On October 26, 2023, Stellantis announced a EUR 1.5 billion investment to acquire approximately 20% of Leapmotor, securing two seats on its board. Additionally, Stellantis and Leapmotor will establish a joint venture named “Leapmotor International” with ownership stakes of 51% and 49%, respectively. The CEO of the joint venture will be appointed by the Stellantis group.

TrendForce’s Insights:

1. Leapmotor’s High Self-Reliance in EV Technology (Electric Motor, Battery, Electronic Control) with Completed Four-Domain Integration in EEA Architecture

Before Stellantis took over Leapmotor, European automakers like Volkswagen and Audi had previously collaborated with Chinese counterparts such as XPENG and SAIC in the electric vehicle sector and technological development. The primary aim was to exchange different resources, including funding or access to the European market, for China’s EV technology.

Leapmotor, in addition to independently developing battery packs and an 800V silicon carbide electric drive system, has based its control system on the self-developed “Four-Leaf Clover” Electronical/Electric Architecture (EEA).

This architecture achieves cross-domain integration across four domains—power, body, ADAS, and cabin—utilizing a central computing platform to significantly reduce the use of Electronic Control Units (ECUs) and related wiring. This integration enhances the overall intelligence and range of the vehicle.

Stellantis had previously expressed a “light asset” strategy for the Chinese market, aiming to reduce fixed costs. Collaborating with Leapmotor enables cost savings in independent research and development.

On a global strategic level, Stellantis has its own electric platform, “STLA.” Therefore, cooperation with Leapmotor provides immediate support for Stellantis in the platform of EV technology and market development, both in China and globally.

2. Leapmotor Need to Seize the Opportunity to Accelerate Overseas Expansion

While Stellantis’ current focus is not on the Chinese market, its integration of resources from the merger of FCA (Fiat Chrysler) and PSA (Peugeot Citroën) provides a significant market foundation in Europe and the Americas. According to Stellantis’ disclosed data for the first half of 2023, it achieved a net revenue of EUR 98.4 billion, a 12% growth, and a net profit of EUR 10.9 billion, a 37% growth.

The sales volume of new energy vehicles also grew by 24% during the same period. The “Leapmotor International” joint venture between Stellantis and Leapmotor is not only responsible for the Greater China region but plays a crucial role in global sales and holds exclusive manufacturing rights for Leapmotor’s vehicle models.

Although Leapmotor holds a technological edge in three key components over European and American automakers, it faces fierce competition in the Chinese market from startups like NIO, XPeng, Li Auto, and traditional manufacturers like SAIC and Great Wall Motor. In the third-quarter financial report of 2023, Leapmotor achieved a gross profit margin of 1.2%, marking its first positive gross profit.

However, the net profit continues to incur losses. Stellantis’ financial injection serves to alleviate Leapmotor’s financial pressures, allowing it to capitalize on opportunities for global expansion.

In addition, amidst the escalating competition among Chinese automakers to enhance their export capabilities, Leapmotor can leverage Stellantis’ mature sales channels and resources to gain a strategic advantage in the international arena. The operational control of Leapmotor International remains in the hands of Stellantis, not only acquiring Leapmotor’s technology but also eliminating a potential competitor.

This transaction is built on the mutual benefits each party seeks, potentially establishing a collaborative model for future technology and market-sharing partnerships between Chinese and European automotive manufacturers.

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• [Insights] Even Ford Halts EV Investment, How Will the Automakers Adjust Its EV Strategy?

Tesla initiated a price war in the Chinese market this year, forcing local manufacturers to confront the challenge. However, after nearly a year of intense competition, Tesla unexpectedly called a truce, while Chinese manufacturers led by BYD thrived in the fierce price war, turning adversity into opportunity.

