Is the "King of the Car Industry" about to fall from grace?

After being the leader of domestic car companies for 18 years, SAIC Motor Group's throne is about to be challenged.

Recently, as car companies released their sales figures for May, SAIC Motor Group maintained its top spot with a wholesale sales volume of 332,000 vehicles. However, the challenger has arrived at its doorstep, with BYD closely following with a slight difference (330,500 vehicles).

The "king" of new energy vehicles is still aggressively expanding, with institutions predicting that it is likely to surpass SAIC Motor Group in multiple aspects in the second quarter. A new king is about to be born, and the history of the domestic automotive industry dominated by joint ventures will be rewritten, leaving little room for SAIC Motor Group to maneuver.

However, SAIC Motor Group is not willing to accept this fate. Since last year, the leading car company has pressed the transformation and overseas expansion accelerator, further focusing on cutting-edge technology research and development and intensifying product iteration, attempting to respond to the challenges posed by the younger generation.

Behind the battle between the "leading domestic brand" and the "leading joint venture brand" is a microcosm of the struggle for dominance in the automotive market between traditional car companies and new-generation brands. In the end, only those who closely follow market trends will have a greater chance of success.

Huge Changes

Wang Chuanfu has long been eyeing the top spot in the Chinese automotive market.

Even before May's sales figures approached those of SAIC, BYD's financial data had already shown a strong pursuit. In the first quarter, BYD recorded a revenue of 124.9 billion, while SAIC Motor Group's revenue was 143.1 billion.

According to expectations from institutions like Citigroup, BYD's second-quarter sales growth rate is expected to exceed 55%, with revenue likely to surpass 187.4 billion, which will most likely lead to a comprehensive overtaking of SAIC Motor Group.

It was hard to imagine six years ago that a once second-tier independent car company would challenge the leader in the automotive industry.

At that time, holding the top joint venture brands of SAIC Volkswagen and SAIC-GM, SAIC Motor Group achieved a glorious sales volume of 7.05 million vehicles in 2018, dominating the industry. In that year, BYD's sales were less than one-tenth of SAIC's, with a total sales volume of 520,000 vehicles.

In March of that year, SAIC Motor Group's market value also reached its peak at 439.9 billion, 2.5 times that of BYD. Today, the tides have turned, with SAIC's market value reduced to only 163.2 billion, less than a quarter of BYD's, and comparable only to Li Auto.

In just a few years, SAIC Motor Group's sales volume and market value have not been as satisfactory, indicating that the "pillar" has not been able to smoothly transition with the times.

As China's largest automotive production and sales group, over the past twenty years, SAIC Volkswagen, SAIC-GM, and SAIC-GM-Wuling have led the group's sales volume, becoming the "three pillars" driving scale and profit.

Today, except for Wuling barely maintaining its position, Volkswagen and GM have experienced a steep decline. Last year, the combined sales volume of the three brands was 3.619 million, compared to 6.1067 million in 2018.

In the first five months of this year, SAIC-GM sold 199,000 vehicles, a year-on-year decrease of 44.25%; SAIC Volkswagen sold 430,000 vehicles, although an increase of 5.5% year-on-year, it is still close to halving compared to its peak.

With fluctuations in scale, SAIC Motor Group's profit level has resonated accordingly. Last year, the group's net profit attributable to shareholders was 14.11 billion, less than 40% of the peak in 2018; breaking it down, the profits contributed by SAIC Volkswagen and SAIC-GM, the two former "cash cows," shrank by five to six percent last year The group's sales and profits have returned to the level of over a decade ago, and the good days of relying on joint ventures to "earn money lying down" are gone.

Facing challenges, it has taken strong measures against "joint venture dependence". The financial report shows that the long-term equity investment balances of SAIC Volkswagen and SAIC-GM have both shrunk significantly, with the former (10.208 billion yuan) only half of the peak in 2018; and the latter (9.504 billion yuan) has decreased by about 6 billion yuan compared to 2018.

This means that SAIC Group is adjusting the balance of resource allocation, shifting towards independent brands, new energy, and overseas markets, which are SAIC's "new three pillars".

