Rebirth 08: Rise from copycat phones

Chapter 573 Turbulent Markets and Five Nanometers

Since the launch of Hailan Auto in May, which caused a sensation in the global automotive industry, the global automotive industry has been responding one after another.

Tesla, currently the second largest player in the electric vehicle industry and holding a significant share of the US electric vehicle market, announced the progress of its solid-state battery development. It claims to have successfully manufactured a solid-state battery with an energy density exceeding 900 watt-hours per kilogram in the laboratory and expects to mass-produce it within three years.

Meanwhile, other companies have also announced their so-called solid-state battery plans, and each of them has presented a lot of achievements. At first glance, the data looks pretty good, but when asked when mass production will begin, they can't answer any questions.

Before Hailan Auto, various solid-state batteries had already appeared, and there were many in the laboratory... but none of them went to mass production... This is not a matter of high or low cost, but rather that the technology was not advanced enough.

If the technology matures, even if it is expensive, it can still be used in products with low usage and low cost sensitivity, such as portable smart terminals.

If doubling or tripling the cost of a battery could double the phone's battery life, then phone manufacturers would use it without hesitation... because the so-called doubling or tripling of costs is only a few tens of dollars for a phone battery, at most a hundred dollars more, which would not be a problem for high-end models.

Therefore, cost is not actually an issue!
The real problem is that we can't figure it out.

The various companies that have announced their so-called solid-state battery plans are actually doing so more to stabilize their stock prices and prevent them from falling too badly.

While Hailan Auto has fully launched solid-state batteries, the company that has actually taken concrete action is Ningdai Battery, under Xu Shenxue's company... In June, Ningdai Battery officially announced that it would implement price reductions of varying degrees for its semi-solid-state batteries, ternary lithium batteries, and lithium iron phosphate batteries to help its customers cope with increasingly fierce market competition!

Hailan Auto's solid-state batteries have superior performance, making it impossible to compete on performance level. Therefore, the best solution is to lower the price!

Solid-state batteries are certainly good in many ways, but they are expensive... The most important thing is that only Hailan Auto has them, and it doesn't supply them to other car manufacturers.

In this situation, Ningdai Battery's choice is to lower the prices of its various batteries to help customers reduce vehicle prices, thereby stabilizing the low-to-mid-end market.

As for the high-end market, forget about it...

Rich people aren't stupid... They also want their electric cars to be equipped with better and safer solid-state batteries.

Therefore, the best way out for semi-solid-state batteries, lithium iron phosphate batteries, and ternary lithium batteries is to lower prices and stabilize the market at around 100,000 to 200,000 yuan.

As for those above 300,000... that's too difficult.

With the price reduction of batteries from Ningdai Battery, especially the significant price reduction of lithium iron phosphate batteries, a domestic car manufacturer immediately followed suit and announced that its entry-level smart electric vehicle model not only has a pure electric range of 400 kilometers and is equipped with the L2 assisted driving system of EYEQ, but also has an unprecedented starting price of only 90,000 yuan!
And this isn't even a microcar, but a compact model. With this range, this level of intelligent driving, and the price, it's safe to say that the price has been lowered by another 10,000 to 20,000 yuan!

Subsequently, other automakers also announced price reductions or discounts on some of their models.

This has also led to a significant drop in the price of vehicles that use semi-solid-state batteries to below 200,000 yuan!
Just last year, vehicles using semi-solid-state batteries were considered exclusive to high-end models, with the cheapest costing over 200,000 yuan and the most expensive costing 300,000 to 400,000 yuan.

Now, you can see them in cars costing tens of thousands of yuan. Some manufacturers who take a different approach are even using semi-solid batteries in cars costing less than 150,000 yuan. Although the amount used is small and the range is lower, they can still use semi-solid batteries for advertising.

This is also Ningdai Battery's goal: to lower the price of its batteries, further reduce the cost and selling price of various electric vehicles on the market, and increase the overall penetration rate of electric vehicles... This will make the electric vehicle market even larger. And with a larger electric vehicle market, Ningdai Battery, as the world's largest third-party power battery supplier, and a company that occupies more than 70% of the global third-party power battery market share, will be able to further expand its market share.
Ningdai Battery is able to obtain a huge number of orders from the overall market expansion!

