Toyota falls, BYD eats its fill

Source: Wall Street Insight, Zhou Tian Finance

The supply of core components is firmly constrained, and Toyota still needs BYD to achieve its electric dream this year.

Even in the automotive industry, which is known for its stability, there is no permanent iron throne of 'floating new people for old people'. After entering the era of new energy, the development of the situation is far beyond imagination, some are falling, and some can no longer hide their sharpness.

In the 2022 CleanTechnica Global New Energy Passenger Vehicle Annual Sales Ranking, BYD ranked first, while Toyota ranked outside the top 20 and failed to enter the list. From the global recall of the first electric vehicle to the fact that monthly sales in the Chinese market are less than a thousand units, Toyota's new energy has suffered a setback, which is an undeniable fact.

Entering 2023, the global automotive industry begins a new round of upheaval. Like Toyota, it has also started to become a seller's product

Previously, according to Electric Zhijia, FAW Toyota Tianjin Teda Plant 2 will be sold to BYD. Regarding this, FAW Toyota denied the news, but the official also indirectly acknowledged that the two parties will establish a joint venture company. In fact, the only asset that Toyota has that attracts BYD may be its factory buildings, which are the most coveted element for BYD's rapid expansion.

According to industry rumors, Wang Chuanfu has set his sales target for 2023 at 3-4 million units, almost doubling from last year's sales of 1.86 million units. Compared to Toyota's consecutive production cuts, BYD's urgent need for production lines is imminent.

This may be BYD's first sword at the beginning of the year, and Toyota's 2023 will still rely on BYD to achieve its electric dream.

The pure electric vehicle research and development company jointly established by Toyota and BYD launched its first electric vehicle model, bZ3, on March 6th. The core components, including the drive motor and battery, are provided by BYD's Freddie Battery.

Toyota's move undoubtedly hands over its soul to BYD, although each holds 50% of the equity, BYD, which holds the supply of Toyota's core components, will have a greater advantage in the cooperation. At this point, the discourse power of Chinese car companies in joint ventures has quietly changed.

01 Basic Product Big Shot Body

As the best-selling car company in the automotive industry, Toyota certainly knows best what kind of cars global users need. It can even be exaggerated to say that Akio Toyoda's will is the direction of the automotive market, as evidenced by the hybrid models leading the era of fuel vehicles.

However, the automotive market entering the era of new energy is no longer subject to the will of Akio Toyoda. In the early days of the new energy era, Akio Toyoda always maintained a stance that was at odds with electric vehicles. With Tesla (174.48, 1.04, 0.60%) surpassing Toyota in market value, BYD's market value has been closely tied, and Toyota has fallen into a situation of front wolf and back tiger, both of which are electric vehicle companies. Subsequently, Toyota's attitude towards electric vehicles began to loosen.

In December 2022, Toyota released 15 electric vehicles in one go, eagerly entering the already sizable electric vehicle market. But judging from the performance of the first electric vehicle launched, bZ4X, it seems more like a product reluctantly made under the pressure of the times. Moreover, using the name as a verification code style is not conducive to consumer memory.

Leaving aside the issue of tire detachment during the recall of bZ4X two months after its launch, the product design and motor configuration alone are full of patchwork, haste, and arrogance as industry leaders.

Zhou Tian Finance learned from several senior designers in the automotive industry that the electric motor configuration of Toyota bZ4X is different from other car companies. The two wheel drive version has a 150 kW electric motor in the front, while the four-wheel drive version does not add the same 150 kW electric motor at the back like other car companies, but instead has two 80 kW electric motors. The combined output is almost the same as that of two wheel drive, which results in the bZ4X accelerating from 100 kilometers per hour in over 6 seconds, while the Tang EV with the same configuration only takes 4.4 seconds.

BZ4X power configuration diagram source: Toyota official website bZ4X power configuration diagram source: Toyota official website

Toyota's reason for this design is to enhance battery life. However, the actual performance of Toyota's winter range is only 47% of the official value, and the Danish media's evaluation results for the overseas version are also the same. Even the performance of Toyota bZ4X under standard temperature is not as good as other Chinese brand electric vehicles.

In addition, innovative designs such as cabin stacked instruments and press and rotate steering gear levers, which Toyota vigorously promotes, have also caused many problems due to different regulations around the world.

For example, vehicles sold in China cannot be equipped with a special-shaped steering wheel, and the installation position of a circular steering wheel can cause the line of sight towards the instrument panel to be obstructed. In fact, this type of problem can be easily solved. Toyota's real estate sales only need to configure corresponding molds according to the region, which does not lead to increased costs, but Toyota has no intention of changing it.

Electric vehicles have indeed been a development path that Toyota has not sincerely recognized for a long time, and in terms of products, the bZ4X has not demonstrated the ancestral characteristics of being "cheap, easy to use, and inheritable for three generations".

