Comments on the management of the board of directors of Cyrus in the first half of 2023

() The business review of the Board of Directors in the first half of 2023 is as follows:

  I. Description of the industry and main business of the company during the reporting period.

  (a) the company’s industry

  According to the data of China Association of Automobile Manufacturers, in the first half of 2023, the automobile industry in China achieved 13.239 million vehicles sales, up 9.8% year-on-year, of which 3.747 million were new energy vehicles sales, up 44.1% year-on-year, with a market share of 28.3%. The sales of new energy passenger cars reached 3.577 million, up 44.0% year-on-year; New energy commercial vehicles sold 169,000 vehicles, a year-on-year increase of 46.0%. While the overall sales volume of the industry is increasing, the product prices are generally lowered, and the profit rate of the industry is at a low level. Car companies are under great operating pressure, and the task of steady growth of the industry is arduous. It is worth mentioning that among the sales of new energy passenger cars, the sales of extended-range passenger cars are about 200,000, up by 150.0% year-on-year, which is much higher than that of ultra-pure electric passenger cars and plug-in hybrid passenger cars. Due to the unique advantages of extended-range passenger cars in battery cost, driving experience and comprehensive endurance, it is expected that the sales of extended-range passenger cars will continue to increase.

  The automobile export market maintained a good momentum, achieving sales of 2.14 million vehicles, up 75.7% year-on-year, including 1.78 million passenger cars, up 88.4% year-on-year; The export of commercial vehicles was 361,000, a year-on-year increase of 31.9%; New energy vehicles exported 534,000 vehicles, up 160.0% year-on-year. Thanks to the rapid development of China’s new energy automobile industry, going out to sea is becoming a new engine for the growth of China’s automobile market. In the first half of this year, China has become the world’s largest automobile exporter.

  New energy vehicles are the strategic choice for the high-quality development of China’s automobile industry. The state exerts its strength from both the demand side and the supply side to continuously consolidate and expand the development advantages of new energy vehicles and promote the high-quality development of the new energy automobile industry. Recently, the state has successively issued a number of policies to encourage the automobile industry. On June 20, 2023, several ministries and commissions jointly issued the Announcement on Continuing and Optimizing the Purchase Tax Reduction and Exemption Policy for New Energy Vehicles, which clarified the implementation rules for the purchase tax reduction and exemption policy for new energy vehicles from 2024 to 2027; On June 21st, the policy briefing of the State Council introduced the situation of promoting the high-quality development of the new energy automobile industry, and will launch the pilot of intelligent networked vehicle access and road traffic, organize the demonstration application of "vehicle-Lu Yun integration" at the city level, and support the commercial application of L3 and higher intelligent driving functions; On July 18th, the Ministry of Industry and Information Technology and the National Standardization Administration Committee issued the Guide for the Construction of National Vehicle Networking Industry Standard System (Intelligent Networked Vehicle) (2023 Edition). The guide fully considered the development characteristics of deep integration and cross-domain collaboration of intelligent networked vehicle technology, and designed a "three horizontals and two verticals" technical logic framework, mainly aiming at the general specifications, core technologies and key product applications of intelligent networked vehicles, and constructed the foundation, technology and products of intelligent networked vehicles. On July 20th, the National Development and Reform Commission, together with relevant departments and units, studied and formulated "Several Measures for Promoting Automobile Consumption".Increase support for new energy vehicles, promote the innovation of automobile consumption finance, and strengthen the supervision of used car market. These measures will help to reduce the cost of car purchase, boost consumers’ confidence in car purchase, and at the same time play a fundamental role in supporting and leading the key technologies, core products and functional applications of intelligent networked automobile industry, and further stimulate the consumption demand of automobiles, especially intelligent new energy vehicles. Enterprises that master intelligent networked new energy vehicle technology not only have core competitive advantages, but also have a broad market prospect.

