The cooperation between FAW and Dongfeng in the new energy project has once again aroused imagination

Known as the "eldest son of the Republic", FAW Group once carried the hope for the development of the motherland's automobile industry. The FAW car project led by itself has always been supported by multinational giants such as Volkswagen and Toyota, but it has never been able to achieve self-sustaining capabilities.

With the support of Mazda, FAW Car experienced a brief recovery, but with Mazda's own difficulties, FAW Car never launched any products that were recognized by the market, and its profitability deteriorated.

If the development of FAW Car has a heavy burden caused by historical reasons, then what is even more puzzling is that new energy vehicles are the main direction of future development, and FAW Car announced as early as 2012 that it would invest 4.348 billion yuan to build a new energy factory in Changchun. However, FAW Car recently announced at the board of directors that the new energy project that had been carried out for nearly five years had been terminated.

Some analysts pointed out that for FAW Car, the news was not a bolt from the blue. After all, it had already taken the move to divest the Hongqi brand. Therefore, the news caused more doubts in the industry: Is FAW Car's move to completely stop new energy projects, or is it to form a new energy joint venture with Dongfeng Motor as described in previous rumors?

Someone close to FAW Group told the Times Weekly reporter that the termination announcement by FAW Car's board of directors did not mean that FAW Car would stop its new energy projects, but that it would change the original plan to build a new factory to rely on the improvement and transformation of the existing production line. Therefore, FAW Car has a new idea for the layout of the new energy market, but it seems that it has not yet been determined whether it will choose to build its own or cooperate with Dongfeng.

The blue ocean characteristics of new energy are emerging

The situation of new energy development this year is quite obvious. Not only more domestic brands have invested, but multinational giants have also joined the ranks of new energy vehicles. From the fact that the number of new energy exhibition cars at this year's Shanghai Auto Show increased by more than 30% compared with the previous session, it can be seen that the trend of new energy development in the entire industry is expected to become increasingly clear.

Whether it is the CEO of a multinational company or the chairman of a state-owned automobile group, when they made comments to the public this year, they generally mentioned their company's future new energy planning and strategy. Mr. Qin Huanming, Deputy Secretary of the Party Committee and Deputy General Manager of China First Automobile Group Corporation, also said: "China FAW has always adhered to the concept of 'driving corporate innovation and development with intelligent interconnection and realizing users' enjoyable life with steadfast practice', and firmly implemented the 'Blue Path' and 'Sincere Path' strategies with green, low-carbon and intelligent interconnection as the core content."

On April 28, when the auto show officially ended, at the 10th meeting of the 7th Board of Directors of FAW Car Co., Ltd., the "Proposal on Adjusting the Implementation Location of Future New Energy Products and Terminating the Construction of New Energy Factory Technical Transformation Project" (hereinafter referred to as the "Proposal") was reviewed and approved.

FAW Car subsequently issued an announcement stating that the reason for the termination of the construction of the plant was: "Based on changes in the market environment and future product planning, the company has repeatedly studied and demonstrated that by transforming the production process technology of the existing plant to effectively improve production capacity, it can meet the layout and sales needs of future products. In line with the principle of maximizing benefits, the company plans to adjust the implementation location of future new energy products and terminate the construction of the new energy plant technology transformation project, which is in line with the spirit of relevant national policies, in order to improve the allocation of corporate resources, improve the efficiency of capital use, and safeguard the interests of the company and all shareholders."

Although the proposal still needs to be submitted to the company's shareholders' meeting for deliberation and approval, the fact that it has passed the resolution of the "board of directors" has already shown FAW Car's intention and determination to terminate the Changchun new energy plant. Therefore, the FAW Changchun new energy plant, which has lasted for 5 years, seems to have come to an end.

In connection with the recent news that FAW and Dongfeng have established a new energy joint venture, FAW's separation of passenger cars into this company seems to be a bit of a coherent and fabricated meaning. In addition, only Dongfeng Motor clarified the news, and FAW did not respond to it. Therefore, some analysts in the industry believe that this may be a joint venture that is being planned.

The announcement of the termination of the project during the Shanghai Auto Show may have a sense of echoing the past. As early as the Shanghai Auto Show in April 2011, Xu Jianyi, then chairman of FAW Group, announced the "Blue Road Strategy": FAW plans to invest 9.8 billion yuan in new energy vehicle product development, capacity building, production preparation, etc., to create a pure electric platform for passenger cars, a hybrid platform, a plug-in hybrid platform and multiple new energy commercial vehicle product platforms, and develop a total of 13 new energy passenger cars and 3 new energy commercial vehicles.

