China must also consider the balance of the epidemic situation with globalization.
Editor’s note: This article comes from WeChat public account “China Europe International Business School” (ID: CEIBS6688) Dong Yang.
The government work reports of the two sessions of the National Congress in 2020 proposed a series of favorable policies to promote the high-quality development of the manufacturing industry. As the foundation of national economic development, the manufacturing industry has always provided strong support for economic development and social stability.
The automotive industry is hailed as a “manufacturing benchmark”. Under the raid of the epidemic, in the face of the increasingly visible trend of anti-globalization, its once proud proud global supply chain has also been hit. After undergoing severe tests, what profound changes will happen to the Chinese auto market? Will the current trend of manufacturing industry return in developed countries really cause fatal harm to China’s auto industry?
During the recent live broadcast of the China-Europe “Co-Talk · Automotive Industry” event, Mr. Dong Yang, the former executive vice president of the China Association of Automobile Manufacturers, shared wonderful views on the impact of the epidemic on the future trends of the Chinese auto industry.
A shrinking global automotive market is a foregone conclusion
I think that the impact of this epidemic on the production side of China’s auto industry is relatively controllable. Now, China’s recovery rate is close to 100%, and the recovery rate is 80%. The impact of the international epidemic on the production and logistics of China’s auto industry is relatively small, and the market is also recovering steadily. According to a preliminary conversion, China’s auto industry may lose two months of production time, but because the auto industry itself has a certain capacity redundancy, it is basically no problem to produce products for 10 months for 12 months.
The impact of the epidemic on the market side of the automotive industry is greater than the production side. Consumer groups in China’s auto market have sunk from the wealthy to ordinary people. The employment situation due to the epidemic and changes in residents’ income expectations are bound to affect this year’s auto sales market. I personally estimate that if there are no favorable policies, China’s auto sales market may fall by 10% this year; if there are relevant stimulus policies such as trade-in and promotion of new energy vehicle development, sales this year may fall by 5%.
In the retail space, we will see more and more online marketing and innovative models. The automotive industry must also actively seek new methods of marketing and sales. Many traditional car companies, such as BMW, Mercedes-Benz, and Volkswagen, are trying to use VR technology to allow consumers to visit their factories in a virtual way and choose their favorite models.
It can be said that a certain degree of shrinkage in the global automotive market this year is a foregone conclusion, and almost no countries in the world have been spared. The slowdown in the overall pace of society caused by the fight against the epidemic and the decline in people’s income will directly affect the automobile market.
People ’s car consumption habits, a profound change has occurred
The epidemic has brought profound changes to people’s car consumption habits and has brought some positive effects to the auto industry. Under the epidemic, everyone discovered the unique advantages of personal transportation: everyone dared not take high-speed trains and planes, and could drive as much as possible; in China, there were no tolls on expressways some time ago, and some cities did not limit traffic. Of course, this effect is implicit, indirect, and long-term, and it is not enough to turn this year’s auto market into a positive one. But in the long run, the epidemic has a positive impact on the auto industry.
Automobile industry in developed countries, the possibility of “hard decoupling” from China is unlikely
In the past, we often considered issues from the perspective of lowering tariffs, reducing costs, and economic integration. Wherever it is cheap, you buy it, and wherever you are expensive, you sell it. Automobile manufacturers all over the world are learning Toyota’s “zero inventory” management model.
However, the epidemic caused everyone to reflect on the issues of economic security and industrial security in the event of a disaster, and make overall balance for globalization. Perhaps, we should concentrate and shrink the supply chain in a region more, rather than blindly pursue global production. But I think this trend is only a slight reversal to a certain extent, not a full reversal.
For example, if all the auto parts originally produced in China are moved back to the United States or local production in Japan, the production cost of the entire vehicle may increase by 20% -30%, and the government cannot afford subsidies at all; The Japanese government promotes the use of subsidies to move companies back to their home countries. In fact, it only subsidizes the cost of relocation and does not subsidize production costs.
In addition, China must also consider the balance between the epidemic situation and globalization, and the industrial safety of Chinese automobile production. For example, the basic materials, core components, and high-end equipment of the Chinese automobile industry currently rely mainly on imports and are concentrated in countries with relatively high manufacturing levels, such as the United States, Japan, and Germany. Fortunately, China has a huge market, and within a few years it will account for or even exceed 1/3 of the world’s market share. Therefore, some materials, components, and equipment produced in China can also produce market scale effects.
In areas with relatively high technical barriers such as communications and 5G, some Western countries believe that they must cut ties with China. So, will this happen in the automotive industry?
On the whole, it is impossible to “hardly decouple” China’s auto industry from that of developed countries. Since the reform and opening up, the auto industries of various countries have had good cooperative relations with China. At present, we have developed into the world’s largest automobile producer, accounting for more than 1/4 of global automobile production.
In addition, China has built a complete automotive industry system, and production costs have dropped significantly. This situation is beneficial to both China and the world. If developed countries severely sever ties with China and move factories back to their home countries, the cost of car manufacturing is estimated to increase by 20% -30%.