  In the software-defined automobile era, the intelligent development of the automobile industry has pressed the fast forward button. According to the data of the Ministry of Industry and Information Technology, in 2022, the penetration rate of L2-class passenger cars with combined driving assistance was 34.5%. It is estimated that the penetration rate of L2-class passenger cars and above will reach 70% in 2025, and there is still much room for growth. With the gradual improvement of the macro economy, a series of policies have laid a good foundation for the development of the automobile market. The further release of the consumption potential of the new energy automobile market and the export automobile market will help the automobile industry achieve the goal of steady growth throughout the year. Coupled with the continuous progress of battery, motor and electronic control technology, intelligent networked vehicle technology has rapidly evolved and the industrialization process has accelerated, and the production and sales scale of intelligent new energy vehicles will continue to increase. According to the forecast of the Passenger Car Market Information Association, in 2023, China will sell 23.5 million narrow-sense passenger cars and 8.5 million new-energy passenger cars, and the annual penetration rate of new-energy passenger cars is expected to continue to increase.

  In the new energy vehicle track, we should grasp the development trend of new energy vehicles from electrification to intelligence and then to ecology, improve our product definition, software and ecological construction capabilities, and create differentiated competitive advantages, so as to seize the opportunity in the subsequent race and help the high-quality development of China automobile industry.

  (II) Main business of the company

  The company is a high-tech manufacturing enterprise with new energy vehicles as its core business, and its business involves R&D, manufacturing, sales and service of new energy vehicles and core three-power, traditional vehicles and core component assemblies. The company’s vehicle products cover new energy vehicles and traditional vehicles, and the main representative models include AITO Wenjie series smart new energy vehicles, Landian new energy vehicles, Ruichi electric commercial vehicles and scenery SUVs.

Second, the discussion and analysis of the business situation

  In the first half of the year, the new energy automobile industry showed a rapid growth trend, at the same time, the iteration of competing products accelerated and the industry competition became increasingly fierce. In the face of challenges, the company gives full play to its advantages in research, production, supply and marketing, and is committed to providing users with a safe, convenient and comfortable intelligent driving experience. During the reporting period, the cumulative production and sales of the company’s vehicles were 91,487 and 92,163 respectively.

  -Strengthen forging multi-level R&D strength and consolidate the roots of scientific and technological manufacturing enterprises.

  Innovation is the soul of an enterprise. The company insists on innovation-driven development, technology guidance and technology research and development. The company focused on system architecture construction, built a number of key platforms, such as Rubik’s cube platform, sea of clouds architecture, smart security platform and intelligent test platform, and continuously strengthened the technical capacity building of power system. By the end of the reporting period, the company had 3,741 authorized patents; In the first half of 2023, 315 patents were granted and 1,058 patent applications were added.

  Rubik’s cube platform-a versatile vehicle development platform, which can be compatible with cars, SUVs, MPVs and other power systems such as pure electricity and extended range. The platform supports the global electronic control of the chassis, and can support the option of spiral spring/air spring, CDC shock absorber and rear wheel steering configuration of the chassis system after the vehicle design and layout are reserved; Can be equipped with an integrated die-casting aluminum body and all-aluminum chassis; Automobile products are designed and manufactured in strict accordance with the latest versions of C-NCAP and C-IASI, which have high safety.

  Cloud Sea Architecture —— Focusing on the three major architectures of vehicle Ethernet, service gateway and ring network, the software capabilities of electronic and electrical architecture, operating system, system application, VCU, VHR, cloud BMS, OTA, TBOX, cockpit system and other products have been built in an all-round way. More than 10 domain controllers have entered the A2 and B phases, supported the research and development of multiple vehicle projects, and constantly moved towards freedom of architecture, software, data and ecology.

  Smart Safety Platform-Based on the whole scene of users’ car use, build a full-dimensional smart safety platform, covering nine safety sections: passive safety, active safety, power safety, low-voltage safety, functional safety, network and data safety, health and safety, car safety and vehicle health and safety detection, and integrate safety into product genes. At the same time, based on the whole vehicle platform, the company has formulated the safety strategy for the whole vehicle collision, and established the standard test capability of IVISTA2023, the functional safety database of HARA, and the big data platform of battery.

