The end-of-year car industry has been far from peaceful, with NIO experiencing a sudden collapse, JAC Flash崩盘, and numerous reports of automakers struggling with delayed payments, outstanding debts, and layoffs. As a result, there's a growing wave of pessimism regarding the widely recognized over-competitive automotive industry.

Commentators note that just before the real estate sector's widespread defaults, in mid-2021, the average debt ratio of major property developers across China was 74%. Currently, the debt ratio of major domestic car manufacturers has largely reached this level.

Self-media outlets have also pointed out that the new energy vehicle leader has a debt ratio of 77%, who knows if it might be the "next Evergrande."

In a moment, the prospects for the automotive industry seem to be shrouded in shadows. Will the leader of new energy vehicles be the "next Evergrande"? Could the automotive industry repeat the real estate sector's collapse of 2021?

Worry is not unwarranted, but such pessimism is unnecessary.

Too many car brands, consumers are overwhelmed.

According to the fundamental principles of economics, the direct cause of over-competition is simple: excess capacity, supply exceeding demand.

Before the public relations head of Jiyue made several buzz-worthy statements, I had never heard of this brand.

Jiayue, from its origins, should not have been an insignificant entity. Born from the "powerful alliance" between Baidu and Geely, it boasts a strong background and significant investment. Up until the crisis, it was reported to have a financial hole of 7 billion yuan. Industry experts have praised its intelligent driving technology capabilities.

The question of whether Jiyue's sudden collapse is the CEO's responsibility or, as said by their PR head, "No snowflake is innocent during an avalanche," remains a heated debate. Looking at the bigger picture, it's not hard to see that the automotive industry today is extremely challenging to succeed in and has a very low tolerance for errors.

In the car market, the "extreme" generation of brands is already well-represented, with Extreme Kr, Extreme Yue, Extreme Shi, Extreme Fox, Extreme Star, and more, making it hard to tell them apart. For Geely, why introduce Extreme Yue when Extreme Kr already exists? Isn't this creating a cognitive burden for consumers?

The "Ji" generation is not the only one facing an overflow of people. At its peak, around 2018, there were over 487 new energy vehicle companies in China.

By the end of 2023, according to incomplete statistics, only about 40 new energy vehicle manufacturers are able to operate normally.

Since 2020 alone, numerous new energy vehicle brands have collapsed, including Weima, Aidi, Lifan, Zele, Nio, Xiang, YunDu, Ziyou, Leding, Hanlong, Lifan, Boyun, S麟, Qianju, Gaohe, and Heyuan...

Players still at the sales table, in addition to the leading BYD, include the new force representatives "Weili Li," Seres, Aion, Great Wall, Zeekr, Xiaomi, Landwind, and more... plus a large group that haven't made the list yet and aren't facing any major setbacks.

Can't help but wonder: Do consumers really need so many car brands? Does the automotive industry need so many players?

In the era of fuel vehicles, the automotive industry has an interesting "Three Bigs and Many Smalls" phenomenon. The major car-producing countries generally follow a triopoly structure.

The U.S. includes General Motors, Ford, and Chrysler; Germany has Volkswagen, Mercedes-Benz, and BMW; Japan features Toyota, Honda, and Nissan; France boasts Peugeot, Renault, and Citroën.

Three major players dominate the majority of the market share, along with N niche automakers, totaling no more than 10 key players. This industry landscape is akin to an oligopoly, yet maintains a certain level of competition, which is a reasonable outcome in line with market laws.

The automotive industry is a classic example of economies of scale, where significant investment is required in R&D, production and procurement, as well as brand promotion, necessitating mass production to reduce costs. Once the landscape stabilizes, it forms a high barrier, making it difficult for new entrants to break through.

In a car market as vast as the United States', the era of new energy has introduced one major new player, Tesla, transforming the landscape from three main competitors to a 3+1 structure.

Looking back at the Chinese auto market, there are too many players in the industry, and the process of survival of the fittest has not been completed. Intense, fair competition is inevitable, and a certain degree of short-term internal competition is unavoidable.

Chang'an Auto Chairman Zhu Huarong stated in mid-2023 that over the past three years, 75 car brands have been shut down or restructured. It is anticipated that within the next two to three years, 60% to 70% of brands will face a similar fate.