More orders can reduce battery manufacturing costs!
This may seem like a strategy of low profit margins and high sales volume, but in reality, their gross profit margin did not decrease... On the contrary, the significant increase in sales volume brought in more revenue and profit.

Regardless, this summer the electric vehicle industry has seen a new round of price reductions... which is actually quite efficient.

While neighboring Hailan Auto saw its average vehicle price increase significantly due to the release of solid-state batteries, the prices of electric vehicles from other automakers continued to fall.

This is somewhat similar to the release of the S series Max and Max Pro models by Zhiyun Group a few years ago, which raised the price of the phones to eight thousand or even ten thousand.

However, other mobile phone manufacturers continue to compete on cost-effectiveness, producing a large number of high-performance phones priced around 1000 yuan, making it difficult for even phones priced at 800 or 900 yuan to compete.

The entire market is exhibiting a very strange polarization!
The S series phones are expensive, but they sell exceptionally well... The mid-range market of two to three thousand yuan continues to shrink, but the low-end market of less than two thousand yuan continues to expand, with a significant increase in sales.

This strange phenomenon has also appeared in the current new energy vehicle market!

Since the May launch, a unique phenomenon has emerged among Hailan Auto's various models: a large number of orders have been for models equipped with solid-state batteries.

The best-selling newly launched entry-level mid-size SUV is the dual-wheel drive long-range version of the Hailan HEV!

This version is equipped with a solid-state battery, has a pure electric range of 700 kilometers, adopts dual-drive, and features L3 assisted driving. Its price after subsidies in China is around 380,000 yuan.

In just one month since its launch, it has received more than 200,000 orders from around the world, accounting for 50% of the total orders for the entire Hailan HEV series.

Currently, the delivery time for this model has been scheduled for three months later... There are too many orders, and the factory cannot keep up with the production.

Many other models equipped with solid-state batteries have also sold very well.

Even the more expensive versions of the Aqua MEV with solid-state batteries and the Aqua SLMC with solid-state batteries have high sales volumes.

According to internal statistics from Hailan Auto, even if solid-state batteries are only used in high-end and mid-range high-spec models, and are relatively expensive, the number of orders in the next year will still exceed one million!
However, the solid-state battery production capacity of Hailan Battery, a subsidiary of Hailan Auto, is simply not that large, so the delivery time for these solid-state battery models in the coming year will be relatively long.

The large number of orders for solid-state battery vehicles has led to a significant increase in the average selling price of Hailan Automotive's vehicles... and the gross profit margin has also increased considerably.

Hailan Auto is selling its cars at increasingly higher prices and making more and more money, while other electric vehicle manufacturers are selling their cars at increasingly lower prices and their gross profit margins are gradually declining.

This is the effect of advanced technology.

Hailan Auto has significantly increased its price by relying on two cutting-edge technologies: autonomous driving and solid-state batteries, and it still has no trouble selling them...

Other automakers are hampered by the lack of advanced autonomous driving technology and their own proprietary advanced battery technology... Their driver assistance technology uses the generic EYEQ system solution from Zhiyun Group, and their batteries are from Ningdai!

However, if you can purchase these two things, others can also purchase and use them, thus losing your unique technological advantage.

Ultimately, it boiled down to competing on cost-effectiveness, appearance, and marketing.

These competitions all come at a cost, and a significant one at that… especially marketing costs… Marketing costs have always been a major part of the product cost for ordinary consumer goods, especially for ordinary brands.

All these comparisons show that the price of electric vehicles continues to decrease, the gross profit margin continues to decrease, and the operating costs continue to rise... In time, another batch of new energy vehicle companies will go bankrupt.

Of course, this is an opportunity for some car companies that have their own core technologies, are large enough, and have stronger resilience!
Take BYD for example. Although they don't have any unique technological advantages in pure electric vehicles, their plug-in hybrid technology is amazing. In the field of plug-in hybrids, BYD dares to say it's second, and no other car company dares to say it's first.