  Intelligent test platform —— Around the trend of "software defines automobile", the company has established an industry-leading intelligent test platform with independent intellectual property rights by using scientific test methods such as big data and cloud computing, and the test has been carried out quickly, accurately and economically, and achieved the industry’s first full link quality protection of vehicle research, production, supply and sales. This platform provides a strong support for the high-quality and fast delivery of the first "double-intelligent ceiling" model equipped with HarmonyOS Intelligent Cockpit 3.0 and HUAWEI ADS2.0 advanced intelligent driving systems-Aito Wenjie M5 Intelligent Driving Edition.

  Power system technical capacity building-The company further improved the control strategy and fault management strategy by using scenario analysis method, adopted high-voltage connectors with integrated parts and high reliability, and optimized the high-voltage architecture. In the first half of the year, the company started the development of a new generation of more powerful, efficient and quiet power system DE-i super-increasing system.

  —— Create a diversified product matrix and lead the trend of intelligent driving.

  In order to meet the users’ higher demand for intelligent driving experience, the company launched a brand-new M5 intelligent driving version: for the first time, it was equipped with HarmonyOS Intelligent Cockpit 3.0 and HUAWEI ADS2.0 high-level intelligent driving system at the same time, reshaping the high-level intelligent core. The fusion sensing system of Wujie M5 Intelligent Driving Edition is composed of 1 laser radar, 3 millimeter-wave radars, 11 cameras and 12 ultrasonic radars. With BEV network, GOD network and road topology inference network, it can accurately identify white list obstacles and special-shaped obstacles, accurately plan and make decisions and continue to evolve, easily deal with complex scenes such as glare, backlight and ghost probe, and redefine "man-machine driving". No matter at high speed or in urban areas, day or night, you can see things, understand things and understand the road, and truly realize safe and worry-free daily travel. The success rate of the M5 intelligent driving version of the ramp is nearly 99%, and the average manual takeover mileage of MPI is only 114 kilometers, and its traffic performance is still being optimized. Next, the company will launch a smart driving mode that does not rely on high-precision maps, complete vehicle positioning and road environment understanding with super perception and algorithmic computing power, and implement the optimal smart driving strategy to further accelerate and improve the intelligent driving experience in the whole scene. In addition, the Wujie M5 intelligent driving version adopts front double wishbone+rear multi-link independent suspension and all-aluminum chassis, which reduces the unsprung weight by 30%. The body wind resistance is further optimized, and the comprehensive endurance of CLTC has exceeded 1,400 kilometers; The industry’s first user eyeball automatic recognition, HUD, rearview mirror, seat linkage intelligent adjustment.

  SERES5 is a sports luxury electric drive SUV with a new layout, focusing on the globalization strategy of new energy vehicles. This model has built four core selling points of "design, performance, safety and intelligence" around the needs of users. SERES5 was launched in Belgium on January 13th, 2023. The special testing activity of Europe Miles launched in June this year covered many European countries such as the Netherlands, Germany and Denmark, and the cycling test mileage exceeded 10,000 kilometers in more than 20 days, which fully verified that the product quality was stable and reliable.

  In the second half of 2023, the company plans to launch AITO’s new M7 five-seat and panoramic wisdom flagship SUV M9 to further enrich the company’s product matrix and meet the needs of different customers.

  -further promote the building of sales and service capabilities and adhere to the principle of serving users wholeheartedly.

  The company and Huawei continue to deepen cooperation and set up the "AITO Joint Working Group on Marketing and Service", which is fully responsible for the end-to-end closed-loop management of marketing, sales, delivery, service and channels. At the same time, the company takes "CARE" as the core concept, and builds a system of comprehensive care for users and intelligent service. C is Customer, which stands for "user-centered" and serves users wholeheartedly; A is Active, which stands for active service, deeply understands the needs of users, and actively provides users with "non-inductive service" like "car attendant"; R is Respect, which stands for respect. I hope every user can feel full respect in intimate service; E is E-service, which stands for digitalization. By providing global digital services and efficiently empowering terminal networks, it will bring users a more transparent, efficient and high-quality service experience.