Due to long-term opposing views on the electric vehicle route and the urgency of its launch, Toyota finds it difficult to truly understand the market demand for electrified products. In the same market, domestic brands at the same price have already achieved comprehensive advantages over Toyota products in terms of interior design, configuration, autonomous driving, and driving experience. It is not difficult to understand the embarrassing situation in the Chinese market where the monthly sales of bZ4X are less than a thousand units.

The mute bZ4X also tells us that after the emergence of a new groundbreaking category, if we don't put some effort into the product, even if the original base size is large, it will be of no use.

02 Spring without planting, autumn without harvest

The success of a product is closely related to the company's long-term strategy, which has a rhythm.

Zhu Hengyuan, Vice Dean of the Global Industry Research Institute at Tsinghua University, pointed out in his book "Strategic Rhythm" that the only way for enterprises to achieve sustained success in a dynamic and complex business environment is to set the right pace, so that their strategic rhythm matches and synergizes with the pace of market development.

Looking back at every decision made by Toyota in the era of new energy, it seems that they have stepped on the wrong beat of the times.

To this day, everyone has forgotten that Tesla was actually supported by Toyota. As early as 2010, Toyota's CEO spent $50 million to get Musk through the toughest early stages of entrepreneurship, while selling Toyota's California factory to Tesla for $40 million.

However, on the eve of Tesla's takeoff, Toyota sold all Tesla stocks in 2016 and embarked on the path of hydrogen powered cars. Just one year later, Tesla Model 3 became popular, surpassing Toyota in market value and becoming the world's number one, ushering in the era of electric vehicles.

This is equivalent to having the meal ready, and when the banquet starts, Toyota lifts the table.

Three more lights and five more chickens, Toyota, which is one step behind, is almost unable to catch up with the pace. After 2022, neither the bZ4X nor its electric family products have attracted market attention, and even Toyota's most proficient hybrid models have not achieved satisfactory results (22.28, 0.91, 4.26%). Taking Toyota's 2022 new energy vehicle insurance coverage data in China as an example, the month with the highest insurance coverage for hybrid vehicles was only 1334 units, while Tesla and BYD had already started selling over 100000 units per month.

It is said that the current situation is unprecedented, and the long "steady state" of technology, products, and industrial cycles in the past has become a "turbulent state". Some people have skyrocketed up to 90000 miles as a result, while others are on the verge of making the wrong move and engaging in minimal conflict.

When Toyota and Tesla parted ways, BYD, which was then unknown, had already established a power battery production base and began to transition towards new energy; When Toyota fully shifted towards hydrogen powered vehicles, BYD blade batteries had already begun mass production. Two companies with completely different brand influence and R&D routes may not have expected to meet in less than 10 years, with only one going up and the other down.

Looking back now, in terms of overall strategy, it is clear that BYD won the bet. When acquiring Qinchuan Automobile Company and obtaining the qualification to manufacture cars, BYD Chairman Wang Chuanfu predicted that "the automotive power battery project will determine our future". Therefore, Wang Chuanfu advocated splitting the parts business and allowing the motor, battery, and powertrain businesses to compete with peers in the form of independent business units.

In 2023, BYD will begin providing power batteries and motors for the Toyota bZ3 model, which is a microcosm of this open strategy.

In the cooperation between Toyota and BYD, the use of BYD batteries, each holding 50% of the shares, and other cooperation contents have caused hidden and strong vibrations in the automotive industry.

Zhou Tian Finance learned from multiple automotive industry professionals that Toyota has always been a strong player in previous joint ventures and collaborations.

A former employee of FAW Toyota revealed to Zhou Tian Finance that "FAW has not been able to take the initiative in its cooperation with Toyota, and Japanese personnel have been involved in project management, personnel transfers, and even the purchase of office supplies. It is hard to imagine that they would use BYD's products instead of Panasonic's (8.86, -0.07, -0.78%). If this is true, it would give Chinese personnel greater say in their work, and even the ability to decide on some car design content

For a long time, as a joint venture partner of Toyota, Chinese companies have mainly been responsible for contract manufacturing. In the cooperation, Toyota provides both R&D drawings and technical specifications, and the procurement of core components also needs to be selected from the supplier list provided by Toyota, of which 80% are Japanese companies. This is the first time Toyota has used core components such as BYD motors and batteries in the cooperation. For BYD, the cooperation with Toyota (137.12, -0.85, -0.62%) has a strong demonstration effect, and it is also expected to achieve dual wheel drive with external brands through its own brand.

Through its partnership with Toyota, BYD has also begun to aggressively attack Toyota's waist in the product market. In January 2023, the "national subsidy" policy for new energy vehicles, which had been in effect for 13 years, officially exited the historical stage. Car companies were anxious about their overall vehicle profits while struggling to cope with Tesla's price cuts.

At this moment, BYD launched a plug-in hybrid model priced below 100000 yuan, adding another spark to the fire. The target audience of this model may not be within the hunting range of "Wei Xiaoli" for the time being, but it is objectively targeting the Toyota Corolla.

