Author | Meng Xiao The main text contains 5192 words, with an estimated reading time of 13 minutes. BYD Qin is rightly called China's industrial miracle.
The main text consists of 4,694 words with an expected reading time of 12 minutes. Product structure, products with revenue between 1 billion and 30 billion yuan had operating income of 401/1288/60 million yuan respectively, with a total of 18,000 kiloliters in sales volume and a year-on-year growth rate of +28.10% in 2023.
"Lei Jun is too scary! He stimulated me!"
It is hard to imagine that this sentence comes from the chairman of Chongqing Changan Automobile, Zhu Huarong, saying to reporters at a recent media conference, "Lei Jun is capable, handsome and humble. He is really terrifying!" He said that this is a real "asymmetrical competition" and a "downward pressure".
Faced with many uncertainties brought by Lei Jun and Xiaomi's cars, Zhu Huarong believes that only by steadfastly investing in research and development with a daily investment of more than 40 million yuan, or approximately 15 billion yuan per year, can Changan provide solid support for its development, achieve a local counterattack, and occupy a favorable position in the future market competition, thus giving Changan Automobile a sense of security.
On March 28, the day of the Xiaomi SU7 car launch, the top figures in the auto industry gathered. Directors of various car manufacturers were present, including Li Bin, chairman of NIO INC, He Xiaopeng, chairman of XPENG, Li Xiang, chairman of Li Auto, Wei Jianjun, chairman of GREAT WALL MOTOR, Zhang Jianyong, chairman of Beijing Automotive Group, and Dai Kangwei, general manager of Beijing New Energy Automobile. Chairman Zhu Huarong was unable to attend the event due to an incident, but he watched Xiaomi's car launch through live streaming.
In Zhu Huarong's view, the Xiaomi car launch was very successful, with the Founder's Edition selling out in 1 minute and 18 minutes to sell 40,000 cars, breaking the new record in the auto industry. This is what "stimulated" Zhu Huarong.
What's more, Lei Jun, who was a hit on the internet, humbly asked him after the event, "Chairman Zhu, do you see any problems with tonight's launch? How could it be improved?" Zhu Huarong did not think that this was Lei Jun showing off the achievements of Xiaomi's cars, but rather that he saw the reason why Lei Jun became popular.
In Zhu Huarong's view, Xiaomi cars plus internet marketing concepts are almost "downward pressure" for traditional car companies. The advantages of Xiaomi itself are already very obvious. Lei Jun is so humble that Xiaomi cars may become the "life enemy" of Changan Automobile.
The day after being stimulated by Lei Jun, Zhu Huarong cancelled all his meetings and began to ponder how to break through in a market that is becoming increasingly competitive. "Applying their own tactics against them" is Zhu Huarong's first step. He began to learn from his opponents and, despite his previous reluctance to do so, made his first live appearance endorsing Changan Automobile in the Beijing auto show. All of Changan Automobile's executives registered related accounts and began to actively embrace the era of traffic.
Zhu Huarong knows that he cannot win over Lei Jun with an internet marketing mindset, so he began to take the path of throwing money into research and development, setting a target of 15 billion yuan for R&D expenses next year. This means that Changan Automobile's R&D expenses will reach as high as 40 million yuan per day to fight against Lei Jun's "asymmetric competition" and "downward pressure".
Obviously, Zhu Huarong has learned from Lei Jun how to grasp the "traffic password". Since Zhu Huarong recently made the above remarks in an interview, Changan Automobile's share price has continued to rise, from 13.58 yuan at the beginning of the month to 15.70 yuan at the close on July 17, up 16%, with a total market value of 155.7 billion yuan.
Net income fell more than 80% in the first quarter.
What makes Zhu Huarong anxious is the decline in Changan Automobile's performance.