  In the first half of the year, the company focused on strategic cities and optimized the construction of sales channels. Promote capacity building through key measures such as changing business model, consolidating channel construction and improving business quality and efficiency, and build a "high standard, high quality and high efficiency" delivery and service network. In terms of network development, the AITO user center, which integrates display, sales, delivery and service, has completed a new image upgrade; The channel quality and concentration of key cities have been greatly improved.

  -deepening the construction of the party building work system and supporting the high-quality development of enterprises.

  Focusing on the perspectives of "strengthening organizational construction", "boosting production and operation" and "providing good service to employees", the company has made great efforts to deepen and improve the construction of party workers. In terms of organizational construction, the company has continuously strengthened party building and organizational work, and all party organizations have given full play to their role as battle fortresses, achieving full coverage of party organization and work. In terms of boosting production and operation, the Party organizations of the company launched Party branches such as R&D, manufacturing and sales, and party member carried out more than 100 Party-building-assisted production and operation projects such as market development, energy saving and cost reduction, which were quite effective in reducing costs and increasing efficiency. In addition, the party organization of the company has established cooperation mechanisms with many schools, hospitals, supermarkets, communications and other units to provide quality services for employees with practical measures, strengthen employee well-being and sense of belonging, guarantee talent capital and help the company develop with high quality.

Third, risk factors

  1, the risk of macroeconomic uncertainty. The automobile industry is greatly influenced by the overall economic development level. The cyclical fluctuation of the global economy and domestic macro-economy, the adjustment of industrial structure, the international political environment and other factors make the macro-economic situation face uncertainty, and the purchasing power of consumers is affected to some extent, thus affecting the automobile consumption demand.

  2. Industry policy risks. The new national strategic plan puts forward higher requirements for the R&D ability and production technology of new energy vehicles of automobile enterprises, and the company needs to increase investment in R&D and production. At the same time, the adjustment of subsidy policies of the state and local governments at all levels will also have an impact on the sales of new energy vehicles.

  3. Market competition intensifies risks. Affected by policies such as the liberalization of foreign-funded shares in automobile enterprises, the product prices of foreign-funded and joint-venture automobile enterprises have dropped, and the renewal speed of various brand models has accelerated; At the same time, the investment of various car companies in the new energy vehicle business continues to increase, and the vehicle products are rapidly iteratively upgraded, and the competition in the domestic automobile market is becoming increasingly fierce.

  4. Risks related to raw materials. Affected by various factors such as changes in the domestic and international market environment, there is a risk of shortage of raw materials such as chips, batteries, steel and non-ferrous metals. If there is a shortage of raw materials or a sharp increase in prices in the future, it will lead to an increase in the company’s costs or affect the company’s actual production.

  5. The risk of continuous technological innovation. With the popularization and application of new materials and technologies, the automobile industry is facing severe challenges of technological innovation, transformation and upgrading.

  6. Risk of exchange rate fluctuation. Affected by trade frictions and trade barriers and superimposed geopolitical risks, the exchange rate of RMB against the US dollar may fluctuate. Exchange rate fluctuations may have a certain impact on the company’s operating conditions and profitability.

  Faced with the above risks, the company will continue to pay attention to the national macro-policies, economic situation and market trends, and actively track the industry competition situation; Increase investment in research and development of cutting-edge technologies, master core technologies, optimize product structure, and develop and launch products that meet the needs of the market and users; Stabilize the supply chain, improve the ability to resist risks of raw material price fluctuations, and promote the company’s high-quality development.

Iv. analysis of core competitiveness during the reporting period

  As a pioneer and technology leader in the new energy automobile industry, the company maintains a leading position in the fields of system architecture, intelligent manufacturing and product quality.

