Is the 'King of Car Manufacturers' about to fall from the throne?

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

Recently, car companies announced their sales for May, with SAIC Motor maintaining the top position with a wholesale sales volume of 332,000 units, but the challenger is already at the doorstep, with BYD closely following with a slight gap (330,500 units).

This new energy "dominant player" is still aggressively attacking, and institutions predict that it is likely to surpass SAIC Motor in multiple dimensions 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 to maneuver.

However, SAIC Motor is not willing to give up. Since last year, this leading car company has pressed the accelerator on transformation and overseas expansion, further enhancing product iteration from cutting-edge technology research and development this year, attempting to counter the new challengers.

The fierce battle between the "self-owned leader" and the "joint venture leader" reflects the competition for market discourse power between established car companies and emerging brands. Ultimately, only those who closely follow market trends will have a greater chance of winning.

Major Changes

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

Before May's sales approached SAIC, BYD's financial data had already started to chase aggressively. In the first quarter, revenue reached 124.9 billion yuan, while SAIC Motor's revenue was 143.1 billion yuan during the same period.

According to expectations from institutions like Citigroup, BYD's sales growth in the second quarter is expected to exceed 55%, with revenue likely surpassing 187.4 billion yuan, making it highly probable to achieve a comprehensive surpassing of SAIC Motor.

Six years ago, it was hard to imagine that a once second-tier self-owned car company could shake the throne of the industry leader.

At that time, holding two top joint venture brands, SAIC Volkswagen and SAIC General Motors, SAIC Motor's annual sales in 2018 "broke seven," achieving a remarkable result of 7.05 million units, standing tall among competitors. That year, BYD's scale was less than 1/10 of SAIC's, with annual sales of 520,000 units.

In March of that year, SAIC Motor's market value also climbed to a peak of 439.9 billion yuan, 2.5 times that of BYD. Now, the situation has changed dramatically, with SAIC's market value reduced to 163.2 billion yuan, less than 1/4 of BYD's, only comparable to Li Auto.

In just a few years, the unsatisfactory sales and market value of SAIC Motor are due to the "pillar" failing to smoothly transition with the times.

As the largest automotive production and sales group in China, over the past twenty years, the three joint venture brands of SAIC Volkswagen, SAIC General Motors, and SAIC-GM-Wuling have shouldered the sales banner of the group, becoming the "three horses" driving scale and profit.

Now, apart from Wuling barely maintaining, both Volkswagen and General Motors have experienced a cliff-like decline. Last year, the combined sales of the three brands totaled 3.619 million units, compared to 6.1067 million units in 2018.

In the first five months of this year, SAIC General Motors sold 199,000 units, a year-on-year decline of 44.25%; SAIC Volkswagen sold 430,000 units, although it saw a year-on-year increase of 5.5%, it is still nearly halved compared to its peak.

Amidst the fluctuations in scale, SAIC Motor's profit level has also resonated, with the group's net profit attributable to shareholders last year being 14.11 billion yuan, less than 40% of the 2018 peak; breaking it down, the profits contributed by SAIC Volkswagen and SAIC General Motors, once the "profit cash cows," shrank by 50-60% last year The group's sales and profits have returned to levels seen over a decade ago, and the good days of "lying down to earn" through joint ventures are gone.

In the face of challenges, it has taken strong measures against its "joint venture dependency." Financial reports show that last year, the long-term equity investment balances of SAIC Volkswagen and SAIC General Motors both shrank, with the former (10.208 billion yuan) being only half of its peak in 2018; the latter (9.504 billion yuan) also decreased by about 6 billion yuan compared to its 2018 level.

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

However, they have not yet successfully taken over. In the first five months, SAIC's passenger car sales fell by nearly 20%, recording 280,000 units. Although IM Motors saw a 1.2 times year-on-year growth, the base was low, with total sales last year being less than 40,000 units.

At the same time, the overseas market, known for MG, has also begun to encounter bottlenecks. Data from the China Association of Automobile Manufacturers shows that in the first five months of this year, SAIC's exports slightly declined against the backdrop of overall industry export growth, reaching 366,000 units, surpassed by Chery (435,000 units).

Faced with significant changes in the industry, SAIC Group has no choice but to accelerate its "bone scraping therapy."

Defending the City

In business history, there have been many giants that once dominated but later fell silent, all reflecting the changes in industry trends.

SAIC's predicament is not difficult to understand. In the era when joint venture cars reigned, there was a rule in the industry of "three years for minor updates, seven years for major updates," but in recent years, BYD has led the new energy transformation, while Huawei, Li Auto, and others have raised the iteration speed to a new height of "minor updates every six months."

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

SAIC Volkswagen's general manager, Jia Jianxu, bluntly stated, "Our current development is still a linear relationship, so many things are slow. Technology iterates in two years, completely updates in three years, and falls completely behind in five or six years."

SAIC Group's chief engineer, Zu Zijie, also admitted to Wall Street News that the concept of consumer electronics has entered the traditional automotive industry.

In the new competition format, SAIC lacks not only speed; independent brands are also engaging in price competition around cost, efficiency, and market pricing, making it even more difficult for these old giants to cope. Last year, SAIC Group's overall vehicle business gross profit margin was only 5.79%, leaving little room for price cuts.

SAIC is constrained by issues such as "a large ship is hard to turn," but the market has pushed it to a breaking point.

At the end of May, SAIC unveiled next-generation technological "weapons" such as solid-state batteries, powertrains, full-stack software architecture, and new electronic architecture, focusing on "soul" and aggressively pursuing players like Huawei and Xiaomi.

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

SAIC Zero 束 CEO Li Jun added, "Our R&D system, R&D processes, and R&D toolchains support vehicle product iterations close to the Moore's Law of semiconductors."

Under the pressure of hardcore technology, SAIC aims to launch an offensive alongside joint ventures, intending to turn the tide On May 20th, SAIC signed a contract with Audi and SAIC Volkswagen to jointly research the "smart digital platform." Zu Zijie pointed out that this marks a new stage for SAIC's joint ventures. At the same time, the previously high-flying IM Motors brand and the "king of joint ventures," SAIC Volkswagen, both expressed their intention to accelerate their iteration pace.

The leading player in the automotive market has completely launched a counterattack, and in fact, it still holds many cards, including a substantial "financial cushion" of nearly 200 billion yuan, as well as the gradual ability of state-owned enterprises to freely layout in the new energy sector, all of which bolster this giant's confidence in revitalizing itself.

SAIC is also well aware that this is a long-term battle. It is meticulously calculating and boldly reallocating internal brand resources.

Among them, brands like Chevrolet and Feifan, which have temporarily "fallen behind" in the joint venture and independent sequences, have been decided to operate with a light asset model within the group, allowing more focus to be directed towards the main brands' offensive. Additionally, insiders from SAIC revealed to Wall Street News that the group is also preparing a brand positioned higher than IM Motors to reclaim the high-end luxury market.

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

Short-term changes do not represent the industry's ultimate outcome, but it is certain that this painful and profound industry transformation has already changed the mindset of the big players, who are now "bending down" to learn from the new generation and showing greater respect for the market and consumers.

In the past, there were countless automotive brands that were indistinguishable in the global market. To survive in the increasingly fierce industry reshuffle, SAIC must also master the rhythm of its counterattack