Industry Insights | The 'New Four Modernizations' Trend Accelerates Development, and the Global Automotive Industry Welcomes Comprehensive Industrial Transformation

The development of new energy vehicles has been ongoing for nearly two decades. In recent years, major automotive powers around the world have expressed their intention to elevate it to a national strategy. Especially in some EU countries, they have not only proposed a 'fuel sales ban schedule', but have also elevated it to a specific legal level, while at the same time implementing certain restrictions on fuel vehicles.

Several countries and regions around the world have set corresponding new energy vehicle promotion targets:

At the end of 2020, the State Council issued the 'New Energy Vehicle Industry Development Plan (2021-2035)', which states that developing new energy vehicles is an inevitable path for China to transform from a major automobile country into a strong one, and it is a strategic measure to address climate change and promote green development. China fully supports the construction of a strong new energy vehicle nation, introducing a series of supportive policies and industry guidance policies. The central and local finances subsidize the production cost differential of new energy vehicles, reduce or exempt purchase taxes, set up special license plates for new energy vehicles, and give priority to road passage rights.

Europe requires that passenger cars and light trucks reduce emissions by 55% and 50% respectively from 2020 levels by 2030 under the "Fit for 55" plan, aiming to achieve 100% zero emissions for new vehicles by 2035; the Biden administration in the United States has set strategic directions, hoping to rebuild global climate governance leadership, and has mandated that 50% of new passenger car and light truck sales by 2030 be zero-emission vehicles; Germany, a traditional automotive industry powerhouse, has increased its zero-emission vehicle ownership target from the original 10 million vehicles to 15 million by 2030.

In the battery field, Europe has released the 'Battery Innovation Roadmap 2030'; the United States has formulated the 'National Blueprint for Lithium Batteries in the United States 2021-2030'; Japan has launched a new round of 'Innovative Battery Development for Electric Vehicles' projects, focusing on supporting the research and development of all-solid-state batteries for electric vehicles led by Toyota; South Korea has also released the '2030 Secondary Battery Industry Development Strategy'.

Currently, the automotive industry has clearly shown the trend characteristics of 'New Four Modernizations', namely electrification, intelligence, networking, and sharing.The 'New Four Modernizations' drive an all-round industrial transformation, transforming automobiles from traditional mechanical products into intelligent terminals for mobile travel services. Among them, electrification has currently reached an industry consensus. Taking the electrification transformation as an opportunity, intelligence and networking are developed simultaneously.

Source: Frost & Sullivan

Under the trend of 'electrification, intelligence, networking, and sharing' in automobiles, intelligent connected vehicles are gradually becoming the largest AIOT (Intelligent Internet of Things) devices. Intelligence can significantly improve driving safety and efficiency. Vehicles will be equipped with a large number of sensors, leading to increasing demands for big data processing, high bandwidth, and device virtualization. With the use of high-performance computing chips and on-board Ethernet, the vehicle architecture evolves from distributed ECUs to domain controllers, further forming centralized on-board computers.

Intelligent connected vehicles will reshape the industrial chain structure, full lifecycle value, and development model of the automotive industry.The software and hardware of automobiles evolve and upgrade separately. On one hand, in-vehicle computers, buses, and sensors are rapidly iterating; on the other hand, software and operating system upgrades continuously enrich automotive functions, promote the softwareization of automotive functions, and make OTA (Over-the-Air Update) daily upgrades a norm.

(1) Intelligent Cockpit

The electrification level of complete vehicles is gradually increasing, with the most significant change being the increasing proportion of cockpit electronics. Vehicle control is evolving from purely mechanical and electrified structures towards intelligent architectures. At the same time, with the gradual maturity or even saturation of electronic markets such as the internet and mobile phones, mobile internet is rapidly being applied in the automotive industry. The intelligent cockpit industry chain shows a clear trend of cross-border integration, involving vehicle intelligence and connected car functions.The future form of intelligent cockpits will be 'intelligent mobile spaces', which will evolve into a new industrial form with the development of connected vehicle technology and smart in-vehicle devices.