Even a powerhouse like Hailan Auto has never tried to compete with BYD in the plug-in hybrid field for many years... It would be foolish to compete with someone else's top-tier strengths while using your own weaknesses!
If they can't compete in the pure electric vehicle market, BYD will focus on plug-in hybrids... A pure electric vehicle boasting a range of 700 kilometers is already impressive, but plug-in hybrids can use both electricity and gasoline, so there's no need to worry about range anxiety!
Therefore, in June, BYD successively announced price reductions for many of its models and prepared to release a new generation of plug-in hybrid models, aiming to dominate the core mainstream market of the 100,000-yuan price range!

"I can't beat Hailan, but I'll crush you!" And then... a bunch of domestic electric vehicle manufacturers haven't felt the pressure yet. It's just a matter of cost-effectiveness, right? We can do that too!

However, a large number of joint venture manufacturers' gasoline-powered vehicles felt like the sky was falling... Sales had already dropped sharply since May, but it got even worse in June... like a massive avalanche!

One joint venture manufacturer's overseas brand model sold reasonably well in the first half of the year, with monthly sales reaching around 10,000 units. However, after June, sales plummeted by half...

This phenomenon is actually more shocking to the industry than Hailan Auto's release of solid-state batteries!

Hailan cars are great, packed with all sorts of cutting-edge technology, and everyone who sees them is tempted... but they're expensive!

The expensive Hyland cars can only sell a maximum of three to four million vehicles globally per year. No matter how well Hyland cars are made, that's all the sales volume will be, because there aren't enough wealthy people to allow Hyland cars to expand their market share.

Three to four million vehicles a year has virtually no impact on the huge global car market of seventy to eighty million vehicles annually. The only ones affected are luxury car brands such as BMW, Mercedes-Benz, Audi, Cadillac, and Lexus.

However, for the absolute mainstream models, there is actually no impact!
However, when a number of domestic electric vehicle manufacturers start to compete in the market of vehicles priced over 100,000 yuan and begin to develop cost-effective new energy vehicles, the impact will be significant.

Because of overlapping price points and overlapping consumer groups, intense competitive conflicts arise.

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Xu Shenxue didn't pay much attention to the turmoil in the electric vehicle market... Although the electric vehicle business was important, it was still not his core business.

His core business has always been semiconductors... With this core, there is artificial intelligence, and with artificial intelligence, there will be a series of downstream top-end terminal products, such as autonomous driving for electric vehicles, robots, smart terminals, virtual devices, and so on.

All of these large-scale and important businesses are ultimately built on advanced semiconductors.

Without top-of-the-line chips, what's the point of playing with high technology?

In late June, Xu Shenxue took some time to visit the Tongcheng No. 32 Factory!
The 32nd factory at Zhiyun Microelectronics' Tongcheng base is the world's first top-tier semiconductor factory to adopt 5-nanometer technology and extend its technology to include 3-nanometer processes in the future!
This factory uses the top-of-the-line HEUV-300C lithography machine from Gulf Technology. The 1.5-nanometer overlay precision of this lithography machine is sufficient to support double exposure, thereby meeting the technical requirements of the equivalent 3-nanometer process.

In other words, from a hardware perspective, the hardware equipment at Factory No. 32 is theoretically capable of mass-producing chips using an equivalent 3-nanometer process... It's just that Zhiyun Microelectronics' equivalent 3-nanometer process technology is not yet mature enough to be used!
The entire factory is designed to produce 50,000 wafers per month, with a complete range of supporting facilities. Although it is called a factory, it is actually a separate semiconductor manufacturing base.

The total investment reached an astonishing two hundred billion US dollars... This is Zhuyun Microelectronics, and also the largest single investment project completed and put into production by Zhuyun Group in recent years!
A whopping $20 billion investment!
Such an astonishing investment is comparable to those monumental engineering projects of the century!
Moreover, the investment cost of this Factory No. 32 is higher than that of the previous core factory of Zhiyun Microelectronics, namely Factory No. 29, which mass-produced 7-nanometer process and whose equipment standards at the same time could meet the manufacturing of 5-nanometer process!
The first phase of the 29th plant has a monthly production capacity of 30,000 wafers. Excluding other supporting projects, such as the 3D advanced packaging process plant, the core logic chip manufacturing plant alone represents an investment of US$10.5 billion, with an investment cost of approximately US$3 billion per 10,000 wafers of production capacity.

