CANGO Auto View: Auto Production and Sales Amid Worldwide Chip Shortage


Cango Inc. (NYSE: CANG) (“Cango” or the “Company”) is issuing a bi-monthly industry insight publication called “CANGO Auto View” to bring readers, drivers and passengers up to speed on the automobile market’s emerging trends.

Below is an article from the Company’s 5th edition for September 2021.

Chip Shortage Affecting Auto Production and Sales

The widely-publicized global semiconductor chip shortage brought about by the Covid-19 pandemic is causing disruptions across all industries, including auto production and sales. The chip shortage has persisted since early 2020, but the most recent wave in July 2021 has proven especially challenging for automakers. Both conventional fuel and new energy vehicles require a stable supply of semiconductor chips. NEVs are particularly chip-hungry given their higher degree of electronics adaption and intelligence, as well as greater number of onboard cameras and sensors. According to the China Association of Automobile Manufacturers’ (CAAM) preliminary estimates, in 2022, traditional fuel vehicles in China contain approximately 934 chips per vehicle, while NEVs contain approximately 1,459 chips per vehicle.

According to relevant data, SAIC Volkswagen, SAIC-GM, SAIC-GM-Wuling, SAIC Motor Passenger Vehicle, GAC-Honda, GAC-Toyota, GAC Fick, GAC Mitsubishi, Dongfeng HondaDongfeng Nissan and Dongfeng Liuzhou Motor all reduced production by varying degrees in July 2021. GAC Fick suffered the largest loss with a 94% decline; SAIC Volkswagen and Dongfeng Honda both experienced a decline of more than 50%; and GAC-Honda and GAC Mitsubishi both reduced production by more than 40%.

Sales of various auto brands clearly reflected this insufficient production capacity. Volkswagen’s domestic market share fell below 10% (9.64%) for the first time in July 2021, while Toyota, the runner-up, was only 60 bps behind. Dongfeng Honda and GAC-Honda were both squeezed out of the top ten auto companies in sales. Sales of GAC Fick, which suffered the greatest production reductions, dropped by a whopping 82%!

July 2021’s mismatch between production and sales may be just the tip of the iceberg. Since the second quarter of 2021, domestic car sales have declined for several consecutive months, illustrating that the automotive chip shortage is no longer a short-term problem. As early as December 2020, SAIC-VW and FAW-VM were both forced to halt production because of chip shortages. On June 10, 2021, the Central Finance and Economics Committee revised its opinion on the automotive chip shortage, which has now resulted in production reductions totaling nearly three million vehicles. With this latest wave of chip shortages, domestic car companies will likely be facing a disconnect between production and sales for the foreseeable future.

NEV brands, led by Li Auto, NIO and Xpeng in recent years, were also victims of the crisis. According to their August sales data released on September 1, 2021, Li Auto remained in first place, followed by Xpeng. However, NIO, which suffered a devastating double blow to its production due to the chip shortage, was replaced by HOZON Auto in the top three. One of NIO’s suppliers, Nantiao Quanxing, is located in a high Covid risk area in Nanjing and was forced to shut down its factory in August 2021. Because Nantiao Quanxing is the sole supplier of A and B-pillar interior panels for NIO’s ES6 and EC6 models, its shutdown badly affected NIO’s production. In addition, STMicroelectronics, a supplier of Bosch ESP, reduced production due to the pandemic situation in Malaysia. This in turn affected Bosch’s supply to NIO ESP. Following a sales decline in July 2021, NIO’s August sales hit a new low of just 5,880 total sales, down 25.8% from the previous month.

According to Shen Yanan, co-founder of Li Auto, the widespread chip shortage may continue through the end of this year or the beginning of next year. To deal with this situation, Shen said that Li Auto communicates with suppliers daily. Given continued growth in the number of orders, Li Auto will face some chip pressure, but Shen believes that the company is very flexible in terms of timely adjustments.

