Getting Rid of Involution - A Brief Discussion on CIMC Vehicles' Breakthrough

"When a measure itself becomes a goal, it becomes an obstacle to the real goal." Goodhart's law is the most appropriate way to describe the current desire for growth in the special vehicle market.
 
In the past two months, I have visited Liangshan, Mengyin, Zhumadian and other domestic semi-trailer industry clusters, and I have a very obvious feeling: the current special vehicle market is really a world of ice and fire. On one hand, small and medium-sized special vehicle companies are "cutting off their arms to survive", and on the other hand, the leading companies are "maneuvering", and the cruelty and ruthlessness of the industry reshuffle are vivid.

Among these companies, CIMC Vehicles (301039.SZ) is unique. According to the 2023 annual report of CIMC Vehicles, it achieved operating income of 25.087 billion yuan, a year-on-year increase of 6.21%, and net profit attributable to the parent company was 2.456 billion yuan, a year-on-year increase of 1.20 times.
At a time when the industry continues to be sluggish, this counter-trend growth is somewhat envied by many companies. A few days ago, I watched an exclusive interview with CIMC Vehicles CEO and President Li Guiping by McKinsey. We may be able to understand the reasons behind the growth of CIMC Vehicles and its future development strategy.
Strategic adjustments behind the rainy day
The most notable feature of the current special vehicle industry is volume. Li Guiping believes that the root cause of the current industry's internal volume comes from the massive production capacity of inefficient semi-trailers formed in the previous high-speed growth stage.
On the one hand, China's semi-trailer production has increased 10 times in the past 20 years; in terms of production, it not only ranks first in the world, but is even equivalent to the total production of North America and Europe, with serious overcapacity.
On the other hand, the number of semi-trailers that meet the new standards is far less than expected, and there is still a long way to go to eliminate over-limit and overweight semi-trailers.
"Price war" and "going overseas" are reshaping the new competition pattern of the special vehicle industry. Therefore, how to crack the huge low-quality semi-trailer production capacity formed during the high-speed growth stage and develop new quality productivity has become the key to the breakthrough of semi-trailer companies.

As a world-leading high-end manufacturer of semi-trailers and special vehicles, a pioneer in the high-quality development of China's road transport equipment, and an explorer and innovator in the field of new energy special vehicles in China, CIMC Vehicles has been deeply involved in the industry for more than 20 years. After the "creation of the world" of the first entrepreneurial venture, it started its own semi-trailer business, as well as the formalization, industrialization and scale development of China's semi-trailer industry; and the "transoceanic operation" of the second entrepreneurial venture, it basically built a high-end manufacturing system and management infrastructure for the company's semi-trailer business. But this is not enough to help the company get rid of the increasingly severe "involution" situation.
To this end, CIMC Vehicles, with its forward-looking strategic vision, started its third entrepreneurial venture in 2023, marked by the "Starlink Project", focusing on the structural reform of the production organization of semi-trailers; its essence is to improve the process of transoceanic operations, greatly improve the efficiency of transoceanic operations, and better promote the high-quality development of transoceanic operations of semi-trailers.

In Li Guiping's view, my country's economic development has entered a new normal, and the semi-trailer industry is also beginning to build a new development pattern. It can focus on technology, organizational structure, and allocation of production factors, innovate the design and production technology of semi-trailers, promote structural reforms in the production organization of leading semi-trailer companies, and reallocate the industry's excess production capacity resources under internal and external circulation.

It can be said that the new development pattern will create higher production levels, better customer experience and sustainable profitability, and help the entire industry get rid of the internal situation from the essence. CIMC Vehicles will also achieve strategic growth by building a new organizational structure, business model and technical path, but this is an unprecedented challenge, there is no experience to follow, and there is no shortcut.
"Our (CIMC Vehicles) company of more than 10,000 people is equivalent to sailing on a sea full of unknowns and crises." But Li Guiping firmly believes that only in this way can CIMC Vehicles fundamentally get rid of the industry's internal circulation and once again lead the Chinese semi-trailer industry into a new development pattern.
The way to create a new quality productivity
For CIMC Vehicles, how to create a higher production level, better customer experience and sustainable profitability, and help the entire special vehicle industry get rid of the internal situation from the essence, it is necessary to re-examine and conceive business models, brand innovation, upstream and downstream digitalization and value chain repositioning, sort out the positioning and layout of various domestic factories, and the allocation and optimization of resources in China and overseas markets.
Taking the production of ordinary semi-trailers as an example, CIMC Vehicles has corresponding production plants in Dongguan, Yangzhou, Zhumadian, Yingkou, Baiyin, Liangshan, etc., with full production capabilities from cutting, painting to assembly. However, due to the uneven production capacity and technical level, these factories not only have great differences in product standards, production processes and quality, but also have excess production capacity and resources, and have failed to establish effective synergy.
 