In the first quarter of 2024, Changan Automobile's revenue increased but not its net income. The financial report shows that Changan Automobile had revenue of 37.02 billion yuan in the first quarter, an increase of 7.14% from the same period last year's 34.56 billion yuan. However, net profit attributable to the parent company plummeted by 83.39% from 6.97 billion yuan in the same period last year to 1.158 billion yuan. The revenue growth rate for the same period in 2023 was -0.06%, but net profit attributable to the parent company increased by 53.65% year on year, which is a typical case of increasing profit without increasing revenue.
What worries Zhu Huarong is that Changan Automobile's gross margin and net margin both fell sharply in the first quarter of this year. The gross margin of Changan Automobile in the first quarter was 14.41%, down 4.15 percentage points from the same period last year's 18.56%. The net margin plummeted from 19.37% in the same period last year to 2.31%, a decrease of 17.06 percentage points, the largest decrease in the same period, and a record low since the first quarter of 2019. The net profit margin for Changan Automobile was as high as 6.28% in 2023. In fact, the net profit margin of Changan Automobile began to decline in the fourth quarter of 2023, with a net profit margin of only 1.76% that quarter, even lower than the net profit margin in the first quarter of this year. Although the net profit margin rose month on month, it plunged year on year.
In 2023, despite the poor performance in the fourth quarter, Chongqing Changan Automobile had a good overall performance for the year. The annual revenue was 151.3 billion yuan, a year-on-year increase of 24.78%, and the net income attributable to the parent company was 11.33 billion yuan, a year-on-year increase of 45.25%. The revenue growth rate of Changan Automobile in the previous two years was 24.33% and 15.32%, and the net income growth rate was 6.87% and 119.53%, respectively. In the fourth quarter of 2023, Changan Automobile's revenue was 43.09 billion yuan, a year-on-year increase of 20.03%, and the net profit attributable to the parent company was 1.445 billion yuan, a year-on-year increase of 60.76%. Based on the above data comparison, Changan Automobile's revenue and net profit growth rate in the first quarter of this year have both declined significantly year-on-year and quarter-on-quarter. Compared with the same period last year, Changan Automobile's performance is obviously unsatisfactory to the market.
Chongqing Changan Automobile explained in its financial report that the reason for the sharp decline in net profit was due to the impact of investment income from the acquisition of Shenzhen Deep Blue Automobile Technology Co., Ltd.
Analyzing Changan Automobile's structure carefully, it is still mainly profitable in joint venture fuel vehicles, and supports losses in the new energy field with fuel vehicle profits. After BYD and Ideal started the new energy vehicle profit, Changan Automobile has not been able to make a profit in the field of new energy vehicles. The financial report shows that in 2023, the two major brands of Deep Blue and AVITA had a net loss of up to 6.6 billion yuan. The sustained losses in the new energy vehicle sector led to the follow-up of Zhu Huarong learning from Lei Jun.
Research and development costs are tripled?
In 2023, Chongqing Changan Automobile's R&D expenses were 5.98 billion yuan. If what Zhu Huarong said is true and the company invested 15 billion yuan in R&D this year, it has almost tripled compared with the previous year. The financial report shows that from 2019 to 2023, Changan Automobile's R&D expenses were 3.169 billion yuan, 2.889 billion yuan, 3.515 billion yuan, 4.315 billion yuan, and 5.98 billion yuan. The year-on-year growth rates were -0.49%, -8.84%, 21.67%, 22.77%, and 38.57%, respectively. That is to say, Changan Automobile has only begun to increase its R&D efforts in the last three years, which may have a lot to do with the new energy vehicle business sector.
In the past five years, Changan Automobile's R&D investment as a percentage of total revenue was 4.5%, 3.4%, 3.3%, 3.6%, and 3.9%. After 2019, R&D accounted for less than 4% for four consecutive years.
In the first quarter of 2024, Changan Automobile's R&D expenses were 1.544 billion yuan, a year-on-year increase of 13.32%. However, the year-on-year growth rate of 41.67% in the same period last year has clearly declined. From the second quarter to the fourth quarter of 2023, the year-on-year growth rates of R&D expenses were 53.42%, 32.99%, and 38.57%, all higher than the growth rate of R&D expenses in the first quarter of this year. This is somewhat different from what Zhu Huarong said about increasing R&D efforts. Of course, it is only halfway through this year, and the amount of R&D investment in the remaining quarters will determine whether what Zhu Huarong said is true or not. In this quarter, Changan Automobile's R&D accounted for 4.2%.