(2) Autonomous Driving

Autonomous driving technology is a major new industry that distinguishes traditional automotive technology, involving the application of new sensors (such as lidar, millimeter-wave radar, etc.), the development of steering and braking control systems (steering control system, braking control system, etc.), high-performance computing units (including image processing chips like GPUs), high-speed in-vehicle communication (in-vehicle Ethernet, etc.), and the development of advanced algorithm technologies (such as neural networks, deep learning, etc.). Currently, the main global mainstream autonomous driving grading standard is the Society of Automotive Engineers (SAE) autonomous driving grading standard.

Source: Frost & Sullivan

The 'New Energy Vehicle Industry Development Plan (2021-2035)' indicates that since 2015, China's new energy vehicle production and sales volume, as well as ownership, have ranked first in the world for five consecutive years, marking the industry entering a new stage of superposition, intersection, and integrated development. Specifically, the new energy intelligent electric vehicle industry faces many emerging technologies, such as power batteries, motor control systems, domain controllers, big data applications, etc.With the advancement of technology, more business models and industrial ecosystems have also emerged, such as intelligent connected vehicle services and smart mobility.

(1) Development of key technologies for the power electronics system

The main difference between electric vehicles and traditional cars lies in their power system, which consists of three major components: batteries, electronic control systems, and motors. China's power battery technology is at the global leading level. Power battery companies have made significant investments in research and development, continuously improving battery performance. Local leading suppliers have a large number of high-quality downstream automotive customers.

In terms of motors, among China's new energy vehicle motor suppliers, domestic brands have always occupied an absolute share. In the field of new energy passenger vehicles in China, permanent magnet synchronous motors are mainstream. In terms of trend, current powertrain products that integrate the drive motor, motor controller, and reducer into one unit, or even highly integrated powertrain products that combine the drive motor, generator, drive motor controller, generator controller, and reducer into one unit, will become the development direction of the industry.

The electronic control system consists of three parts: the vehicle controller, the motor controller, and the battery management system (BMS). Among them, China's new energy vehicle controllers and BMS are relatively mature, while the motor controller is relatively backward, mainly due to a significant gap in core component technology such as IGBT compared to foreign leading enterprises.

(2) Development of key technologies for intelligent connected vehicles

Automobile intelligence will significantly increase the proportion of automotive electronics, software algorithms, and other technologies in vehicle development. Advanced IT, communication, algorithmic, and other technical achievements will be utilized in the development of intelligent vehicles. High-level intelligent cockpits and autonomous driving will transform automakers from traditional manufacturing companies into high-tech companies, creating numerous technological pathways and business models. Currently, automobile intelligence mainly involves key technologies such as electronic and electrical architecture (including domain controllers, in-vehicle Ethernet, etc.), intelligent cockpits, and autonomous driving (including advanced assisted driving and driverless driving).

(3) Emerging Business Models Driven by Data

In the development process of electrification and intelligent networking, the digitization of the automotive industry chain is gradually becoming an emerging business model in the automotive sector.

Electric vehicles are more electrified than traditional fuel vehicles, involving information such as vehicle trajectory, battery charge level, battery voltage and temperature, charging location, charging duration, and charging current throughout the vehicle's entire lifecycle. For example, electric vehicle batteries use big data. By collecting data on the remaining battery power, usage power, and energy consumption per 100 kilometers, it is possible to intuitively analyze battery usage and macroscopically understand the actual mileage and usage of electric vehicles. The above data is crucial for improving the performance of the battery system and for safety monitoring.

Vehicle charging big data can intelligently recommend charging plans and locations to users based on their charging habits, surrounding charging infrastructure, combined with artificial intelligence and big data analysis algorithms. Additionally, electric vehicles, as mobile energy carriers, can feed power back into the grid through V2G technology. On one hand, this helps with 'peak-valley power regulation' of the grid, and on the other hand, as an emerging business model, it can create value for users.

Intelligent connected vehicles involve a wider range of data collection, storage, computation, and cloud-based services based on data.On one hand, autonomous vehicles need to collect a large amount of data as a basis for path planning and to quickly process this data to support the vehicle's behavioral decisions. On the other hand, connected vehicles have achieved data communication between vehicles and roads, between vehicles, and between vehicles and the cloud. The application of big data and cloud computing is forming new business models.

(4) Changes in industrial form and business model

Centered around the new four modernizations of automobiles, the automotive industry has seen new industrial forms and business models emerge, gradually transforming from traditional manufacturing to emerging high-tech enterprises.

