain, with its IGBT4.0 reaching a level on par with the international mainstream in terms of technology.

Surrounding the "7+4" strategy, BYD launched a new BNA architecture to achieve efficient modular car manufacturing. The pure electric e-platform and the fourth-generation DM plug-in hybrid platform help the well-scheduled launch of BYD’s new products. The EIC system of BYD’s new energy vehicles include highlights such as the “blade battery” and the "three-in-one" technology.

Facing the wave of electrification, major automakers began to make public statements in 2021: In March, Oliver Zipse, Chairman BMW Group stated at the annual earnings conference call that the MINI brand will be fully electrified by 2030 and the company will discontinue the sales of fuel vehicles. In the meantime, “pure electric vehicles will account for at least 50% of the BMW Group’s total global sales by 2030”; on March 31, Daimler AG stated that it is advancing the its corporate structure adjustment and accelerating the transition into electrification; Audi announced days ago that it will no longer develop new internal combustion engines; Toyota China said that by 2025, it will introduce 10 pure electric models to the Chinese market, and bring along four full engine electrification technologies, including Double Engine, Double Engine E+, E-Engine, and Hydrogen Engine.

The Time Has Come for Auto Intelligence with the Whole Industry Working on Autonomous Driving

During the move towards electrification, intelligence, connectivity, and shared mobility, intelligence and connectivity are the most challenging parts for auto manufacturers. According to a Deloitte report, there are three main directions for the evolution of automotive intelligence: intelligent interaction, intelligent driving, and intelligent services. Among them, intelligent interaction is the very beginning and core, while intelligent driving and intelligent services are the output in driving operation and service experience. Tech-enabled intelligent driving will be the essential function, while intelligent services centered by connectivity will be the start of new experience and business innovation.

From the perspective of OEMs, there are three paths for developing intelligent connected vehicles (ICVs), namely, the product development path focusing on autonomous driving technology, the connectivity service development path that supports rapid product improvement, and the intelligent cockpit path prioritizing user thinking. As the intelligence and connectivity development of automobiles is highly technical in nature, aside from automakers, it has also attracted the participation of technology giants such as Google, Apple, Alibaba, Tencent, Baidu and Huawei.

In the public eyes, EV manufacturer Tesla is a pioneer in ADAS and autonomous driving. Elon Musk said in 2015 that the technology behind a fully autonomous vehicle only takes "two to three years" to develop, and "one to five more years" to obtain approval from regulatory authorities; in October 2015, Tesla launched the "Autopilot" software, which can be installed on compatible Model S, enabling automatic steering, lane change and parking functionalities.

Volkswagen Group, representing traditional OEMs, started the transformation from its luxury car brand Audi. In 2013, Audi became the world's first carmaker to obtain autonomous driving test licenses in California and Nevada. Before this, technology company Google's autonomous vehicle fleet has already been granted autonomous driving test licenses. On May 8, 2012, the Nevada Department of Motor Vehicles issued the first ever self-driving car license to Google’s self-driving car, which was a modified version of Toyota Prius hybrid.

Teaming up with tech companies and component companies has also become one of the strategies adopted by mainstream auto manufacturers in developing auto intelligence and connectivity. BMW formed an alliance with Intel and Mobileye to build a platform based on open standards, so as to launch its self-driving cars to the market.

In 2021, BMW plans to complete the development and application of L3 (conditional autonomous driving) to L4 (highly autonomous driving). A representative mass-produced model is BMW iNEXT, which will provide L3 autonomous driving and technically support L4 autonomous driving. BMW iNEXT will also be equipped with full connectivity that supports 5G and the 5th. generation BMW eDrive technology.

Bosch, one of the world's largest automotive suppliers, has more than 2,000 engineers working in the research and development of assisted driving systems. The company also cooperates with GPS manufacturer TomTom to provide surveying and mapping data. In April 2017, Bosch and Mercedes announced the joint development of L4 (high automation) and L5 (full automation) cars. Mercedes can exclusively use the jointly developed system for two years before it can be supplied to other car-making competitors.

In April of this year, Huawei published a video of autonomous driving on public roads. The HI version of the BAIC BJEV Arcfox α-S using Huawei's intelligent automotive solutions started public driving test in Shanghai, which was also the test debut of Huawei’s autonomous driving technology. According to Wang Jun, President of Huawei’s Smart Car Solution Business Unit, Huawei will invest over USD1 billion this year in the research and development of smart cars in 2021, with the R&D team expanded to over 5,000 staff members, of which more than 2,000 will be devoted to autonomous driving.

