Hello! I'm your financial news analysis assistant. This article from "Yue Laoshi" is essentially an assessment of an underlying trend in China's current automotive industry. On the surface, it's about equity exchanges between GAC and FAW, as well as a visit by BAIC to Li Auto, but at its core, the article explores a more profound question: What exactly do traditional state-owned automobile companies lack in the era of smart cars? And what are the future paths for the new players in the industry?
To help you understand this easily, I've broken down the article into five key points and explained the underlying concepts in plain language.
1. On the Surface, It's About Equity Exchanges; In Reality, It's About Changing Mindsets: The Pain Points of State-Owned Automobile Companies
The article starts with news that GAC Group plans to issue shares to acquire a stake in a joint venture held by FAW (most likely FAW Toyota), after which FAW will become GAC's second-largest shareholder.
Many people's first reaction might be, "Oh, another internal restructuring of state-owned enterprises, another asset consolidation." Indeed, that's the surface level. However, the author points out that such consolidations reveal a significant weakness of these traditional companies: They don't lack money, factories, or supply chains; what they lack is the ability to understand their customers.
In the past, the competition in the automotive industry revolved around who had the largest factories, the lowest costs, and the widest distribution networks—these were examples of "hard power," and state-owned enterprises were strong in these areas. But now, the competition focuses on whether the car's infotainment systems are user-friendly, whether the assisted driving functions are effective, and whether the human-machine interaction is seamless. These are examples of "soft power" or "product logic."
It's like comparing a traditional department store with a large warehouse and strong logistics but outdated product selection methods, to a new online store that may be smaller but understands what young people want. State-owned automobile companies have the resources (manufacturing, supply chains), but without a keen understanding of product design, the larger their scale, the harder it is for them to adapt. Therefore, these equity exchanges are not just about capital cooperation; they're also about acquiring or enhancing the ability to define products.
2. Huawei's "Five Worlds and Three Levels": Turning Automobile Companies into "Factories" While Huawei Acts as the "Brain"
The article devotes considerable space to Huawei. Huawei has developed the "Five Worlds" (Wenjie, Zhijie, Xiangjie, Zunjie, Shangjie) and "Three Levels" of collaboration models.
Here's a crucial shift in concept: What Huawei offers is no longer just chips or systems; it's the right to define the entire vehicle.
Previously, automobile companies were the main players, with Huawei supplying components. Now, Huawei is deeply involved in determining what the cars look like, what users need, and how the software works. This changes the way cars are designed and managed: While the cars are still manufactured by traditional companies (such as Seres and Chery), Huawei provides the intelligence, product positioning, and marketing strategies.
For traditional companies, this represents a realistic approach. In the past, they tried to do everything themselves, from managing product managers to developing engineers. However, with the rapid evolution of smart cars, by the time they catch up, the market has already changed. Instead of starting from scratch, it's better to focus on their strengths (manufacturing and supply chains) and entrust the less familiar aspects (intelligence and product definition) to experts like Huawei.
3. The New Path for Emerging Players: Not to Become the "Second Toyota," but to Become the "External Brain" for the Industry
One of the article's most insightful points is that emerging players (such as Xpeng, Xiaomi, NIO, and Li Auto) might not end up becoming the next Toyota or Volkswagen, but rather become the "external brains" for traditional companies.
- Xpeng: Xpeng not only sells cars but also licenses its electronic and electrical systems and VLA intelligent driving technology to Volkswagen, which uses it to create the Volkswagen ID.08.
- Xiaomi: Xiaomi brings its product definition, industrial design, software experience, and ecosystem capabilities from the smartphone industry to the automotive sector.
- NIO: NIO has built a strong user community, service system, and battery swapping network, which are difficult for traditional companies to replicate quickly.
This leads to a new division of labor: Traditional companies focus on the "physical aspects" (manufacturing, supply chains, capital), while emerging players provide the "brain" (products, software, user management).
4. A Major Industry Reconfiguration: From "Who Can Afford to Lose" to "Who Is More Efficient"
The article cites alarming statistics: In the first half of 2026, there were over 130 domestic car brands and more than 500 new models, but the automotive industry's profit margin was only 3.4%, far below the industrial average.
This indicates that there are too many companies competing for a limited market. If the competition continues with price cuts, excessive features, and redundant factory construction, the key will not be who understands customers better, but who has stronger cash flow and can sustain losses for longer.
This kind of "involution" is dangerous, as it squeezes profits and harms suppliers, dealers, employees, and the entire supply chain. Therefore, industry consolidation is necessary. However, the author emphasizes that consolidation doesn't mean one company will dominate the others; the better outcome is:
1. The elimination of inefficient redundant structures (such as factories without core technologies).
2. The retention of valuable capabilities (such as Huawei's, Xpeng's, and Li Auto's intelligent technologies).
3. The allocation of talents, supply chains, and factories to more efficient entities (such as through partnerships between state-owned and emerging companies).
BAIC's visit to Li Auto is a sign of this trend. Li Auto has a comprehensive approach to understanding family customers, product definition, and software integration, while BAIC has a strong manufacturing foundation. This cooperation shows that traditional companies realize they need expertise beyond just manufacturing.
5. The Ultimate Focus: Integrating Capabilities Rather than Just Capital
The author concludes that what's happening in the automotive industry is not just a battle of brands but a recombination of capabilities:
- Capital integration (such as GAC and FAW's equity exchanges) addresses who is associated with whom and changes the ownership structure.
- Capability integration (such as Huawei's support, Xpeng's technology, and BAIC's learning from Li Auto) determines whether the combined entities can succeed in the market and changes the competitiveness of the products.
For state-owned companies with large manufacturing capabilities but declining product innovation, integrating external expertise (from Huawei, Xpeng, or Li Auto) is no longer an optional choice but a matter of survival.
In summary: The future of China's automotive industry will likely see a mix of "manufacturing" and "intelligence." Traditional companies will continue to play a role with their manufacturing and supply chain strengths, while emerging players and tech companies will provide the necessary "intelligence." This will result in cars that better understand user needs, more efficient resource allocation, and a shift in competition from "burning money" to "using wisdom."
In one sentence: Don't just focus on who owns whom's shares; focus on who combines the skills to manufacture cars and understand customers. The company that does this best will survive and thrive in the second half of the smart car era.