According to a tally by Tencent News-affiliated media “Deep Web,” in the first two days of November, three Chinese automakers have already announced price reduction and promotion policies: BYD offers discounts ranging from CNY 5,000 to RMD 18,000 on five models; Leapmotor provides a maximum discount of CNY  10,000 across all models; Lynk & Co, under the Geely umbrella, offers a subsidy of CNY 6,000 for its Lynk 08 model. Since October, more than 10 car manufacturers have implemented price reduction and promotion policies.

Tesla Bucks the Trend with Price Increase

While several Chinese car manufacturers are engaging in a price war, Tesla is moving against the current by increasing prices. On November 9th, Tesla officially announced a price hike for the Model 3 Long Range version by CNY 1,500, bringing the total price to CNY 297,400. The Model Y Long Range version also saw a price increase of CNY 2,500, bringing the total to CNY 302,400.

This marks Tesla’s second price hike in nearly a month. On October 27th, Tesla China raised the price of the Model Y Performance version by CNY 14,000, resulting in an adjusted selling price of CNY 363,900. Additionally, the North American Tesla Model Y Long Range version also experienced a price increase of USD 500.

The report further indicated the industry analysis, suggesting that the previous round of price increases has already eroded Tesla’s profitability. Tesla’s third-quarter financial report, released in mid-October, revealed earnings and delivery volumes below Wall Street expectations. The gross profit margin was particularly impacted by the price war, reaching a four-year low of 17.9%.

BYD Secures Sales Crown in Chinese Car Price War  

In contrast to Tesla’s unexpected withdrawal from the recent price war, Chinese manufacturers are not only surviving but maintaining their ability to continue the battle. BYD, sitting comfortably as the global leader in new energy vehicle sales, reported a third-quarter net profit of CNY 11.54 billion.

Meanwhile, AITO revived its fortunes with the new M7 model, and XPeng Motors successfully returning to growth in sales.

Data indicates that BYD emerged as the winner in the first half of the price war, maintaining the top position in sales. Despite a decrease in unit revenue amid the price war, quarterly net profit per unit increased. In contrast, Tesla’s per-unit net profit has declined each quarter this year, reaching a global per-unit net profit of only CNY 31,300.

The overall gross profit margin trend and per-unit net profit trend of BYD and Tesla align. In the third quarter of this year, BYD achieved a historic high gross profit margin of 22.1%, while Tesla’s gross profit margin hit a near three-year low at 17.89%.

However, the price war is inevitably taking a toll on the industry, with multiple research institutions and investment banks predicting an increase in mergers and acquisitions, as well as bankruptcy reorganizations among Chinese new energy vehicle manufacturers in the future.

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• [NEWS] BYD Outpaces Tesla in Production, Securing the Crown in EV Sector

(Photo credit: BYD)

Recent reports suggest that Li Auto, a Chinese new energy vehicle company, is currently building a team in Singapore dedicated to the R&D of SiC power chips. On LinkedIn, Li Auto has posted five recent job openings in Singapore, including roles like General Manager, SiC Power Module Failure Analysis/Physical Analysis Expert, SiC Power Module Design Expert, SiC Power Module Process Expert, and SiC Power Module Electrical Design Expert.

In terms of power devices, electric drive systems in current 400V models typically employ Si IGBT, while 800V models mostly utilize SiC MOSFETs. This choice enables higher power density, leading to smaller and lighter equipment.

SiC, known for enhancing the driving range of electric vehicles and improving charging efficiency, finds widespread application in components like main inverters, on-board chargers, and DC/DC converters.

Recognizing the potential, Li Auto is among the many new energy vehicle makers incorporating SiC into their products.

As of August last year, Li Auto had launched the construction of power semiconductor R&D and production base in the Suzhou High-tech Zone. The base aims to initiate sample production in the first half of 2023, officially beginning full-scale production in 2024, with an ultimate annual capacity of 2.4 million SiC power modules. This marks Li Auto’s strategic move into the independent industry landscape for the next generation of high-voltage electric drive technology.