It is worth mentioning that autonomous driving is also among the key investment directions of ride-hailing companies. In March 2017, Didi Chuxing opened its own AI laboratory in the heart of Silicon Valley and started a unique business unit to drive the research and development of its intelligent driving system and AI-based road safety system. In February 2018, Didi Chuxing showcased a working self-driving car for the first time, claiming to have developed software for the car and worked with various car manufacturers and suppliers in hardware. Didi Chuxing has also obtained a license from the California Department of Motor Vehicles to start further testing of its autonomous vehicles on public roads in the state.

In terms of Internet of Vehicles (IoV), General Motors is undoubtedly one of the first mainstream car manufacturers to have made early investments. GM launched OnStar on three Cadillac luxury models as early as November 1996. At that time, 1G was still the only available communication network, and OnStar could only provide services to car owners through voice messages. In December 2009, Shanghai GM launched the OnStar service – first in Cadillac, and now expanded to Buick and Chevrolet. In 2009, Toyota embedded the G-BOOK co-driver intelligent communication system in its luxury vehicle division Lexus and brought it to the Chinese market. Before that, Ford released the SYNC in-vehicle communications and infotainment system at the North American International Auto Show in 2007.

In April this year, SAIC-GM showcased its new pure electric platform Ultium, a new generation of Vehicle Intelligent Platform (VIP) intelligent electronic architecture, and the continuously iterating and evolving Super Cruise super-intelligent driving system. By 2025, SAIC-GM will have launched more than 10 domestic NEVs based on the Ultium platform, covering its three major brands of Buick, Chevrolet and Cadillac.

In the next 5 years, the Super Cruise super-intelligent driving system will cover most of the Cadillac models, and will gradually be applied to future new models of Buick and Chevrolet; the intelligent lane-center cruise function will be applied to more than 80% of the models by all three brands, and all of the Ultium platform models.

In 2020, Volkswagen began to cooperate with Deutsche Telekom in data communication services. Volkswagen is also talking to other network operators to help users add a network data service item when using the new technology. Volkswagen will also provide over-the-air software upgrades to give new options to car owners and make it more convenient form them to switch to a new network operator. The second generation of Volkswagen's Car-Net connected car services as rolled out in collaboration with ride-hailing companies to provide car owners with point-to-point shared mobility services, which is also part of VW’s future plan.

In the Internet era, the future generation of automobiles will establish vehicle-to-vehicle communications, so that there will be no more car crashes. The development of ICVs will also enable communications and connections between cars and people, cars and roads, cars themselves, and cars and the outside world, so as to achieve intelligent dynamic information services, intelligent vehicle control and intelligent traffic management. It will also involve voice interaction solutions, traffic data collection, traffic resource allocation modes, big data and cloud computing solutions, and even updates and compatibility with service providers such as shops, parking lots, and transportation hubs. The time has come for "software-defined vehicles". Chinese companies are also accelerating the roll-out of future-facing products and businesses, promoting innovation in automotive products, technologies and services.

Among them, Geely Automobile has started its transformation towards a technology-based enterprise since 2018. The newly released GKUI 19 intelligent ecosystem is equipped with E01, the first mass-produced automotive-level high-performance chip with self-led development and deep customization. The intelligent connectivity system of Haval by Great Wall Motors, has been iterated and upgraded to Version 3.0, co-developed by the Haval brand and international service providers such as AutoNavi, Tencent, Bosch and Sharp. Changan Automobile continues to implement its intelligent “Dubhe Plan” by continuously promoting the "4+1" activities by 2025, with 100% smart cockpits, L4 mass production and sales, and software technology talents amounting to 5,000. Dongfeng Nissan also launched the "Smart Travel+" car connectivity system together with its partners including China Unicom, AutoNavi Maps, iFlytek, Moji Weather, Kuwo Music, Koala FM, Alibaba Cloud, Tencent, Hangsheng Electronics and Lan-You Technology.

The world's major car companies are all embracing the four new trends of electrification, intelligence, connectivity, and shared mobility now. It shouldn’t be long before we can see for ourselves the new age of automobiles.