Source | Deep Blue Finance

Written by | Li Ang

If observed from an economic geography perspective, the next highland for China's auto industry is likely to emerge in Sichuan and Chongqing.

The "Outline for the Development Plan of the Chengdu-Chongqing Region Twin Cities Economic Circle" proposes "jointly building a nationally important advanced manufacturing base," with Sichuan and Chongqing prioritizing the development of four key industries: electronics, automobiles, equipment manufacturing, and consumer goods.

As the other three major industries have successively surpassed the trillion-yuan mark, it is now time to accelerate the automotive industry.

In 2023, Sichuan and Chongqing produced nearly 3.3 million vehicles, a year-on-year increase of 3.9%, accounting for 10.9% of the country's total auto production. The most rapid growth has been in new energy vehicles, with an annual production of 652,000 units, up 35.8%. The output value of the automotive manufacturing industry in the two regions reached 810 billion yuan, a year-on-year increase of 7.5%.

New energy vehicles are in an acceleration phase nationwide, not just in Sichuan and Chongqing. In the first three quarters, both production and sales exceeded 8.3 million units, both increasing by more than 30% year-on-year. Especially in the past three months, the sales share of new energy passenger vehicles has been above 50%, achieving a new breakthrough. It is estimated that new energy vehicle sales for the full year are expected to reach 12 million units, significantly higher than the target set at the beginning of this year.

Visible to the naked eye, new energy vehicles are deeply integrating into and reshaping the domestic regional economic landscape. According to incomplete statistics, at least 25 cities in China have listed new energy vehicles as pillar industries and clearly stated their goals of building large-scale automotive industrial clusters. Obviously, not every city will ultimately achieve its goals. It can even be said that the elimination race has already begun.

What are the underlying strengths behind betting on Sichuan and Chongqing?

1. Behind the "stock purchase"

The new energy vehicle industry is a classic example of a "long slope with deep snow" in the industrial sector.

There is an empirical formula in the industry: the pull effect of the automotive industry on the industrial economy is roughly between 1:7 and 1:10, meaning that for every unit of output value produced by the automotive industry, it will drive 7-10 units of related industrial output value.

With a new round of technological changes, traditional automotive cities are declining, while new energy vehicles are surging ahead. At this time, vigorously developing new energy vehicles in various regions is like grasping the "nose ring" of the industrial economy.

This is what is known as an "elephant turning around," and Chongqing is a prime example. In 2014, it ranked first in automobile production nationwide, peaking at 3.1562 million units in 2016. However, it then experienced a cliff-like decline, falling to 1.383 million units in 2019 before slowly recovering amid difficult adjustments and transformations.

Meanwhile, coastal regions had already sensed the opportunities in new energy vehicle development, with Tesla in Shanghai, XPeng in Guangzhou, NIO in Hefei, and other new energy vehicle enterprises taking root. With the first generation of new energy vehicle cities in a state of warring factions, how could Chongqing compete for market share? Collaboration is one direction.

In June 2021, the economic and information technology departments of Sichuan and Chongqing jointly formulated the "Implementation Plan for High-Quality Collaborative Development of the Automotive Industry in the Chengdu-Chongqing Region Twin Cities Economic Circle." By 2025, the automotive production volume in Sichuan and Chongqing will reach 3 million units, with an output value of 600 billion yuan, achieving an average annual growth rate of over 5%. The Chengdu-Chongqing Region Twin Cities Economic Circle will be built into an important national base for automotive research and development, manufacturing, and application.

At that time, a relevant responsible person from the Chongqing Investment Promotion Bureau stated, "If you don't come to Chongqing now, you might regret it. Just like buying a house or stocks, good stocks will continue to rise. If you don't buy now, you'll regret it later." Now, nearly three years after the "stock purchase," Chongqing has won its comeback battle. In the first half of this year, Chongqing temporarily ranked first nationwide with an automotive production volume of 1.214 million units.

Among them, new energy vehicles accounted for about one-third, with a year-on-year increase of 1.5 times. Behind this growth is the introduction of Thalys and the rising popularity of the AITO brand, jointly created with Huawei. Additionally, Chongqing's traditional automaker, Changan Automobile, is actively transforming. Over the past two years, it has successively launched new brands such as Changan Qiyuan, Avatar, and Deep Blue, gradually replacing the market demand for joint venture vehicles.