To achieve higher efficiency on the high-voltage platform, Li Auto is opting for SiC power modules over traditional IGBT. At the 2023 Auto Shanghai in April, Li Auto unveiled an 800V fast charging solution featuring an 800V high-voltage electric drive system built on SiC technology, enabling a 10-minute charge for a range of 400 km.

Li Auto’s next-gen SiC power module, integrating multiple components into the motor controller design, compresses the controller’s volume to within 4L, boasting a high power density of up to 62 kW/L. This reduces the volume and weight of the electric drive system, further optimizing the vehicle’s spatial layout and energy consumption.

In addition to Li Auto, the all-new NIO ES6, also showcased at the 2023 Auto Shanghai, incorporates SiC power modules and is equipped with a the second generation high-efficiency e-drive platform.

Furthermore, Hongqi, FAW Group’s premium auto brand, latest electric E202 SUV debuted at the 2023 Auto Shanghai. Based on the FMEs architecture 800V SiC charging platform, it requires only 5 minutes of charging for a range of 300 km.

Notably, Huawei recently introduced the new DriveONE 800V high-voltage SiC motor platform, focusing on better performance for electric vehicles. With high-voltage SiC technology, this motor platform achieves a rotation speed of up to 22,000 rpm and a maximum efficiency of 98%. Huawei’s latest SiC motor release is anticipated to open a new page in the electric vehicle industry.

The integration of SiC power devices into electric vehicles represents a significant trend in the development of the new energy vehicle industry. Leading automakers are poised to invest more resources in the research and development of related products, ultimately attaining independent control over core technologies.

(Image: Li Auto)

Xiaomi’s venture into automotive industry takes a significant stride as the company’s latest models, SU7 and SU7 Max, makes its debut in the latest catalog from China’s Ministry of Industry and Information Technology. The listed entity is Beijing Automotive Group Co., Ltd. (BAIC), marked by the distinctive “Beijing Xiaomi” emblem on the rear.

Sources from Xiaomi’s car supply chain suggest an imminent small-scale trial production phase, hinting at the first model’s market introduction in February 2024, reported by UDN News.

As per the disclosure, the cars boast a 3,000mm wheelbase. SU7 will feature Fdbatt’s lithium iron phosphate batteries, and SU7 Max is complemented by CATL’s ternary lithium batteries. Interestingly, the smart driving features will not include an optional optical radar package.

The catalog showed Xiaomi’s car brand as Xiaomi, while the declared corporate entity is Beijing Automotive Group Off-Road Vehicle Co., Ltd. (BAIC ORV). The product’s rear proudly displays “Beijing Xiaomi.”

Despite leveraging BAIC’s production qualifications, Xiaomi’s car has its declared production address at the site of its self-established factory.

The car factory’s construction unfolds in two phases, with the first, covering approximately 720,000 square meters, achieving an annual capacity of 150,000 vehicles by June 2023. The second phase is slated to commence in 2024, concluding in 2025. Public records confirm the successful acceptance inspection of Xiaomi’s car first phase factory workshops on June 12.

Xiaomi Group Chairman Jun Lei’s October announcement highlighted smooth progress, anticipating an official launch in the first half of 2024.

Since Lei’s announcement of Xiaomi’s foray into smart cars, industry observers have closely monitored Xiaomi’s car dynamics. Internal sources reveal that Xiaomi’s car will leverage ICT industry experience to enhance operational efficiency across research, production, supply, and sales.

Xiaomi plans a US$10 billion investment in the automotive sector over the next decade. Operating in a wholly-owned model, Xiaomi aims to provide users with a comprehensive smart ecosystem and enrich their smart living experiences.

At the October Xiaomi product launch, the introduction of the HyperOS was a highlight, applicable not only to mobile devices but also set to feature in Xiaomi’s cars.