  1. The system architecture is intelligent and leading.

  The company has been deeply involved in the research and development of new energy vehicle technology, and fully considered the universality of software and hardware platforms. Based on six-layer architecture (mechanical layer, energy layer, electronic and electrical architecture layer, operating system layer, vehicle function application layer and cloud big data layer), the system architecture of "hardware pluggable, scene programmable, ecology on demand and system self-evolution" has been built, which has realized the universality and modularization of technology development and met the demand of product customization.

  Rubik’s Cube Platform: A versatile vehicle development platform built by the company, which can be compatible with cars, SUVs, MPVs and other power systems such as pure electricity and extended range. The platform supports global electronic control of chassis, and can be equipped with air suspension +CDC shock absorber+rear wheel steering; It can be equipped with an integrated die-casting aluminum body and an all-aluminum chassis. Among them, the flagship model plans to use a 9000T giant die-casting machine to build the world’s largest integrated die-casting aluminum body, with an aluminum content of over 80% and more than 200 components, which greatly improves the torsional stiffness; At the same time, automobile products are designed and manufactured in strict accordance with the latest version of C-NCAP and C-IASI, which has high safety. The battery pack adopts CTP reinforced box design, which has high mechanical strength and improves the volume utilization rate by 15%; In the heating and acupuncture test of non-fire battery pack of (), the battery pack produced by the company did not catch fire within 48 hours of participating in the test, and the test time far exceeded the national standard requirement of 5 minutes. The platform supports 800V high-voltage fast charging, and 4C charging battery is standard, which further shortens the charging time. Rubik’s cube platform can achieve more complete technical verification, more reliable product quality, shorter development cycle and lower cost, and the highest generalization rate of each system platform can reach 97%. Focusing on the three major architectures of vehicle Ethernet, service gateway and ring network, as well as electronic control, vehicle control, Che Yun, network connection, cockpit and other business sectors, the company has continuously consolidated its R&D capabilities, moving towards freedom of architecture, software, data and ecology, and the research and development of intelligent software is basically self-controllable.

  DE-i, a super electric drive intelligent technology platform, has realized a platform and multi-technical route solution, which is suitable for pure electricity, extended range and other multi-scenarios and multi-modes. The oil-electricity conversion rate is 3.35kWh/L, and NVH and safety are leading the industry. It supports the four-second zero-acceleration of the whole vehicle, and the comprehensive cruising range of CLTC is as high as 1,400 kilometers, which truly realizes the worry-free mileage. At the same time, DE-i has been fully optimized in the third generation range extender, drive system, battery PACK, intelligent control, etc., the power performance has been improved by 20%, and the comprehensive fuel consumption of WLTC has been further reduced by 10%. Through the accurate measurement and management of "smart brain", DE-i can accurately identify more than 900 driving scenes and accurately match neural algorithms. Each module cooperates independently to quickly achieve global optimization, which brings surging power to users and has a comfortable use experience with low energy consumption and low noise.

  Global torque intelligent control platform: It has the ability of intelligent scene recognition, and intelligently controls the demand supply of the whole vehicle, the start and stop of the range extender and the torque of the motor in combination with the environment, temperature and current road conditions, so as to further improve the power of the whole vehicle, reduce energy consumption and optimize the driving experience. In terms of torque vector control, the longitudinal impact is reduced by 40%, the yaw impact is reduced by 15%, and the unexpected tail flick coefficient is reduced by 40%. The steering is sensitive, there is no fear of tail flick, and various functional advantages make users more fun to drive and more free to control.

  Smart Safety Platform: Based on the whole scene of users’ car use, the company has built nine safety systems: passive safety, active safety, power safety, low-voltage safety, functional safety, network and data safety, health safety, car use safety and vehicle health and safety detection, and formed more than 200 scene safety function points, and built a full-dimensional smart safety platform, making safety a brand gene of the company.