Chengdu Auto Show

If Chongqing's strength lies in its vehicle manufacturing enterprises, Sichuan's advantages are more evident in key core components, especially in power batteries. It can be said that Sichuan has basically gathered the "top players" in the entire industrial chain. It's important to note that Sichuan holds more than half of the country's lithium ore resources, has a green power ratio of 80%, and boasts low labor costs. As such, "entering Sichuan from the west" has almost become a consensus among leading players in the power battery industry.

As the core area of Sichuan's trillion-yuan power battery industrial cluster, Yibin's power battery industry output value reached 101.3 billion yuan in 2023, exceeding the 100 billion yuan mark for the first time. At the end of August this year, CATL officially commenced construction of the 8th phase of its power battery production project at Sichuan Times in Yibin. After the project is completed, Yibin's installed power battery capacity will reach 210 GWh.

CATL's wholly-owned subsidiary Sichuan Times' second-phase base in Yibin

2. Synchronous Elements

Back in February 2021, the "Outline for the National Comprehensive Three-Dimensional Transportation Network Development Plan" was released, outlining China's transportation network construction goals and overall layout for the next 15 to 30 years. In this document, the Chengdu-Chongqing Region Twin Cities Economic Circle was listed alongside the Beijing-Tianjin-Hebei Region, the Yangtze River Delta, and the Guangdong-Hong Kong-Macao Greater Bay Area for the first time, becoming an important "pole."

As senior industry expert Luo Qingqi said, when a huge flood of production factors emerges in China, the main task of spatial form is to support and recreate these factors. The ability to support and recreate these factors is demonstrated by how widely we can synchronize these production factors.

From this perspective, the high-speed transportation network, social and knowledge innovation mechanisms, industrial production capabilities, and even social consumption capabilities established in Sichuan and Chongqing will become advantages supporting the rise of the trillion-yuan automotive industrial cluster, thanks to the intentional acceleration efforts of the two regions.

Take hydrogen energy as an example. Currently, as China accelerates its efforts to achieve the "dual carbon" goals, the transportation sector has become an important breakthrough for the development of the country's hydrogen energy industry. In recent years, several regions, including Beijing, Shanghai, and Guangdong, have successively issued development plans to promote the hydrogen fuel vehicle industry.

As early as 2010, Sichuan began research and development in hydrogen energy, successively issuing relevant plans and special policies to provide systematic support. Sichuan and Chongqing have also initiated the construction of the "Chengdu-Chongqing Hydrogen Corridor," which was officially completed in November 2021. According to the plan at that time, about 1,000 hydrogen fuel logistics vehicles would be put into use by 2025.

Data from June this year shows that more than 900 hydrogen fuel cell vehicles have been put into operation in Sichuan and Chongqing, with 26 hydrogen refueling stations built. The cumulative mileage of roads for autonomous driving and vehicle-road coordination testing has exceeded 2,200 kilometers. Moreover, the construction of the Chengdu-Chongqing Hydrogen Corridor has accelerated the integration of resources and industries between the two regions, as well as complementary cooperation among enterprises.

For example, as the chain leader in the development of the hydrogen energy industry in Sichuan, Dongfang Electric (Chengdu) Hydrogen Fuel Cell Technology Co., Ltd. has cooperated with multiple vehicle and component manufacturers in Chengdu and Chongqing on the development of hydrogen fuel vehicles. It has also invested in the construction of the Dongfang Hydrogen Energy Industrial Park, gathering a group of industrial chain enterprises from both regions to develop as a "cluster."

Furthermore, in the new journey of China's automotive industry accelerating its overseas expansion towards the "deep blue sea," the locational and foreign trade advantages of Sichuan and Chongqing also constitute "long boards" in the field of automotive exports. Although located inland, Sichuan and Chongqing have the shipping advantages of the Yangtze River's golden waterway, as well as the advantages of the Western Land-Sea New Corridor, China Railway Express, the Eurasian Land Bridge, and the Bangladesh-China-India-Myanmar Economic Corridor, linking the world.

At the end of last year, Chongqing issued the "Chongqing Cars Going Abroad" action plan, proposing to increase the annual export volume of complete vehicles from Chongqing to account for 10% of the country's annual export volume of complete vehicles by 2027. In line with this goal, Thalys and Changan are also accelerating their overseas market layout. Thalys mainly focuses on Europe, while Changan focuses on the Middle East and Africa. According to Changan's "All Rivers Run into Sea" global plan, it plans to exceed 1.2 million units in annual overseas sales by 2030.