Changan Automobile's R&D expenses and R&D accounted for ratio have increased somewhat, but it seems insufficient. Taking BYD and Great Wall Motors as examples, BYD's R&D expenses from 2019 to 2023 were 5.629 billion yuan, 7.465 billion yuan, 7.991 billion yuan, 18.65 billion yuan, and 39.57 billion yuan, with year-on-year growth rates of 12.83%, 32.61%, 7.05%, 133.44%, and 112.15%, respectively. BYD's R&D expenses have increased rapidly in the past two years, which were 4.3 times and 6.6 times those of Changan Automobile in the same period. Great Wall Motors' R&D expenses during the same period were 6.445 billion yuan and 8.054 billion yuan, which was 1.5 times and 1.3 times that of Changan Automobile. In the first quarter of this year, BYD's R&D expenses were 10.61 billion yuan, a year-on-year increase of 70.1%. Changan Automobile's R&D expenses were less than 1/7 of BYD's. Great Wall Motors' R&D expenses were 1.96 billion yuan, a year-on-year increase of 27.73%. In terms of R&D investment and growth rate, there is a big gap between Changan Automobile and BYD and Great Wall Motors.
BYD's R&D expenses as a percentage of total revenue from 2019 to 2023 were 4.4%, 4.8%, 3.7%, 4.4%, and 6.6%. It can be seen that except for 2021, BYD's R&D accounted for ratio was higher than 4%, especially in the past two years, with high R&D accounted for ratios. Tesla, which has always been known for its high R&D investment ratio, had R&D investment ratios of 3.8% and 3.7% in the past two years. Moreover, BYD's R&D investment in 2023 was less than that of BYD, which is the fundamental reason why BYD can take the crown of global new energy vehicle sales.
Although Zhu Huarong was stimulated by Xiaomi Automobile and Lei Jun, looking at Changan Automobile's R&D investment in recent years, going from 5.98 billion yuan to 15 billion yuan, a year-on-year increase of 151%, even the 'R&D madman' BYD couldn't achieve this growth rate. The fact that Changan Automobile can invest 15 billion yuan in R&D this year has raised doubts in the market, excluding the R&D expenses of 1.544 billion yuan in the first quarter, which means that Changan Automobile will have to invest 13.456 billion yuan in R&D in the remaining three quarters, with an average daily R&D cost of nearly 50 million yuan.
Considering Changan Automobile's revenue in 2023 and the first quarter of this year, the R&D accounted for ratio will reach about 11%. Currently, looking at the R&D accounted for ratio of all domestic and global automakers, none have achieved such a high R&D accounted for ratio. Once Zhu Huarong follows through on his words, Changan Automobile will become the automaker with the highest R&D accounted for ratio in the world.
Learning from Lei Jun does not just mean learning superficially.
Although Zhu Huarong has felt the pressure from Xiaomi Automobile and Lei Jun and has started to consciously or unconsciously imitate Lei Jun, it is good to be good at learning. However, blindly imitating may not achieve the desired effect. After all, Lei Jun has the genes of a first-generation internet celebrity and has a strong and advanced internet mindset. Now, many leaders of car companies are learning from Lei Jun, wishing to become internet celebrities, but the number of automakers who have achieved good results is few.
First of all, Lei Jun has 23.933 million and 25.486 million (as of 11:00 am on July 17th) fans respectively on Weibo and Douyin. Meanwhile, the number of fans of Zhu Huarong's Weibo account is 0.632 million and 20,000 followers, which is dramatically different from Lei Jun's and indicates that it's almost impossible for Zhu Huarong to become an internet celebrity. Even the heads of well-known auto companies in China, such as Wang Chuanfu and Li Bin, who have higher profiles in the industry than Zhu Huarong, do not have the same influence as Lei Jun in terms of internet traffic. Embracing the Internet for Zhu Huarong only offers another marketing method, and it may disappoint him to expect an immediate effect comparable to Lei Jun's.