A notable addition revealed by National Business Daily, citing a supplier who visited Xiaomi’s car factory, is that the four major manufacturing process production lines (stamping, welding, painting, and final assembly) in Xiaomi’s car first phase factory are operational, engaging in small-scale trial production. With mass production scheduled to commence in December, Xiaomi’s car is poised for market launch in February next year.

(Image: China’s Ministry of Industry and Information Technology)

According to the article written by Tony Chen, Head of Investment Research at UBS Asset Management, the European Commission initiated an investigation in October into Chinese electric car manufacturers suspected of receiving national subsidies. The EU believes that Chinese state subsidies will create an “unfair trade competition environment” for EU electric car manufacturers.

If the EU’s investigation uncovers “subsidy evidence,” it will result in the calculation of corresponding “average anti-subsidy taxes,” which will apply to all electric vehicles imported from China, including prominent models produced in China such as Volkswagen, Tesla, BMW, and others.

The UBS research team suggests that, in the worst-case scenario, the EU may impose additional tariffs on Chinese electric cars imported into the EU.

What led to the trade conflict between China and the EU in electric vehicles? Firstly, the disparity in tariffs plays a crucial role.

Currently, Chinese cars entering the European market face a 10% import tariff, while in China, the situation is reversed, with a 15% tariff imposed on cars imported from Europe. This significant gap indicates potential room for negotiation.

Additionally, a report from the European Commission reveals that China’s market share for electric vehicles in Europe has risen to 8%, with expectations to reach 15% by 2025.

However, this figure includes cars manufactured in China for international brands, not exclusively domestically produced Chinese electric vehicles. According to JATO, an automotive industry research organization, the market share of “pure” Chinese brand electric vehicles in Europe was still below 1% as of the first half of this year. Nevertheless, overall, it underscores the strong presence of Chinese-manufactured electric vehicles in Europe.

From a practical standpoint, initiating a trade war in the electric vehicle sector involves consideration of various complex background factors. China is not only a primary supplier of raw materials to Europe but also a crucial market for European brands. In fact, China is already the world’s largest sales market for electric vehicles.

Chinese Electric Cars Enjoy High Margins, Positioned for Price Wars

The research team at UBS believes that, given the potential to boost sales through lower pricing, the competitive pricing of electric vehicles between Chinese and European brands will be crucial. Taking Tesla as an example, the company has adopted an aggressive pricing strategy for its EVs. In April, Tesla lowered the selling prices in the European region, with the retail price for the popular Model Y around €46,000. According to JATO, the Model Y is currently the best-selling EV in the European Union this year, showcasing the positive impact of a competitive pricing strategy on sales.

Following this argument, another set of data from JATO reveals that the selling prices of Chinese brand EVs in Europe range from €50,000 to €60,000, approximately in line with the European average.

In comparison, the average selling price of Chinese EVs domestically in China is only around €30,000. This indicates that Chinese EV manufacturers exporting to the European market enjoy relatively higher margins, providing them with the capability to engage in price wars. One major reason for the cost advantage of Chinese electric cars lies in battery manufacturing.

According to a previous report by TrendForce, Chinese battery manufacturers command a global market share exceeding 60%, allowing them to cover the entire battery production chain, share production costs, and continually advance new technologies. Since batteries represent approximately 40% of the total vehicle cost, Chinese electric cars offer superior cost-effectiveness.

On the other hand, the space for European car manufacturers to gain a competitive advantage through subsidies has gradually diminished. As the EV market expands, government subsidies in Europe are losing momentum. Germany has already reduced EV subsidies from €5,000 per vehicle to €3,000 this year.

Similarly, subsidies in the Netherlands, of a similar scale, are subject to quota limitations and were even exhausted by mid-2022. This implies that entering a price war could place European EVs at a relative disadvantage.

Overall, the EV market exhibits high price sensitivity, and European automakers face challenges in terms of cost competitiveness. In contrast, Chinese EV manufacturers have a cost advantage. Consequently, there is a growing possibility of a trade conflict in the European electric vehicle market.

(Photo credit: Pixabay)