Dealer Challenges

Overall, the chip shortage has placed relatively lighter burdens on dealers in comparison with OEMs. However, they are still facing unique challenges. According to certain brands’ salespeople, although chip shortages have led to “stock-out” of some popular models, inventory pressure on manufacturers has abated. At the same time, as consumers tend to favor highly sought-after products, the chip shortage has stimulated car purchases somewhat as consumers compete for a limited supply of the most popular models.

According the latest FAW “China Auto Dealer Vehicle Inventory Alert Index Survey” released by CADA, the Vehicle Inventory Alert Index (VIA) dropped by 1.1% year-over-year to 51.7% in August. Although it is still above the 50% official warning threshold, inventory pressure may continue to decline during the “Golden September and Silver October” peak sales season, given the chip shortage’s influence on production as well as increasing adoption of China’s “price protection” policy.

The chip shortage has affected the sales of promotion-oriented models most severely, as dealers set low prices for these models to increase sales volume but lack sufficient supply to meet demand. Dealers depend upon high sales volumes for these models to maintain healthy cash flow. Compounding the cash flow problem for dealers, rents for automotive retail space can reach RMB100,000 or more per month in some tier-1 and tier-2 cities, eating up their cash reserves. Delivery delays of some mainstream JV brands further added to dealers’ cash flow management issues.

Increased Orders for Auto Parts Companies

There is a bright side to this story – auto parts companies are seeing a huge uptick in orders. According to the latest statistics released by the General Administration of Customs, exports of auto parts between January and August 2021 reached RMB316.58 billion, up by 34.6% year-over-year, and grew by nine times compared to export volume (RMB31.22 billion) during the same period of 2019. Although the chip shortage and the drop in global auto sales has resulted in shrinking demand from traditional OEMs for auxiliary parts, demand is surging in the NEV market and the repair and maintenance market.

Zhengdian Finance of CCTV recently interviewed Kong Chenhuan, General Manager of Zhaofeng Mechanical and Electronic, a hub bearing company in HangzhouZhejiang. Kong said that orders have grown by over 80%, occupying the company’s production capacity for the next three months. He attributes this strong growth (particularly in the second half of the year) to the recovery of previous orders, as well as the relatively low inventory level in the overseas end market. Huida Machinery Manufacturing, located in Huzhou, Zhejiang, is also busy producing aluminum auto parts such as steering gears. As their orders continue to grow, Huida has consolidated and expanded its production lines and added three automated production lines, increasing its production efficiency by 30%.

Although the chip shortage and the drop in global auto sales has resulted in shrinking demand for auxiliary parts from traditional OEMs, the demand is surging in the NEV market and the repair and maintenance market.

Yang Fudong, assistant to the secretary-general of the After-sales Parts Branch of the CADA, said that there are actually fewer auxiliary OEMS because of the decline in car sales and the changes in parts due to the industry shift towards new energy vehicles. With the development of new energy vehicles, parts such as chassis, motors, batteries, and electronic controls are in greater demand. In addition, demand for after-sales service is high and is expected to increase as NEVs age and the overall penetration of automobiles in China grows.

Profitability During the Crisis

The chip crisis and price increases in raw materials have affected revenues and profits across the auto industry, particularly in the auto parts industry. Due to price increases in raw materials, production costs have increased by about 30% for certain domestic auto parts companies. Facing this upstream pressure, automakers, auto parts companies and dealers have developed various strategies to cope with the crisis and remain profitable.

Tesla was one of the first companies to take action. In May 2021, Tesla announced on its official website that it would raise the prices of its Model 3 and Model Y by USD500 (approx. RMB3,200) in some parts of the U.S. This was Tesla’s fifth such price hike announcement. In March 2021, Tesla China announced that it would raise the price of Model Y by RMB8,000, due to the increase in manufacturing costs. Tesla also said that they are considering acquiring a chip factory to resolve their chip shortage issues.

