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Is it inevitable for tech companies to enter the automotive manufacturing market?

The automotive manufacturing process has changed, and this might be the best time for big tech companies to break into a whole new area: zero-emission electric cars.

The automotive industry was once a difficult playing field and not all companies have the confidence and the potential to venture into it. As the auto industry undergoes major changes, especially the emergence of self-driving cars and smart electric vehicles with no emissions, the problem of auto manufacturing arises again.

But the “protagonists” of the revolution in the automotive industry are no longer traditional manufacturers, but are gradually replaced by technology companies. So why this situation?

Car manufacturing costs are getting lower

A big change in the environment is that the material costs for making cars seem to be getting lower and lower.

The cost mentioned here is not just a question of funding. In fact, the cost of electric vehicles is higher than that of fuel vehicles. In the past, for the automotive market, the engine and powertrain were the essential components of a fuel-powered car. The cost of the engine and powertrain in a fuel vehicle is about 15-20%. In a new energy vehicle, the basic components that become batteries, the electronic controller and the motor, known as the “power trio”, represent more than 60% of the cost, of which the battery can represent more than 60%. of the cost 40% of the total cost of the vehicle.

Getting back to why tech companies have entered the automotive industry, in the process of converting cars to electrification, the problem new automakers need to solve is not just money. , but also the “game” with the component manufacturers.

On the one hand, the new strength of car manufacturing is compared to that of traditional car manufacturers. Automotive understanding places more emphasis on intelligence, such as human-machine interaction, intelligent cockpit, so for a unique experience, the required parts are also higher. On the other hand, since new car makers have little or no sales at the start, the development costs for component manufacturers are also higher.

It’s time to create a car

Another environmental change is that automakers have opened their arms to tech companies.

The Baidu, Geely, Apple joint venture discusses cooperation with many car manufacturers, including Kia … If one only uses “foundry” to describe these car manufacturers, I’m afraid it is not completely the body . Because in a collaboration between automakers and tech companies, viable models are imaginative.

This platform is called “SEA Haohan Architecture”, and the first model to be equipped with the SEA platform is the purely electric ZERO concept of the Lynk & Co brand. In Geely’s official statement, the change represents “an update level from an automaker to a smart travel supplier “.

As the basic architecture of the car, the SEA platform realizes pluggable hardware and upgradeable software. In the words of an industry insider, it’s like a motherboard. Automotive companies can define the vehicle on this motherboard according to their needs, including the architecture of the electronic system and the vehicle control agency interfaces.

For tech companies, the manpower, money, and time it takes to build a car from scratch is too much. The development cycle of the first generation platform is three years. And partnering with car manufacturers can dramatically shorten car manufacturing processes from 4-5 years to 2-3 years, which is quite attractive in terms of time.

The time provided by the economic model

Where has the “sense of urgency” brought to auto tech companies after seeing the opportunity?

In the third quarter of 2019, Xiaomi policymakers offered to make cars on the board, arguing that the end of 2019 to early 2020 was the time for Xiaomi to step in. As you might expect, the outlook has made tech companies see a huge possibility, and opening the window period is key for many tech companies to come or expire.

The first is the huge automobile market. After the phone market hit its peak, dividends from the new auto industry began to attract many tech companies, including cell phone makers.

Second, after the “software-defined car” became the consensus of all, the imagination sparked by software became even more appealing. Tesla CEO Elon Musk confirmed this claim in a recent interview. He said Tesla will launch an Automatic Driver Registration (FSD) service in the second quarter of 2021.

In addition to the NAD (NIO Autonomous Driving) system issued by NIO with ET7, the service registration model is applied on standard hardware and the monthly service charge is 24 USD; plus a $ 0.35 premium automotive entertainment package launched by Tesla. The software billing model is based on the established hardware foundation.

It’s not hard to imagine that, like smartphones, high-end transportation software could become a big part of the profits of future automakers. This has fundamentally changed from the “one-size-fits-all” in auto sales in the past.

Some industry insiders have calculated that Tesla’s investment in FSD over the past three years, if Tesla’s FSD subscription rate is 50%, a car’s net profit could reach $ 700; if Tesla sells a million cars a year and autonomous driving software profits exceed $ 700 million.

With the window open, tech companies should have seen the possible achievements of automotive software in the future and lead to significant margins, if they fail to keep pace., The opportunity will be smaller and smaller.

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