Automotive industry: How is the market pattern after 10 years

What is a "car" after 10 years?

What is the market pattern after 10 years?

What will happen to the competition of independent brands?

Is China's real rival India?

In the next 10 years, there will be many trends in the automotive industry. This is a question that any automobile company must seriously consider when formulating its development strategy. The different visions of the final industry after 10 years will determine different strategies formulated by different companies. Determined the choice of company for value investors.

This is the starting point for us to consider this issue.

What is a "car" after 10 years?

Due to technological advancement and increasingly stringent environmental protection regulations, the automotive electronics industry has developed rapidly. After 10 years, the proportion of automotive electronics in the total value of automobiles may reach 40% or even higher. The electronic value ratio has reached 25%. By then, if the mature fuel cell technology is taken into account, the proportion of automotive electronics will be higher, and the connotation of the “car” that people are familiar with will be overturned.

At the same time, the automotive company's business focus has shifted more to a service-oriented company. Relying on the user network, it provides all-round personalized travel services to users within the network to meet the needs of the entire process from car purchase to use, including providing products, financial services, consulting and usage services. By then, auto companies may be more like a “community” composed of users. At the same time, they are similar to specialized “banks” that focus on the auto industry. Can such a company use current evaluation standards to conduct valuations?

What is the market pattern after 10 years?

The international automobile market has already formed a “6+3” pattern, which is determined by the laws of economies of scale of the automobile industry.

At present, there are nearly 80 domestic vehicle manufacturers in China, and there are about 30 mainstream vehicle manufacturers. Under the promotion of economies of scale, China’s automobile industry consolidation should have been completed after 10 years, and there may eventually be One or two world-class independent brand auto makers may also have 3 to 5 joint-venture car companies, while the remaining nearly 20 auto auto companies will face an integrated situation.

The power to promote integration comes from two aspects: one is the government department and the other is the market, while the latter can be divided into two categories: foreign-funded and self-owned brands.

Just as the Japanese government intended to integrate the domestic auto industry, the current SASAC has repeatedly released information to manage several major auto companies, including FAW Group, Dongfeng Group, Changan Automobile Group, China Aviation Industry and Technology Automotive Group, etc. Integrate. However, the success of such integration is very small, and it may even ruin the golden opportunity for the development of China's auto industry. History has proven that as a highly marketized industry, administrative integration has no precedent for success. In that year, under the pressure of competition from the international giants in the automotive industry, the Japanese government also intends to implement the administrative integration of domestic auto companies, but it has been rejected by domestic auto companies. Today, it seems that this is a key external condition that has led to the global giant status of today’s Toyota Motor Corporation. It is the state that has given up integration and adopted measures to encourage competition. Toyota has finally emerged, and at the same time, the number of domestic companies has also significantly decreased. Finally through the market to complete the industry consolidation.

Compared with joint ventures, self-owned brands have cost advantages. However, state-owned brands often lose their cost advantages due to their management weaknesses. The flexible mechanism of private enterprises determines that they have continuous innovation and cost control capabilities. At the same time, because joint ventures are usually used as the manufacturing base of foreign giants, their development is subject to the global strategy of the parent company, and it is impossible to develop research and development, markets, The system competitiveness of production, strategy, etc., determines the growth limit of the joint venture. In comparison, the development of privately owned private brand companies is even more limited.

What will happen to the competition of independent brands?

At present, the characteristics of China's auto market lie in its fragmented nature, namely the low market concentration. It is somewhat similar to the Brazilian automobile market, but its distinctive feature from the Brazilian market is that independent brands will likely rise.

In the course of competition with a multinational company's joint venture, the cost advantage of self-owned brands and the continuous innovation capability brought about by the private mechanism make it gradually occupy an advantage in the competition and may reach the level of large-scale export.

However, the competition between independent brands will be fierce, and similarities in scale and technology will determine the homogeneity of products, followed by price competition and profit reduction. It is evident that the current profitability of the small passenger car market that has come from independent brands has fallen below the international level.

If there is no difference in technology and the resulting differentiated product services, brands, China's own brand automobile market will repeat the mistakes of motorcycles, home appliances and other industries, resulting in a fierce loss of the entire industry. As the accumulation of technology is the result of symbiosis of various resources such as strategy, capital, and time, the difficulty is much higher than pure price competition. Therefore, if there is no leading differentiation among industry leaders, it seems inevitable that China’s own brand cars will repeat the same mistakes.

Fortunately, the domestic independent brand manufacturers represented by Geely Automobile, Chery Automobile, and Shanghai Automotive have embarked on the road of differentiated competition, and the future outlook is still not too pessimistic.

Compared with Geely Automobile and Chery Automobile, the problem with Shanghai Auto is that its own joint-venture company has already been very successful, and the rise of independent brands is undoubtedly a right-handed joint venture with its own company. How to avoid mutual killing is its The reality that must be faced. Geely Automobile and Chery Automobile have no such dilemma.

Is China's real rival India?

When we judge whether an industry has long-term development prospects, the first thing we should make clear is who is the industry's competitors?

Are the competitors of Chinese auto companies multinational companies and joint ventures? Judging from the domestic market, it is also true from the present, but it may not be 10 years later. The real competitor of the Chinese automobile industry is India's private auto giant. Because the two development strategies are very similar.

Among the BRIC countries, with the exception of Brazil, where the automotive industry is basically dominated by international auto giants, India, China and Russia all have their own brand enterprises. Among them, India and China have representativeness. India’s private consortium, TATA Motors, BJAJ Motorcycles, etc., have acquired the ability to compete in the international market. Their corporate governance, operational efficiency and profitability have reached the level of auto giants, and their new product development capabilities have also become quite competitive. It has already entered the international market. More importantly, behind these vehicle companies is its strong component supply chain system, coupled with India's steel industry and other upstream industries that already have international competitiveness. Their overall competitiveness must not be overlooked.

Compared with China, the corporate governance, operational efficiency, profitability, etc. of the entire vehicle companies are at a disadvantage. More importantly, the low market concentration of the Chinese auto industry is difficult to solve in the short term, which is a relatively mature automobile in India. The market is in stark contrast. The fragmentation of the Chinese auto market is closely related to the Chinese political system, especially to the strength and protection of the local government. Therefore, it is difficult to solve it in the short term. This is an important reason for the low profitability of domestic auto companies. However, unlike India, Chinese companies are protected and supported by the government. To a certain extent, they have the competitive advantages that enterprises in complete market economies do not have. At the same time, China’s well-developed infrastructure also serves the needs of automobiles. Rapid release created the conditions. In contrast, India’s huge domestic demand is still constrained by infrastructure.

China and India have their own advantages and disadvantages when competing in the international market. However, one consensus accepted by the industry is that both countries will benefit from the restructuring of the global auto parts supply chain, accept and integrate into the global automotive supply chain, and increase their share in the global automotive OEM package. This is China Automotive. Future opportunities for the parts and components industry.