In 2012, FAW Car announced that it planned to invest 4.348 billion yuan to build a new energy factory technology transformation project in Changchun. The project includes four major process production lines, factory buildings and auxiliary facilities for stamping, welding, painting and assembly, and has an annual production capacity of 200,000 cars in two shifts.

Unfinished new energy factory

According to FAW Car's plan at the time, the construction period of the new energy plant was 22 months, which meant that it could be officially put into production in 2014. At that time, FAW Car also made efforts in the field of new energy vehicles and had a variety of models in reserve, including the publicly displayed Bestune PHEV, Bestune EV, Oulan EV and Hongqi H7 PHEV.

However, just when FAW Car had made full preparations for new energy vehicles, the development of the domestic new energy vehicle market did not meet expectations. According to the data from the China Passenger Car Association at the time, the cumulative sales of domestic new energy passenger vehicles in 2014 was 58,000 units, which could not meet the potential of the Changchun plant's 200,000 production capacity in a short period of time.

In addition to the slow development of the new energy market, more important difficulties began to affect FAW Car, and its market performance and profitability began to gradually decline.

In terms of sales data, FAW Car's cumulative sales in 2012 were 185,000 vehicles, down 24% year-on-year, of which the sales of the Bestune brand fell by nearly 30%. While sales were declining, FAW Car also suffered losses in terms of profits. According to FAW Car's announcement, its net profit attributable to the listed company in 2012 fell from a profit of 217 million yuan in 2011 to a "loss of 500 million to 800 million yuan."

Although FAW Car's net profit attributable to shareholders of listed companies was RMB 1.007 billion in 2013, up 233.13% year-on-year, turning losses into profits, the good times did not last long. In 2014, FAW Car's net profit fell 83% year-on-year, in 2015 it fell 64% year-on-year, and in 2016 it suffered another loss of RMB 954 million. Consecutive years of losses have plunged FAW Car into a quagmire.

The traditional fuel vehicle project, which is the main source of income, has encountered difficulties over the years, which has made the new energy project, which is difficult to make a profit in the short term, even worse. As a result, FAW Car's new energy strategy has been delayed again and again. Therefore, the new energy factory that was originally planned to be put into production in 2014 has actually been abandoned.

According to the "Proposal" passed by the board of directors on April 28, the project has actually invested 24.155 million yuan, accounting for 0.56% of the estimated total investment. The money invested in the project is mainly for land payment, which has now been fully recovered. FAW has also applied the invested tooling and molds to other models according to actual production conditions, and the remaining construction and installation engineering costs of 4.2034 million yuan are equivalent to consumption. In other words, FAW Car's Changchun New Energy Factory took 5 years to just purchase land and build a preliminary prototype of the factory building.

Some analysts pointed out that although FAW Car's public disclosure seems serious, it is actually just a way for FAW Car to cut losses. The new energy factory is essentially just an unfinished project. It is no different in essence from the unfinished real estate projects in every city due to the developers' capital chain interruption and bankruptcy.

It is also described in the investment analysis of FAW Car that the reason why FAW Car terminated this project is that the factory may not be able to give FAW Car a timely return on investment. As a listed company, if FAW Car continues to invest rashly, it will inevitably affect its financial statements and thus affect FAW Car's stock price.

Cooperation with Dongfeng may be the best option

Just one day before the announcement, some self-media broke the news that FAW Group, Dongfeng Group and other companies jointly invested 10 billion yuan to establish the "China FAW Dongfeng New Energy Automobile Co., Ltd." in Anyang City, with the investment ratio of FAW and Dongfeng being 1:1. FAW Group will divest its FAW passenger car new energy qualifications to this company, and Dongfeng Motor will divest its commercial vehicle new energy qualifications to this company. FAW and Dongfeng will each develop passenger and commercial projects.

The news was later clarified by Dongfeng Group, but due to previous rumors of a merger between FAW and Dongfeng, as well as the transfer of senior executives between the two parties, the spread of the news left some room for imagination in the industry.

In fact, another major reason why the industry generally recognizes the possibility of FAW and Dongfeng forming a joint venture for new energy vehicles is that, judging from the purpose of FAW Car, FAW Car, which is still working hard for its own blood-making projects, has no time to take care of new energy projects that are unlikely to make a profit in the short term. Therefore, cooperation with Dongfeng may be the most appropriate choice at present.

For FAW Group, it plans to complete the layout of key assembly resources by 2020, develop plug-in hybrid and pure electric power platforms, and control core assembly resources; prepare for the industrialization of a full range of 6 new energy vehicle platforms and 16 models, and occupy more than 15% of the new energy market share.

Some analysts pointed out that, judging from the current situation, it would be difficult for FAW Car alone to achieve these requirements of FAW Group by 2020. Even joint research and development with Dongfeng may not be able to fully achieve them. Therefore, FAW Car does not have many options.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.