  Intelligent test platform: The company embraced the new trend of "software-defined car", optimized the allocation of resources, and made a breakthrough in using scientific test methods such as big data and cloud computing, and established an industry-leading intelligent test platform with independent intellectual property rights, integrating four major fields: standardized basic platform, automated execution platform, test application platform and cloud platform: more than 100,000 test cases for single vehicle were digitally managed and developed, and more than 100 process standards were used to ensure full coverage of user scenarios; More than 400 user routine function tests for off-line vehicles, real-time monitoring of more than 10,000 communication signals, 100% automatic testing and fault interception, and a medical report for one vehicle, the quality of vehicle delivery is stable and reliable; VHR intelligent remote service can realize fault warning to active early warning, and provide users with active care and security protection in the whole life cycle. The intelligent test platform promotes the "fast, accurate and economical" test, and realizes the industry’s first full link quality protection of the whole vehicle "research, production, supply and sales".

  2. Intelligent manufacturing with high quality and high efficiency

  The company’s Liangjiang Smart Factory and Phoenix Smart Factory are built in accordance with Industry 4.0 standards and industrial Internet requirements. According to the whole vehicle manufacturing process, the factory builds Zhilian process system by combining software and hardware, digital process design and on-site manufacturing process. The factory is equipped with more than 1,000 intelligent robots, with 100% automation of key processes and 100% real-time online detection, which provides reliable guarantee for the yield, precision and consistency of the company’s products. The company’s smart factory has won many industry honors, such as national intelligent intelligent manufacturing excellent scene, national intelligent manufacturing benchmark enterprise, Chongqing lighthouse factory, Chongqing green factory, Chongqing innovative demonstration smart factory and so on.

  3, the product quality is precise and reliable

  The quality of automobile products is related to the life and property safety of drivers and passengers, and it is an important index to measure the competitiveness of products. The company has established a strict quality assurance system, covering R&D, design, manufacturing, sales and service. The M5 produced by the company ranks first in the mainstream hybrid market in J.D. Power’s new energy vehicle quality research in China in 2023; Ranked first among new energy vehicles in the "Quality Report of New Passenger Cars in 2022" issued by car home; In the first half of 2023, China Automobile Quality Network ranked M7 in the top five in the quality list of new energy medium and large SUVs. In the safety limit test of "China Automotive Research SUPER CRASH", Wenjie M7 accepted two tests, namely, dynamic rollover of heavy trucks and frontal collision of trucks. In the dynamic rollover capping test of heavy trucks, the frame structure of the car body remains intact and the A/B/C columns have no structural failure after the M7 is capped by 30 tons of heavy trucks. Four doors can be opened normally for the occupants to escape; There is no obvious deformation inside the passenger cabin, and the living space of the head is abundant; There is no leakage and fire in the vehicle battery. Wenjie M7 is also the first domestic new energy passenger car to challenge the 100% overlapping frontal collision truck test. After the test, the vehicle structure, restraint system, electrical safety and post-accident rescue were all evaluated as "excellent". In addition, in June this year, the company launched a special test activity for the SERES5 model in Europe, covering 12,450 kilometers in 21 countries in 25 days, which fully verified the stability and reliability of product quality.

  4. Ecological cooperation and win-win future.

  The company adheres to open cooperation, from self-employment to joint venture to cross-border business cooperation, focusing on the physical manufacturing industry and building an automotive ecosystem with the Internet of Everything. In 2003, the company cooperated with Dongfeng Company, a central enterprise, to produce automobiles. Since then, the company has entered the vehicle manufacturing industry, making it a model of mixed system in China automobile industry. Since 2021, the company and Huawei have given full play to their respective advantages, cooperated deeply in technology, products and channels, and continued to launch smart new energy automobile products that are well received by users. In the first half of 2023, the company signed an agreement with Huawei to deepen joint business and set up a joint working group on sales and service, which added another milestone to the long-term sustained and in-depth cooperation between the two sides. In terms of industrial chain, the company has established in-depth cooperative relations with leading suppliers such as Wencan and Bosch, and built an open, inclusive, interdependent and co-evolutionary ecosystem of the whole industrial chain.