The profit model of electric vehicles is no longer limited to hardware sales but has further expanded its profit growth points around software and mobility services. Tesla has taken the lead in adopting this profit model, providing users with a rich range of application functions through its in-vehicle app store, and in some individual application functions.

In the development of intelligent connected vehicles, automotive consumers have a strong demand for autonomous driving and connected vehicle functions. Advanced assisted driving features are gradually spreading from high-end models to mainstream models. An increasing number of technology companies have launched their connected vehicle services, including Tencent, Baidu, ByteDance, Huawei, etc., which has also led to new business models and industrial forms in the automotive industry. Automakers, technology companies, mobility service providers, and relevant government agencies are actively promoting the implementation of autonomous driving, and it is expected that autonomous vehicles in closed environments will emerge in the next few years.

In addition, with the development of the shared mobility industry, new industrial forms such as time-sharing rentals and MaaS (Mobiltiy as a Service) have emerged, forming market segments with high demand in travel services. The massive and steadily growing market trend will create considerable vehicle demand, which is an opportunity for automakers' future profit growth and has the potential for rapid development.

(1) Industrial policy support

As an important emerging industry in the national strategic development, the electric vehicle industry has received key development support and strong encouragement from the state in recent years. To promote its development, the Chinese government has introduced a series of important industrial plans, laws and regulations, as well as related policies.

(2) Cost reduction and technological advancement of power batteries

In recent years, major battery manufacturers around the world have seen a significant downward trend in unit cost due to technological progress and continuous capacity expansion, despite the rapid improvement in battery performance. The continuous decline in power battery costs has prompted more new enterprises and traditional automakers to enter the electric vehicle sector and launch a wider range of product offerings to meet the segmented needs of consumers. For example, power battery packs could potentially establish a separate business model through methods such as battery swapping or leasing, achieving cascading utilization of electricity and complementing the sales of smart vehicles as a whole.

In terms of battery technology, electric vehicle batteries are also continuously improving in terms of range, cycle life, and safety. Breakthroughs in battery technology are gradually dispelling consumers' concerns about range and safety, thereby further enhancing consumer acceptance of electric vehicles.

(3) Rapid progress in infrastructure construction

The gradual improvement of charging infrastructure is one of the important factors driving the development of the electric vehicle industry. As China's charging pile system rapidly expands from first- and second-tier cities and highway networks to other cities and roads, it will play a positive role in further popularizing electric vehicles.

(4) Automotive 'New Four Modernizations' Bring Diversified Profit Models and New Market Spaces

With the continuous maturation of core technologies such as 'Three Electricities' (new energy vehicle technology, autonomous driving technology, domain controllers and in-vehicle Ethernet applications, cloud computing and big data), the 'New Four Modernizations' trend (electrification, intelligence, networking, sharing) of automobiles is accelerating. The global automotive industry is undergoing a new round of comprehensive industrial transformation, transforming cars from traditional mechanical products into intelligent terminals for mobile travel services. The profit model will not be limited to traditional services such as hardware sales and after-sales maintenance, automotive finance, and insurance. It will also expand further around software and other services, such as autonomous driving subscriptions, connected applications, BaaS (Battery as a Service), data monetization (advertising push, third-party data sales), etc.

(1) Subsidy policies are phasing out

The new energy vehicle market in China, in its early stages of development, relied to a certain extent on national subsidy policies. However, the gradual phasing out of subsidy policies is forcing automakers and their industrial supply chains to continuously improve their technical and product competitiveness. This has prompted the new energy vehicle industry to gradually shift from policy-driven development to a market-oriented direction. The phasing out of subsidy policies will pose certain challenges to automakers whose main business is new energy vehicles, especially those non-leading companies whose technical and product competitiveness is still in a catching-up phase.

(2) Technological challenges brought about by industrial transformation

The development and iteration speed of electrification, intelligence, and networking technologies are accelerating day by day. A new round of industry changes will bring continuous technical challenges to enterprises within the electric vehicle industry. In the future, companies in the industry will need to further accelerate their technology research and development layout and invest more resources into technological innovation to adapt to the future development trends of the industry. The rapid transformation of the industry will expose car companies with weaker integrated industry technology capabilities to rapid iterative technical challenges, bringing significant pressure on technology research and development, product development, and mass production.