Tesla is not alone in planning ahead. When early signs of raw material price increases began to emerge in 2020, some auto parts companies signed fixed-rate supply agreements with raw material suppliers both domestically and abroad and have enjoyed the benefits of protection from this year’s huge price increases. Certain other parts companies swiftly responded by buying excess raw materials at low prices and storing them for future use, effectively reducing production costs as prices began to climb.

The increase in raw materials affected OEMs, dealers and parts suppliers to different extents each of whom coped with the situation in their own ways. Meanwhile, the second-hand car market, which already showed huge potential, is likely to be showered with a new round of growth.

At the monthly analysis meeting of CADA on September 1, 2021Qiu Kai, director of the Industry Coordination Division, pointed out that September opens the traditional peak season for car sales. Despite reduced automobile production capacity, consumer demand remains strong, which should create a sellers’ market during September and October’s Golden sales season. The huge discounts commonly offered during this season are unlikely to be available this year. However, despite growing demand for automobile consumption, the tight supply of chips has resulted in low inventory of certain best-selling models. Non-urgent car buyers might postpone their car purchase plans to wait for their desired model or features, potentially causing sales in September to fall short of expectations.

With production and sales seriously mismatched in the new car market due to the chip shortage, the domestic used car market has recorded substantial growth since the beginning of 2021. From January to July this year, accumulated used car sales reached 9,893,300 units, representing a year-over-year increase of 45.96% and an increase of 22.5% compared to the same period of 2019. This market already showed huge potential and as the Golden sales season begins, stronger car consumption demand and limited new car availability may drive a new round of growth.

The worldwide chip shortage is a serious problem for the auto industry, with no end in sight. However, auto makers, parts manufacturers and dealers are rising to the challenge with innovative solutions and strategies to maintain profitability.


CANGO Auto View: Developing Auto Intelligence Amid a Worldwide Industry Shift Toward Autonomous Driving


With the evolving landscape of the global automotive industry, Cango Inc. (NYSE: CANG) (“Cango” or the “Company”) is issuing a bi-monthly industry insight called “CANGO Auto View” to bring readers, drivers and passengers up to speed with what’s on offer in the automobile market, what trends are emerging, and what holes need to be plugged.

Below is an article from the Company’s 4th edition for June 2021.

Auto intelligence and connectivity are the most challenging aspects of automakers’ broader transition toward electrification, intelligence, connectivity, and shared mobility. According to a Deloitte report, there are three main directions for the evolution of automotive intelligence: intelligent interaction, intelligent driving, and intelligent services. Among them, intelligent interaction is the very beginning and core, while intelligent driving and intelligent services are the output in driving operation and service experience. Tech-enabled intelligent driving will be the essential function, while intelligent services centered by connectivity will be the start of new experience and business innovation.

From an OEM perspective, the three paths for developing intelligent connected vehicles (ICVs) are the product development path focusing on autonomous driving technology, the connectivity service development path that supports rapid product improvement, and the intelligent cockpit path prioritizing user thinking. As intelligence and connectivity development of automobiles is highly technical in nature, aside from automakers, it has also attracted the participation of technology giants such as Google, Apple, Alibaba, Tencent, Baidu and Huawei.

EV manufacturer Tesla appears to be a pioneer in ADAS and autonomous driving. Elon Musk said in 2015 that the technology behind a fully autonomous vehicle only takes “two to three years” to develop, and “one to five more years” to obtain approval from regulatory authorities; in October 2015, Tesla launched the “Autopilot” software, which can be installed on compatible Model S, enabling automatic steering, lane change and parking functionalities.

Volkswagen Group, representing traditional OEMs, started the transformation from its luxury car brand Audi. In 2013, Audi became the world’s first carmaker to obtain autonomous driving test licenses in California and Nevada.

Before this, technology company Google’s autonomous vehicle fleet had already been granted autonomous driving test licenses. On May 8, 2012, the Nevada Department of Motor Vehicles issued the first ever self-driving car license to Google’s self-driving car, which was a modified version of Toyota Prius hybrid.