Chongqing, Changan Automobile Building

Chongqing Thalys Automobile Company

3. Advancing into the "Second Half"

If the global automotive industry revolution is divided into two halves, the "first half" is electrification, and the "second half" is intelligentization. Amidst major changes, Sichuan and Chongqing are not only witnessing growth in automotive production and sales and expansion of enterprise scale but also the formation of industrial clusters and the improvement of ecosystems. Currently, Sichuan and Chongqing have established China's third-largest automotive industrial cluster, with 45 vehicle manufacturers and over 1,600 suppliers.

Focusing on the present and planning for the future. Intelligent and connected vehicles are considered the future direction of the automotive industry. According to research by the Society of Automotive Engineers of China, it is estimated that by 2025 and 2030, the incremental output value of the "vehicle-road-cloud integration" intelligent and connected automotive industry will be 729.5 billion yuan and 2.5825 trillion yuan, respectively, with an average annual compound growth rate of 28.8%, indicating another trillion-yuan market in the future.

As early as 2020, Sichuan and Chongqing signed the "Strategic Cooperation Agreement on the Coordinated Development of the Intelligent and Connected Automotive Industry in the Chengdu-Chongqing Region Twin Cities Economic Circle," jointly promoting key technology research and development and industrialization in intelligent and connected vehicles and the Internet of Vehicles, and comprehensively improving the level of intelligent and connected automotive products. Currently, the localization rate of the intelligent and connected new energy automotive industry in the two regions has exceeded 80%.

On October 23, Sichuan and Chongqing signed the "Strategic Cooperation Agreement on Further Deepening Collaborative Investment Promotion in the Chengdu-Chongqing Region Twin Cities Economic Circle"

To further seize future opportunities, Sichuan has listed the intelligent and connected automotive industry as a key area for supporting the qualitative and quantitative doubling of its six advantageous industries, striving to complement shortcomings and tap potential, aiming to achieve an output value of over 50 billion yuan for the entire Internet of Vehicles industry chain by 2027 and striving to create an industrial cluster integrating research and development, manufacturing, and application.

Chongqing has also included intelligent and connected new energy vehicles as one of the three leading industries in its "33618" modern manufacturing cluster system. According to the latest plan, the production target for intelligent and connected new energy vehicles in 2024 is to exceed 1 million units; by 2027, a trillion-yuan intelligent and connected new energy vehicle industrial cluster will be established.

Since the beginning of this year, China has successively launched high-level autonomous driving access and road access pilots, as well as "vehicle-road-cloud integration" application pilots. A total of nine consortia have been approved to carry out access and road access pilots, and 20 cities (consortia) have been selected for the "vehicle-road-cloud integration" application pilot list, marking a new stage in the advancement of the intelligent and connected automotive industry towards high-level autonomous driving applications.

Both Sichuan and Chongqing have benefited from these efforts. According to the "Basic Information of the Pilot Consortia for Access and Road Access of Intelligent and Connected Vehicles" announced in June, a total of nine automakers, including Changan, were among the first batch nationwide to enter the L3 autonomous driving road access pilot list.

Compared with the currently mature L2-level assisted driving system, L3 autonomous driving allows drivers to completely release their hands and take their eyes off the road, no longer requiring constant control over vehicle operation. Therefore, L3-level intelligent driving is also considered a watershed between assisted and autonomous driving.

In July, the list of pilot cities for the "vehicle-road-cloud integration" application of intelligent and connected vehicles was announced. Among the 20 first-batch pilot cities (consortia), Chongqing and Chengdu successfully made the cut. Evolving from past closed testing to the pilot application stage, these cities will carry out the construction of intelligent roadside infrastructure and cloud control basic platforms, form a unified technical standard and evaluation system for vehicle-road coordination, improve road traffic safety assurance capabilities, and promote large-scale demonstration applications and the exploration of new business models.

Next, the goal of Sichuan-Chongqing collaboration is to aim for the "national team." According to the Sichuan Provincial Department of Economy and Information Technology, they will seize the opportunity of Sichuan and Chongqing jointly applying for the designation of a national-level advanced manufacturing cluster for intelligent and connected new energy vehicles to further promote the complementary development of the automotive industry in Sichuan and Chongqing.