There is an old saying in the car industry that goes, 'Whoever gets an A-class sedan wins the world.'. For over a decade, the mainstream A-class sedans in the Chinese market have mainly been joint ventures. However, in 2022, with the gradual formation of BYD's "Ocean Series" and "Dynasty Series" product lines, joint venture brand A-class cars have gradually shown signs of decline. Among them, classic models such as the Sylphy and Corolla have experienced double-digit declines.

Time and destiny. Toyota, which rapidly expanded its territory and headed towards the throne of the automotive industry in the early 20th century, never expected that a small car company at that time would have the chips to compete with it in the future.

03 The rhythm is not elegant

In fact, in the process of transitioning to new energy vehicles, as long as large traditional car companies do not run too far in the opposite direction like Toyota, they will not be left behind too much. In the global sales of new energy vehicles in 2022, Volkswagen accounted for 4.78% and Volvo accounted for 2.01%. Although the performance is average, it is not too bad.

But for enterprises, every product means a real investment of gold and silver. Making the wrong bet not only means losing money, but also means that the business empire that has been painstakingly built for a long time may quietly collapse overnight.

So, in the new energy market, car companies frequently change shells, explore, and modify models, and it is difficult to move forward elegantly at every step. Volvo China President Qin Peiji has candidly stated that the two electric cars currently on sale, XC40 RECHARGE and C40 RECHARG, are oil to electric.

Suoha damages the foundation, and attempts to lose heart. The fact that there are only zero or countless shell changes can be explained by the consumer's evaluation of Geometry. In 2015, Geely misjudged the outbreak of new energy and therefore did not create a dedicated architecture platform for electric vehicles.

In 2017, Geely officially announced its pure electric module architecture PMA, but the actual construction began a year and a half later, to the extent that the first Emgrand EV and Geometry brand models were both built on the FE platform of the same fuel powered car.

Taking the end of the transition period of the new energy subsidy policy in June 2019 as the critical point, the sales of Geely Emgrand EV in the first half and second half of the year were 23715 and 7830 respectively, a direct decrease of two-thirds. Geely New Energy has never been able to open up the market.

By 2022, Geely had finally achieved a turning point. He gave the latest SEA architecture to Jike, and Jike also freed Geely from the "curse of imperial shell change". From the personal leadership of Li Shufu and An Conghui, it can be seen that Geely has all invested in Jike, and the market heat caused by Jike 003 also proves to some extent that the pace has been set this time.

But this is only the mid to high end market. Zhou Tian Finance learned from engineers at Geely's Lotus brand that the luxury brand's plan to go public in 2024 has been postponed again. As for the future product line planning, there is not much time left for Li Shufu to hesitate in the market.

Changan and the Great Wall have similar rhythms to Geely. Since 2010, with the promotion of subsidies for new energy vehicles, both have successively launched multiple EV and plug-in hybrid products. However, due to relatively backward technology, they have not been able to make much progress in the field of new energy, which has a feeling of "getting up early and rushing late".

Changan's Deep Blue SL03 will not be launched until the second half of 2022, which is not far from the cancellation of the "national subsidy" policy. Subsequently, several media outlets reported delivery delays for the Deep Blue SL03, making it difficult for Changan to reap the benefits of the policy with "Deep Blue".

And the rhythm of the Great Wall was only right for a short section.

Among the five major brands of Great Wall Motors, only Great Wall pickup trucks and tanks have seen steady growth in sales, and the reasons are not difficult to analyze. Currently, there are no leading companies in the off-road category that have developed plug-in hybrid or pure electric off-road vehicles and pickup trucks, so there is no competition for the time being. But this is not enough to make the Great Wall "rush up", and the "Haval H6" in the era of electrification may still be hidden in Great Wall's future product plans.

04 Conclusion

For the automotive industry, international car companies have a stronger foundation, which means they can try and make mistakes, but Chinese car companies do not have much room for trial and error. Chinese car companies are weaker than giants such as Volkswagen and Toyota in terms of brand influence, technological reserves, and even capital flow. So, the design, positioning, price, and timing of each product of Chinese car companies are crucial.

After the cancellation of subsidies, the disadvantage of new energy vehicles in terms of purchasing costs is even more apparent compared to traditional gasoline vehicles. Therefore, its performance, especially battery life, will become the key factor affecting consumers' willingness to purchase.

A salesperson from Xiaopeng once admitted to Zhoutian Finance, 'I can clearly feel that there are more people coming to see the car, and even more expensive consumers can accept it. However, their requirements are becoming more and more detailed, especially in terms of range and charging speed. Even if we lower the price of some earlier products, many consumers are unwilling to buy them.'.

The past 'maps' can no longer be used to guide future' wars'. At the resignation meeting of Akio Toyoda, he said to his successor Tsunehiro Sato, "Don't imitate me, have your own personality," leaving a sense of helplessness and regret lingering. The market will not pay attention to Toyota's decline. Tomorrow, the sun will rise as usual, and tomorrow is the opportunity for Chinese car companies.

Author: Ling Lu, Source: Zhou Tian Finance, Original Title: "Toyota Falls, BYD Eats Enough"