State-Owned Enterprises Enter New Energy Vehicle Market with Resource Advantages: An Accelerated Industry Shakeout? (AI Translation)

【周刊提前读】央企携资源优势入局新能源汽车 行业加速出清？

China's state-owned automakers are gearing up for a significant push into the new energy vehicle (NEV) market, spurred by encouragement from regulatory bodies to increase their presence in this rapidly evolving sector. During the National People's Congress, Zhang Yuzhuo of the State-owned Assets Supervision and Administration Commission (SASAC) highlighted that the development of NEVs by state-owned enterprises is lagging behind competitors like Tesla and BYD. SASAC plans to assess three central automotive enterprises—FAW Group, Dongfeng Motor Corporation, and Changan Automobile—separately on their NEV businesses to encourage growth [para. 1].

The move comes as part of a broader strategy by SASAC to prioritize strategic emerging industries, with NEVs identified as a key area for development. This shift aims to address the current assessment system's focus on profit indicators, which has hindered bold engagement in emerging fields with inherent risks [para. 2]. The traditional emphasis on profits has led state-owned automakers to adopt a cautious approach towards investing in NEVs, resulting in them falling behind private firms and new automotive forces in terms of market share and technological advancement [para. 3][para. 4].

Despite government support for NEVs since 2009, China's major state-owned automobile enterprises have been slow to adapt, leading to a lower sales volume of NEVs compared to the domestic market average. This sluggishness is attributed partly to an assessment system that prioritizes profit over innovation and market share growth in emerging sectors [para. 5]. The industry expects that by 2025 or 2026, NEVs will account for over 50% of new car sales, underscoring the urgency for these enterprises to catch up or risk significant sales declines [para. 6].

In response to these challenges, Dongfeng Motor Corporation has initiated organizational reforms aimed at enhancing competitiveness in the NEV market. These include general manager adjustments and policy measures designed to foster development within central enterprises [para. 7]. Additionally, SASAC is relaxing profit assessments for central enterprises focusing on NEVs, setting ambitious targets for sales volumes and technical advancements by 2025 [para. 8].

The competition within China's domestic NEV market is intensifying, with price wars escalating throughout 2023 into 2024. Regulatory authorities are urged to further deregulate systems and mechanisms allowing companies more operational freedom. This competitive landscape highlights the need for state-owned automakers to adapt quickly or face being outpaced by both domestic and international rivals [para. 9].

BYD stands out as China's leading automaker in the transition towards NEVs. From modest beginnings in passenger car sales in 2020, BYD achieved remarkable growth over three years by seizing opportunities presented by shifting industry trends towards electrification. In contrast, state-owned enterprises have been hesitant due partly to their stability-seeking nature and systemic constraints that discourage rapid adaptation and investment in uncertain markets [para. 10][para. 11].

Several factors contribute to this hesitancy among state-owned automakers: joint ventures with foreign companies dominate China’s passenger car market; an assessment system focused on short-term profits; lengthy return-on-investment periods; rigid personnel systems; lack of flexibility in talent motivation; slow decision-making processes; and internal resistance against adopting aggressive strategies required for success in fast-evolving markets like that of NEVs [para. 12][para. 13][para. 14][para. 15][para. 16].

To overcome these challenges, some state-owned enterprises have embarked on mixed-ownership reforms through spinning off their NEV businesses into independent entities capable of responding more agilely to market competition. GAC Aion’s successful restructuring underlines how such reforms can invigorate SOEs' competitiveness by aligning employee incentives with company performance through stock ownership plans while fostering innovation through external investments [para. 17][para. 18][para. 19].

However, achieving significant milestones like producing one million new energy vehicles remains daunting without substantial changes at operational levels within these organizations. While Dongfeng Motor Corporation sets ambitious targets ahead of SASAC’s timeline as part of its turnaround strategy involving price reductions and subsidies for consumers[para. 20], FAW Group accelerates its adjustments towards electrification despite past setbacks[para. 21]. Changan Automobile swiftly aligns its strategy with deep cooperation with Huawei aiming at high-end smart electric vehicles[para. 22].

As competition heats up further fueled by regulatory changes favoring separate assessments for SOEs’ NEV businesses[para. 23], concerns arise about potential price wars exacerbating already fierce rivalry within China’s automobile sector[para. 24]. Despite these challenges, there’s optimism that SOEs can leverage their resource advantages effectively if they continue reforming management systems and decision-making mechanisms akin to successful models like BYD[para. 25]. Ultimately, product strength rather than ownership structure will determine success in this highly competitive industry[para. 26].