However, they have not successfully taken over yet. In the first five months, SAIC passenger car sales dropped by nearly 20% to 280,000 vehicles, while IM Motors, although showing a year-on-year growth of 1.2 times, has a low base, with overall sales of less than 40,000 vehicles last year.

At the same time, the overseas markets, where MG is well-known, have also encountered bottlenecks. According to data from the China Association of Automobile Manufacturers, in the first five months of this year, SAIC's exports slightly declined to 366,000 vehicles against the backdrop of overall industry export growth, being surpassed by Chery (435,000 vehicles).

Facing the huge changes in the industry, SAIC Group has to accelerate the intensity of "bone scraping".

Defending the City

In business history, there have been many giants who were once prominent but eventually fell silent, all outlining the changes in industry trends.

The predicament of SAIC is not difficult to understand. In the era when joint venture cars were dominant, the industry has always had the rule of "three years for minor updates, seven years for major updates". However, in recent years, BYD has led the new energy revolution, while companies like Huawei and Li Auto have raised the iteration speed to the new height of "minor updates every six months".

This has become the strategy of electronic products and internet companies, making it difficult for joint venture car companies with relatively slow decision-making mechanisms and business responses to keep up with this pace.

Jia Jianxu, General Manager of SAIC Volkswagen, bluntly stated, "Our current development is still in a serial relationship, so many things are slow. Two years later, the technology will be iterated, three years later it will be completely updated, and five to six years later it will be completely outdated".

Zu Sijie, Chief Engineer of SAIC Group, also admitted to Wall Street News that the concept of consumer electronics has entered the traditional automotive industry.

In the new competition system, what SAIC lacks is not just speed. Independent brands focusing on cost, efficiency, and market price competition have made it difficult for these old giants to withstand. Last year, SAIC Group's gross profit margin for the entire vehicle business was only 5.79%, with limited room for price reduction in response to challenges.

SAIC is constrained by problems like "a big ship is hard to turn around", but the market has already pushed it to the point of "break or make".

At the end of May, SAIC unveiled new-generation technologies such as solid-state batteries, powertrains, full-stack software architecture, and new electronic architecture, grasping the "soul" and chasing after players like Huawei and Xiaomi.

Zu Sijie pointed out that SAIC has learned a lot from consumer electronics products, "Establishing a technological foundation is to adapt traditional cars to the new track, and the development speed of models has been reduced from 48 months to the current 18 months".

Li Jun, CEO of SAIC Zero Bound, added, "Our research and development system, research and development process, and research and development toolchain support the iteration of whole vehicle products close to the Moore's Law of semiconductors." Under the squeeze of hardcore technology, SAIC Motor wants to launch an offensive independently and in joint ventures, aiming to turn the tables.

On May 20th, SAIC Motor signed an agreement with Audi and SAIC Volkswagen to jointly develop the "Intelligent Digital Platform." Zuo Sijie pointed out that this marks a new phase for SAIC's joint ventures. At the same time, the previously high-profile Zhiji brand and the "joint venture king" SAIC Volkswagen have both expressed their intention to accelerate their iteration pace.

The leader in the automotive market has launched a full-scale counterattack. In fact, it still holds many cards, including a hefty "financial cushion" of nearly 200 billion yuan, and the increasing ability of state-owned enterprises to expand into new energy sources, giving this giant the confidence to revitalize itself.

SAIC also understands that this is a long-term battle. It is carefully reallocating internal brand resources in a bold and decisive manner.

Among them, Chevrolet and FeiFan, which are temporarily "falling behind" in the joint venture and independent brand sequence, have been decided by the group to operate with light assets internally, in order to concentrate more efforts on the main brand breakthrough. In addition, internal sources at SAIC have revealed to Wall Street News that the group is also preparing a brand positioning higher than Zhiji to re-capture the high-end luxury market.

The battle between "old money" and "new money" seems to be becoming more exciting. The back-and-forth between the two sides may continue for a long time.

Short-term changes do not represent the final outcome of the industry, but what can be confirmed is that this heart-wrenching industry upheaval has already caused the industry leaders to change their mindset, humbly learning from the new generation and showing more respect for the market and consumers.

Once countless in the global market, the automotive brands that are now insignificant are numerous. In order to survive in the increasingly fierce industry reshuffle, SAIC must now control the rhythm of its own counterattack