Teaming up with tech companies and component companies has also become a popular strategy adopted by mainstream auto manufacturers in developing auto intelligence and connectivity. BMW formed an alliance with Intel and Mobileye to build a platform based on open standards, so as to launch its self-driving cars to the market. In 2021, BMW plans to complete the development and application of L3 (conditional autonomous driving) to L4 (highly autonomous driving). A representative mass-produced model is BMW iNEXT, will also be equipped with full connectivity that supports 5G and the 5th. generation BMW eDrive technology.

Bosch, one of the world’s largest automotive suppliers, has more than 2,000 engineers working in the research and development of assisted driving systems. The company also cooperates with GPS manufacturer TomTom to provide surveying and mapping data. In April 2017, Bosch and Mercedes announced the joint development of L4 (high automation) and L5 (full automation) cars. Mercedes can exclusively use the jointly developed system for two years before it can be supplied to other car-making competitors.

In April, Huawei published a video of autonomous driving on public roads. The HI version of the BAIC BJEV Arcfox α-S using Huawei’s intelligent automotive solutions started public driving test in Shanghai, which was also the test debut of Huawei’s autonomous driving technology. According to Wang Jun, President of Huawei’s Smart Car Solution Business Unit, Huawei will invest over USD1 billion this year in the research and development of smart cars in 2021, with the R&D team expanded to over 5,000 staff members, of which more than 2,000 will be devoted to autonomous driving.

Also, it is worth mentioning that autonomous driving is also among the key investment directions of ride-hailing companies. In March 2017, Didi Chuxing opened its own AI laboratory in the heart of Silicon Valley, starting a business unit to drive research and development of its intelligent driving system and AI-based road safety system. In February 2018, Didi Chuxing showcased a working self-driving car for the first time, claiming to have developed software for the car and worked with various car manufacturers and suppliers in hardware.

In terms of Internet of Vehicles (IoV), General Motors is undoubtedly one of the first mainstream car manufacturers to have made early investments. GM launched OnStar on three Cadillac luxury models as early as November 1996. In December 2009, Shanghai GM launched the OnStar service – first in Cadillac, and now expanded to Buick and Chevrolet.

In 2009, Toyota embedded the G-BOOK co-driver intelligent communication system in its luxury vehicle division Lexus and brought it to the Chinese market. Before that, Ford released the SYNC in-vehicle communications and infotainment system at the North American International Auto Show in 2007.

In April 2021, SAIC-GM showcased its new pure electric platform Ultium, a new generation of Vehicle Intelligent Platform (VIP) intelligent electronic architecture, and the continuously iterating and evolving Super Cruise super-intelligent driving system. By 2025, SAIC-GM will have launched more than 10 domestic NEVs based on the Ultium platform, covering its three major brands of Buick, Chevrolet and Cadillac.

Over the next 5 years, the Super Cruise super-intelligent driving system will cover most of the Cadillac models, and will gradually be applied to future new models of Buick and Chevrolet; the intelligent lane-center cruise function will be applied to more than 80% of the models by all three brands, and all of the Ultium platform models.

Circling back to Volkswagen, in 2020, the company began to cooperate with Deutsche Telekom in data communication services. Volkswagen is also talking to other network operators to help users add a network data service item when using the new technology. The second generation of Volkswagen’s Car-Net connected car services as rolled out in collaboration with ride-hailing companies to provide car owners with point-to-point shared mobility services, which is also part of VW’s future plan.

In the Internet era, future generation of automobiles will establish vehicle-to-vehicle communications, effectively eliminating car collisions. The development of ICVs will also enable communications and connections between cars and people, cars and roads, cars themselves, and cars and the outside world, so as to achieve intelligent dynamic information services, intelligent vehicle control and intelligent traffic management. It will also involve voice interaction solutions, traffic data collection, traffic resource allocation modes, big data and cloud computing solutions, and even updates and compatibility with service providers such as shops, parking lots, and transportation hubs. The time has come for “software-defined vehicles.”