Not only Zhu Huarong, the entire auto industry has been driven to stirring the same waters as Lei Jun. Wei Jianjun, the Chairman of Great Wall Motor, started streaming on live broadcasting channels, filming short videos after attending Xiaomi's new car press conference, and requiring his subordinates to actively embrace internet traffic and strive to become internet celebrities. All 17 executives of Great Wall Motor joined Weibo, and Wei Jianjun even proposed to become a quality internet celebrity. Subsequently, Li Xiang from Li Auto Inc, He Xiaopeng from Xpeng, Wang Chuanfu, the founder of BYD Company Limited, Zeng Yuqun, the Chairman of Contemporary Amperex Technology, and Yin Tongyue, the Chairman of Chery, all appeared on live streaming platforms. Even without Lei Jun's popularity, they could not afford to fall behind. Following this, Feng Xingya, the General Manager of Guangzhou Automobile Group, led the team to live stream on the Video Channel, and several executives from BYD all joined Douyin. For a while, a live streaming trend swept through the auto industry, which may have gradually generated aesthetic fatigue among consumers, despite enabling more efficient understanding of automobile models.
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Dong Yuhui, the real online-celebrity with millions of fans, doesn't like the term internet celebrity and even finds it distasteful. He thinks the literal translation of internet celebrity in English is "celebrity", which is not a flattering term and often indicates doing something very silly and attention-seeking. A well-known sales manager of a certain brand in Beijing also mentioned that car makers becoming Internet celebrities was a double-edged sword. "On the one hand, the CEO's personal reputation can bring certain traffic and increase the influence of the automaker's sales and products. But if the brand relies too much on personal PR, it may damage the company's reputation when the person's image is harmed."
According to Tan Baoqiang, a leading venture capitalist, competing for internet traffic by car makers is a reflection of the overly fierce competition in the Chinese auto market. "Traffic is not volume or retention. Not every CEO has the same influencer power as Lei Jun. Building brands takes time, and it can't be achieved overnight. The core competitiveness of auto companies is still their products. Pursuing only internet traffic is perilously close to missing the main point. For automakers, the CEO's emphasis on live streaming feels somewhat irresponsible, as the CEO's role is to establish the direction for the company's development and manage the daily business activities, which are the most critical tasks. Online streaming is time-consuming for the CEO, and considering their age and its inevitability, they may not have the energy to cope with it long-term.
Yuan Xiaolin, Senior Vice President of Volvo Car Corporation and CEO of Volvo Cars Asia Pacific, has given a review of auto companies' CEOs who have become internet celebrities. He thinks that while traffic has its positives, it also has its negatives, and blindly pursuing traffic is not only ineffective but also harmful to companies.
Although many auto executives have embraced internet traffic, many of them have also expressed reluctance to follow suit. Zhu Jiangming, the founder of SERES, said frankly, "I'm not Lei Jun, nor am I Yu Chengdong. I don't have that kind of traffic or prestige. I just stick to doing what I'm good at." Interestingly, SERES, among all Chinese auto companies listed on the Hong Kong Stock Exchange, is the only one whose stock price has not fallen this year, but has even risen slightly.
Zhu Huarong triggered a frenzy of attention in the auto world for his plan to spend CNY15 billion on R&D after Lei Jun announced his intentions for internet traffic expansion. However, the question remains whether Zhu will actually invest in research and development and the extent to which Chang'an Automobile will break through, becoming a market focus topic, as the closing price of 15.70 yuan on July 17th is still below the opening price of 16.40 yuan on January 3rd. This means that Chang'an Automobile's stock price has fallen by 4.3% this year. What kind of change can Zhu Huarong bring to Chang'an Automobile this time? What kind of answer can Chang'an Automobile deliver by the end of the year? It's worth our continued attention.