Xpeng Motors founder He Xiaopeng stated in August 2024 that over the next decade, only seven Chinese car brands will remain, with the threshold of the final round being "annual sales of 1 million AI vehicles."

Industry insiders know well that the spots in the finals are limited, and the elimination rounds are yet to continue; Jueyue will certainly not be the last one out.

"Even the 'Three Big and Three Small,' are good, but they cannot rely on being designated."

Why not achieve a more efficient automotive industry landscape by leveraging government planning and policy guidance to avoid internal competition, since the "Three Big and N Small" structure is relatively reasonable?

This beautiful wish was tested once during the era of fuel-powered vehicles.

In the 1980s, as China began to vigorously develop its passenger car industry, it参照 international experience to plan a "Three Big and Three Small" industrial structure.

In August 1987, the National Council of the State held a meeting at Beidaihe to discuss the development of the passenger car industry, explicitly stipulating the establishment of three passenger car production bases across the nation: First Automotive Works, Second Automotive Works, and Shanghai Automotive Industry Corporation.

The policy is very specific: FAW produces mid-to-high-end sedans with engines over 2.0L; SAIC produces medium-grade Santana sedans with engines between 1.8L and 2.0L; Second Automotive Works produces mass-produced sedans with engines between 1.3L and 1.6L. Additionally, the three production sites in Tianjin, Beijing, and Guangzhou are gradually transitioning from importing car kits to achieving localized production.

Now looking back, this plan is clearly marked with the distinctive characteristics of planned economy. As a result, local automakers have not lived up to expectations, whether it's the big three or the small three, from technology to brand, they have all been crushed by international giants.

Since joining the WTO in 2001, decision-makers have tried to forge a path of "trading the market for technology." A multitude of joint venture automakers were born, including FAW-Volkswagen, Changan Suzuki, SAIC-GM, and others. However, this path was also unsuccessful, as foreign investors held significant power, turning the joint venture automakers into mere assembly lines.

By around 2014, China had become the world's largest auto market, but most of the pie was divided among foreign and joint-venture models, with domestically produced fuel vehicles relegated to being runners-up.

In 2014, as Tesla opened its source code, China's new car-making forces began to rise. The decision-makers also saw opportunities for overtaking in the new energy vehicle race. At that time, some departments suggested replicating the "Three Big and Three Small" model of concentrating funds on supporting fuel vehicles for development, and choosing certain pilot new energy vehicle companies to receive support.

After the setback of fuel vehicles, the decision-makers took a deep reflection, pooled their wisdom, and chose another industrial development path.

Experts suggest that the development of new energy vehicles should relax entry requirements rather than dictate players; subsidize the market rather than directly subsidize automakers. These more market-oriented approaches are reflected in a series of industrial policies. By reducing taxes for consumers purchasing new energy vehicles, the competition among enterprises is stimulated, ultimately allowing consumers to determine the development of the industry and the survival of companies.

China's new industrial development path has achieved remarkable accomplishments. As of 2023, the country's new energy vehicle (NEV) stock has exceeded 20 million, accounting for over 60% of the global NEV production and sales system. In the top 10 global NEV sales, Chinese automakers dominate with five out of the ten spots. NEVs, alongside photovoltaics and lithium batteries, have become the "new three" of Made-in-China products that dominate the international market.

This fully市场化 policy approach has also led to a bustling landscape of new energy vehicles, resulting in the current intense internal competition. However, compared to the constant support of the fuel vehicle era, this is simply a "happy trouble."

If one were to immediately designate the "Big Three and the Smaller N," it may seem to avoid redundant construction and reduce fierce competition, but it wouldn't generate genuine market competitiveness. It's likely to repeat the path of fuel vehicles.

To understand, the "Big Three" and "Small Three" in the U.S. and Japan were not always like this. Statistics show that over 1,500 car manufacturers have gone bankrupt in the U.S. for more than a century.

Ultimately, the industrial landscape, whether it's "three large and N small" or, as Xpeng says, just 7 companies left, is the result of market competition. Only the top players, having survived残酷筛选, have the strength to provide higher-quality products domestically and to expand their presence in international markets.