Chinese companies are also accelerating the roll-out of future-facing products and businesses, promoting innovation in automotive products, technologies and services.

Among them, Geely Automobile has started its transformation towards a technology-based enterprise since 2018. The newly released GKUI 19 intelligent ecosystem is equipped with E01, the first mass-produced automotive-level high-performance chip with self-led development and deep customization. Great Wall Motors’ intelligent connectivity system Haval, has been iterated and upgraded to Version 3.0, co-developed by the Haval brand and international service providers such as AutoNavi, Tencent, Bosch and Sharp. Changan Automobile continues to implement its intelligent “Dubhe Plan” by continuously promoting the “4+1” activities by 2025, with 100% smart cockpits, L4 mass production and sales, and software technology talents amounting to 5,000. Dongfeng Nissan also launched the “Smart Travel+” car connectivity system together with its partners including China Unicom, AutoNavi Maps, iFlytek, Moji Weather, Kuwo Music, Koala FM, Alibaba CloudTencent, Hangsheng Electronics and Lan-You Technology.

The world’s major car companies are all embracing the four new trends of electrification, intelligence, connectivity, and shared mobility now, and before we know it, the new age of automobiles will be upon us.


CANGO Auto View: China’s Automobile Industry – at the Brink of a New Era


With the evolving landscape of the global automotive industry, Cango Inc. (NYSE: CANG) (“Cango” or the “Company”) is issuing a bi-monthly industry insight called “CANGO Auto View” to bring readers, drivers and passengers up to speed with what’s on offer in the automobile market, what trends are emerging, and what holes need to be plugged.

Below is an article from the Company’s 4th edition for June 2021.

If we were to split the auto industry’s hundred-year history into four developmental stages, it would look something like this. The first was the era of the earliest automakers, headed by Mercedes-Benz, becoming luxury car brands with illustrious history; the second stage was about US car manufacturers such as Ford that invented the assembly line, built up price advantage and started marketing their products worldwide; in the third stage, companies represented by Toyota seized the opportunity during the energy crisis, and gained market share with compact, low-emission and high-quality products; and the fourth stage, where we are now, is four new trends for OEMs – electrification, intelligence, connectivity, and shared mobility.

Just as 3G technology gave birth to the PC Internet era and 4G kicked off the mobile Internet wave, the invention of 5G opens up the imagination for the transformation of traditional manufacturing industries, including the automotive industry.

The increasing maturity of 5G is also pushing the global automotive industry to speed up its journey towards electrification, intelligence, connectivity, and shared mobility. According to industry experts, the cost of single data unit transmission will be reduced significantly because of the greatly increased network capacity powered by 5G. More importantly, because electric vehicles have inherent advantages in term of intelligence development such as the short latency, with the deployment of 5G networks and the acceleration of auto intelligence, more users are expecting increasing intelligence of new energy vehicles.

An Conghui, President of Geely Holding Group, CEO and President of Geely Auto Group, stated that the industry is headed towards electrification, intelligence, connectivity, and shared mobility, while Chinese companies enjoy natural advantages at this stage. For example, when it comes to electrification, China is the largest market, where both the government and consumers have their own needs for environmental protection and air quality improvement; in the field of Internet of Vehicles (IoV), Chinese consumers have the highest acceptance of the Internet, and China owns the largest number of IoV companies and related developers and engineers, which helps the application of the Internet in automobiles.

If we take a global look, the four new trends have become the consensus of mainstream auto companies. Be it large domestic auto groups such as FAW and Changan Automobile, emerging automakers including Neo, Weltmeister and Li Auto, or multinationals like GM and Volkswagen, they have all formulated detailed plans to “embrace the era of electrification.” This is an industry overhaul where both old and new players are eager to try it out.