As the industry leader, CIMC Vehicles did not choose the easier price war to squeeze the living space of competitors in response to the industry's internal circulation. Instead, it turned the blade inward, optimized the internal organizational structure and the reorganization of external resources, built an agile operating system, and "rebuilt a CIMC Vehicle" through the third entrepreneurship.
From the roadmap of its third entrepreneurship announced in the previous annual report of CIMC Vehicles, the first phase of the "Starlink Plan" comprehensively promoted the implementation of the Starlink high-end manufacturing system, achieved a leap in the semi-trailer business in the internal circulation and the "Belt and Road" market, and achieved high growth in operating income and production efficiency; the second phase is the trial stage of new energy head-trailer trains, the Qiangguan business group entered the high-quality development stage, and the new energy head-trailer integrated train formed an incremental business; the third phase is the external circulation business entering the high-quality development stage, the new energy head-trailer integrated train entered the external circulation, and the external circulation business achieved a leap.

The "Starlink Project" is being steadily promoted. CIMC Vehicles has built a new organizational production model. By integrating the resources of 7 semi-trailer factories, it has opened up the links of procurement, production, circulation, distribution and consumption, forming a leapfrog improvement in market share, sales and profits, and creating a benchmark for supply-side reform, a typical example of high-quality development and a dual-wheel drive model.
The "Starlink Project" exists on two levels: one is organizational development and the other is operational development. Taking design technology as an example, the semi-trailer design required by the "Starlink Project" is completed in a digital way, including digital modeling, PLM online, and centralized procurement of core components on the EPS platform. Therefore, the digital process is connected from design and centralized procurement to production.
In addition to a large number of new technologies, promoting the structural reform of production organization is also the core grasp of building new quality productivity. In the process of organizational reform, CIMC Vehicles will try to retain or reuse the original factory facilities, while striving to make good use of existing employees and upgrade the workforce through training and other means.
These measures will not only profoundly change the existing design and production processes in the semi-trailer industry, but will also greatly subvert the organizational operation model of special vehicle companies, especially large special vehicle companies.
While innovating the production technology and organizational structure of semi-trailers, CIMC Vehicles is also making full use of its global “Lighthouse Manufacturing Network” to re-optimize the collaborative combat capability and cost control capability of the domestic and overseas markets in the face of a complex and severe international environment and the “going global trend” of Chinese enterprises. On the basis of its “second entrepreneurial” transoceanic operation, it insists on “transoceanic operation and local manufacturing”, and takes the global supply chain system and the global semi-trailer core parts production organization as the two core grasps to create a new organizational model for efficient and coordinated overseas and domestic markets, serve the semi-trailer manufacturing at home and abroad, and achieve a higher efficiency production level.


The creation of new quality productivity is inseparable from human subjective initiative. CIMC Vehicles' "third entrepreneurship" will also be a collective struggle with the same desire, and a reborn innovation and change.
When the world enters the "BANI era" from the "VUCA era", everyone lives in the storm, and no one can predict how the storm will evolve.
As financial writer Wu Xiaobo mentioned in his New Year's Eve speech, 2024 will be a period of coexistence of crisis and opportunity, "survival is victory."
Facing the test of this round of cyclical turning points, slimming and fitness are becoming a compulsory course for enterprises. Compared with the pursuit of scale in the dividend era, how to strengthen and reconstruct core business is an era proposition for every special vehicle company.
CIMC Vehicles has found its own time zone and explored a new path for traditional manufacturing companies to explore the development of new quality productivity.
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China Special Vehicle Adivsor