However, the designed monthly production capacity of Factory 32 was 50,000 wafers, but the investment scale reached 20 billion US dollars, and the investment cost per 10,000 wafers reached 4 billion US dollars.

The core reason for the higher investment cost of Factory 32 is that all the equipment used in Factory 32 is top-of-the-line semiconductor equipment... It is not only prepared according to the manufacturing process of 5 nanometers, but also according to the standard of manufacturing 3 nanometers in the future, which leads to a surge in investment costs.

No matter when, if you want to get ahead of your competitors and develop the most advanced technology ahead of time, the investment required is always enormous.

If we wait a few years, it will be much cheaper to invest in a semiconductor factory using the same technology.

A few years ago, when Zhiyun Microelectronics built its first EUV 7nm process factory, the investment per 10,000 wafers of capacity was about 3.5 billion US dollars. Now, the price is only about 2 billion US dollars. If it is in a few years, the price will be even lower.

Because the technology is more mature and the price of equipment has dropped significantly, the overall investment cost is also lower.

No matter what it is, it's always most expensive when it's newest. This applies to lithography machines, etching machines, injection machines, and so on. If you want the latest version of everything, then naturally it will be incredibly expensive.

Zhiyun Microelectronics' Factory No. 32 requires the latest and best equipment for everything.

However, don't worry that Zhiyun Microelectronics will lose money in the end after spending such a high price on advanced semiconductors... You should know that although advanced semiconductor technology requires a large investment, it also generates a lot of profits!
Zhiyun Microelectronics quoted Zhiyun Semiconductor an internal foundry price of $17,000 per wafer for its 5nm process... It's the first in the world to use it, and the price is still so high.

It's so expensive that even other semiconductor design companies, besides Zhiyun Semiconductor, would shake their heads at the sight of it... It's just too damn expensive.

The planned 3-nanometer process is even more expensive, with over $20,000 per wafer being a certainty. The question is, how much more than $20,000...

Leaving aside the future three-nanometer process, even with the current five-nanometer process, the foundry fee for each five-nanometer wafer is $17,000.

50,000 pieces per month, 600,000 pieces per year, at $17,000 per piece, the annual revenue from manufacturing is $10.2 billion.

Then... the daily operating costs of semiconductor factories are actually very low. For example, personnel salaries account for a very low proportion of costs, and raw material costs are also generally low.

The biggest cost in a semiconductor factory is actually equipment depreciation.

Often, we see advanced semiconductor companies reporting very low gross margins for their factories. This is because the semiconductor industry likes to include equipment costs in depreciation, and typically calculates depreciation over three or five years…

But your EUV lithography machine, which costs 150 million yuan, has only been used for three years?

With investment costs often reaching tens of billions, depreciation can be a nightmare even if lithography machines were money-printing machines!
So it would be a miracle if the gross profit margin looked good in the early stages.

But what about three to five years from now? The huge equipment costs will have already been depreciated, and the daily operating costs of semiconductors are not high, which means that most of the revenue in the future will be profit.

Taking Zhiyun Microelectronics' 29th factory as an example, according to Zhiyun Microelectronics' internal calculations, this factory can basically recover all the initial costs within three years of going into production, and then it will be pure profit...

The estimated cost recovery time for Factory No. 32 is also about three years.

Three years later, Factory No. 32 will be a money-printing machine, providing Zhuyun Microelectronics with billions of dollars in profits every year...

Of course, this is a privilege reserved for top-tier craftsmen, as they almost monopolize the market and their OEM prices are extremely high.

If it's a mature process, recovering the investment cost will take much longer. There are too many manufacturers that can produce mature processes, and due to competition, the OEM price is relatively low, and the payback period is longer.

This is why Zhuyun Microelectronics is keen on developing advanced processes. Although the investment is large and the technology is difficult, it is actually quite profitable.

Factory No. 32 is a typical investment case of Zhiyun Microelectronics in advanced processes!

And now, this world's top and most advanced semiconductor factory is producing the latest generation S1103 chip for its own group's core product, the S series mobile phone!

The world's first 5-nanometer process mobile phone SOC!

(End of this chapter)