Some people said that how about moving to emerging countries such as India or Vietnam? In fact, those large auto companies have never stopped their efforts to develop complete vehicle and auto parts production in emerging countries such as India and Vietnam. But relatively speaking, China is the best in terms of comprehensive assessment of the industrial base, labor force, especially the labor pool with knowledge, and the hard-working character of the people. So their layout is still mainly in China. If they move parts production from China to India and Vietnam, the overall cost will be higher than in China.
Therefore, I do n’t think that these companies will return to the local area to open factories, but for safety reasons, some key components will be more inclined to choose regional suppliers. appear. In the future, manufacturers will not only think from the perspective of cost, but will consider more issues such as balancing costs, production safety and supply safety, appropriately shrink overseas procurement, and slow down the pace of globalization.
Of course, if China’s auto industry and the world’s auto industry really have a complete “split”, I think China will encounter difficulties, but the impact is relatively small, and the difficulties encountered by developed countries’ auto industries will be even greater.
This is because China has a vast internal market and a complete layout of the automotive industry chain. In recent years, many domestic auto companies have worked hard to supplement the short-term R & D board, investing tens of billions of R & D funds each year. The lack of resources in the basic materials, core components, high-end equipment, etc. faced by the automotive industry is not absoluteDuring the emotional period, although the overall decline in the electric vehicle market was more obvious, Tesla, Weilai, Xiaopeng and others sold well. We have gradually cultivated and formed a new consumer group that focuses on environmental protection, fashion and the development of new technologies. Overall, whether it is technological progress or market cultivation, the development of new energy vehicles in China has exceeded my expectations.
In the past, we often considered issues from the perspective of lowering tariffs, reducing costs, and economic integration. Wherever it is cheap, you buy it, and wherever you are expensive, you sell it. Automobile manufacturers all over the world are learning Toyota’s “zero inventory” management model.
However, the epidemic caused everyone to reflect on the issues of economic security and industrial security in the event of a disaster, and make overall balance for globalization. Perhaps, we should concentrate and shrink the supply chain in a region more, rather than blindly pursue global production. But I think this trend is only a slight reversal to a certain extent, not a full reversal.
For example, if all the auto parts originally produced in China are moved back to the United States or local production in Japan, the production cost of the entire vehicle may increase by 20% -30%, and the government cannot afford subsidies at all; The Japanese government promotes the use of subsidies to move companies back to their home countries. In fact, it only subsidizes the cost of relocation and does not subsidize production costs.
In addition, China must also consider the balance between the epidemic situation and globalization, and the industrial safety of Chinese automobile production. For example, the basic materials, core components, and high-end equipment of the Chinese automobile industry currently rely mainly on imports and are concentrated in countries with relatively high manufacturing levels, such as the United States, Japan, and Germany. Fortunately, China has a huge market, and within a few years it will account for or even exceed 1/3 of the world’s market share. Therefore, some materials, components, and equipment produced in China can also produce market scale effects.
In areas with relatively high technical barriers such as communications and 5G, some Western countries believe that they must cut ties with China. So, will this happen in the automotive industry?
On the whole, it is impossible to “hardly decouple” China’s auto industry from that of developed countries. Since the reform and opening up, the auto industries of various countries have had good cooperative relations with China. At present, we have developed into the world’s largest automobile producer, accounting for more than 1/4 of global automobile production.
In addition, China has built a complete automotive industry system, and production costs have dropped significantly. This situation is beneficial to both China and the world. If developed countries severely sever ties with China and move factories back to their home countries, the cost of car manufacturing is estimated to increase by 20% -30%.
Some people said that how about moving to emerging countries such as India or Vietnam? In fact, those large auto companies have never stopped their efforts to develop complete vehicle and auto parts production in emerging countries such as India and Vietnam. But relatively speaking, China is the best in terms of comprehensive assessment of the industrial base, labor force, especially the labor pool with knowledge, and the hard-working character of the people. So their layout is still mainly in China. If they move parts production from China to India and Vietnam, the overall cost will be higher than in China.
Therefore, I do n’t think that these companies will return to the local area to open factories, but for safety reasons, some key components will be more inclined to choose regional suppliers. appear. In the future, manufacturers will not only think from the perspective of cost, but will consider more issues such as balancing costs, production safety and supply safety, appropriately shrink overseas procurement, and slow down the pace of globalization.
Of course, if China’s auto industry and the world’s auto industry really have a complete “split”, I think China will encounter difficulties, but the impact is relatively small, and the difficulties encountered by developed countries’ auto industries will be even greater.
This is because China has a vast internal market and a complete layout of the automotive industry chain. In recent years, many domestic auto companies have worked hard to supplement the short-term R & D board, investing tens of billions of R & D funds each year. The lack of resources in the basic materials, core components, high-end equipment, etc. faced by the automotive industry is not absoluteDuring the emotional period, although the overall decline in the electric vehicle market was more obvious, Tesla, Weilai, Xiaopeng and others sold well. We have gradually cultivated and formed a new consumer group that focuses on environmental protection, fashion and the development of new technologies. Overall, whether it is technological progress or market cultivation, the development of new energy vehicles in China has exceeded my expectations.