The auto and real estate markets face different skies; the burst bubble trend will not be repeated.

Will the current auto industry淘汰赛 evolve into a full-industry crisis akin to the real estate sector's爆雷潮?

From a market perspective, the demand for the automotive industry remains strong, with both production and sales thriving. According to data from November 2024, leading new energy vehicle brands are still on the rise, with 7 brands seeing year-on-year growth of over 50%. Among them, BYD's cumulative deliveries reached over 3.74 million, SAIC Group's deliveries exceeded 1.08 million, and Li Auto and Xpeng's cumulative deliveries were over 440,000 and 380,000, respectively. On a monthly basis, Zero Run saw a year-on-year increase of 117.04%; NIO exceeded 20,000 deliveries for the seventh consecutive month; and Xpeng's monthly deliveries broke the 30,000 mark for the first time.

This market热度 cannot be compared to the declining volume and prices in the real estate market in 2021. The result of the car market's internal competition is an increase in brand concentration, which is also a positive trend in line with market laws.

From a financial perspective, automakers and property developers exhibit significant differences in cash flow, leverage ratios, and financing models, and cannot be simply compared or linearly extrapolated.

Real estate developers have unique financial data characteristics. Due to the existence of the pre-sales system, there is nearly a two-year cycle from sales to delivery, with a large margin for adjustment and, to a certain extent, is very deceptive. I have analyzed the financial techniques of real estate developers, such as playing with fire and covering up ten pots with five lids, in articles like "Real Estate Developers' Defaults Are Self-inflicted" and "Xu Jiayin's Greed for Perpetuity Ends in Futility," so there is no need to elaborate further here.

Automakers are a typical manufacturing industry, with cash flow primarily derived from the sales of finished vehicles and parts supply, among other immediate transactions. While there are certain inventory management issues, their cash flow is more stable and predictable compared to real estate developers.

For instance, taking a leading new energy vehicle manufacturer that has been pointed out by certain self-media as an example, the majority of its substantial liabilities are from occupying suppliers' funds by leveraging the industry's advantageous position, with a low proportion of interest-bearing liabilities. Whether this practice is reasonable is another matter, but the financial risk is far from as high as some self-media claim. The notion of "the next Evergrande" is merely an outsider's view.

In terms of policy favorability and financing conditions, the real estate developers in 2021 and the current automotive enterprises are worlds apart. One is a highly anticipated "hot potato," while the other is a key target of macro调控.

China's new energy vehicles continue to expand globally, exporting production capacity. Unlike the cyclical and regional characteristics of the real estate market, global demand for cars is relatively more balanced and stable.

The real estate industry is inherently regional. Chinese property developers have also tried to expand overseas, but with little success. High-profile attempts, such as Country Garden's Forest City in Malaysia, Zhendai Group's urbanization plan in South Africa, and Hongli City Group's project in Indonesia's Makassar, were fraught with conflicts of national conditions, culture, and political economy. The process was fraught with difficulties, and the outcome was a mess.

Currently, China's new energy vehicle industry faces tariff barriers in Europe and the United States. This is a significant challenge, but in a sense, it is also a crown for the victors.

Automobiles belong to a modern manufacturing industry with long industrial chains, fine labor division, broad coverage, and high technology and capital intensity. China's competitive advantage in new energy vehicles is a comprehensive reflection of various strengths, including the engineer dividend of "Made in China" and supply chain integration capabilities. The tariff war signifies an acknowledgment of this competitive advantage. There is every reason to believe that with the advancement of the "dual carbon" goals and the shift in consumer preferences, the future of China's new energy vehicle industry is as vast as the stars and the ocean.

Concerns about the excessive "involution" are not unfounded. The knockout process is indeed cruel. From some current cases, it's clear that both enterprises and the government need to make efforts to reduce price wars and other恶性 competition, handle the aftermath of outgoing companies properly, reasonably protect labor rights, and minimize the impact on suppliers.

Translated from - Ti Media, Author: Hu Runfeng

Will the automotive industry repeat the real estate sector's collapse?｜Financial Peak Review - Ti Media Official Website