Published on October 17th, 2020 |
by Maarten Vinkhuyzen
October 17th, 2020 by Maarten Vinkhuyzen
When Japanese automakers entered the European market over half a century ago, then Korean automakers did so in the ’80s and ’90s, and lastly Indian brands did so hardly a decade ago, they started at the bottom with low-priced and low-quality products. Some needed multiple attempts to get a foothold. The Chinese don’t have to follow this example. They have found a way around it.
Thanks to the Great Recession of 2008, which forced large restructuring and divestments from the Western automotive industry, Chinese companies have saved some old auto companies from liquidation or bought just the brandname, IP, and goodwill. This has enabled these Chinese companies to enter European and American markets with trusted brand names. The quality and price of their EVs is already on par with or even better than what Western OEMs deliver. They’ve been able to start on equal footing with the Western domestic brands.
Nearly half of the Chinese car industry consists of Western companies producing vehicles locally in 50/50 joint ventures with Chinese car companies. The Western carmakers try to save as much money as possible by producing vehicles just good enough to meet Chinese safety and environmental regulations. They do this using the most modern production technology. If they decide to do so, they can produce at the standards the EU and USA are used to. Lots of parts are produced by local first-tier, second-tier, and third-tier suppliers, the same part-makers that supply the domestic car industry. There is no reason to suppose the native Chinese carmakers cannot produce at the same quality and safety levels as their Western colleagues. Two or three decades of Western and Chinese co-production has brought the Chinese industry to about the same level as their Western counterparts.
The following Trojan horses have been welcomed at Western markets. People professing that they will never buy “cheap Chinese crap” are willing to pay a premium for these Chinese products.
- Polestar, Geely-owned Volvo’s daughter going solo, should have opened our eyes with its beautiful and well designed Polestar 1 and Polestar 2, but it did not for most.
- Now we have MG (SAIC) becoming a larger brand in Europe than its British predecessor ever was. The success of the ZS EV is followed by the rebadged Roewe Ei5 as the MG 5 SW EV.
- Volvo (Geely) is slowly incorporating Chinese technology and parts and will soon start exporting from China to the West.
- Former Saab cars can’t use that name anymore, but the new company is trying to keep a European face by calling itself National Electric Vehicles Sweden (NEVS), but it is 100% Chinese owned.
- Lotus is still made in the UK, but owned by Geely.
- The famous London Taxis are now made by Chinese-owned LEVC (Geely). Expect vans based on the same platform in the rest of Europe soon.
- Smart is now a joint venture between Daimler and, again, Geely. The production is being relocated to China.
Besides these Western names used by Chinese companies, some are entering the market using their own brand names. Best known is possibly BYD. After starting with trucks and buses, it will follow with passenger cars. NIO is a Chinese startup that follows the Tesla concept of starting with expensive, high-performance EVs — coming to a market near you next year. Xpeng has started to export to Norway. If successful, the rest of Europe will follow. Byton is another ambitious startup. It has to survive the coronavirrus shake-up to begin production and export to the EU and USA.
If you are confused by names like BYD (Build Your Dream), Byton, and Nio not sounding very Chinese, there is an easy explanation. The standing of Western Brands and products is high in China. It is like German luxury cars in the USA. There is even a local Chinese brand that calls itself “Weltmeister,” clearly suggesting it is from another country.
Despite these developments, there is still no realization that the Western market is wide open to the Chinese OEMs. Their large home market — with fierce competition of over a hundred companies that are trying to design, produce, and sell all kinds of battery electric vehicles — gives the Chinese a big advantage. America knows this. It was always in the USA that a large home market and heated competition made the country’s auto companies strong.
There are not only Chinese OEMs starting to export to the West using old brand names or their Chinese names. A number of Western OEMs will export Chinese developed and produced models to Europe and the USA. The first big example will be the BMW iX3. It will be followed by Smart, which is relocating its production to China after becoming a joint venture between Daimler and Geely. There are rumors that the Dacia Spring will be made in China too. Ford and GM will not be the first American corporations that produce in China what they sell in the USA. They can reach volume production of their BEVs easier in China than at home.
The superiority complex of many Western consumers is misplaced. China has a longer history of being a high-tech nation than any country in the West. After a dip of about a century, they are on their way back to the top. Judging the nation that discovered gunpowder and paper, among many other things, on a period of stagnation is not realistic. Also, the thought that China is a monolithic communist country cannot be further from the truth.
All those “state-owned” companies are not owned by the evil puppet masters in Beijing. They are in strong competition with each other, owned by the municipalities or autonomous provinces where they are founded. Those autonomous provinces are like the individual states in the USA. They have their own identities and their own economic policies. They compete and can have a policy relationship with the central government like California has with the Trump regime in Washington. The carmaker BAIC is owned by the city-state Beijing. The carmaker SAIC is owned by the city-state Shanghai. The carmaker conglomerate DongFeng is under direct supervision of the Chinese central government. These three are competitors like Ford, GM, and Chrysler.
Direct exports are not the only way the Chinese automotive industry is expanding into the rest of the world. Dongfeng has a stake of 14% in Groupe PSA. BAIC (5%) and Geely (9.7%) have large stakes in Daimler. Besides these large investments, there are many ties between Western OEMs and Chinese ones, mostly in joint ventures to produce and sell in China.
China now has the largest auto industry in the world. The quality and safety regulations are being brought in line with what is customary in the West (albeit, there are still differences). The Chinese BEV industry is by far the most diverse in the world. The Chinese battery industry is world class.
It is an illusion that the Chinese industry will not follow the examples of the USA, France, German, Japanese, and Korean car industries. They will sell their products in all the markets in the world, including European and North American markets.
We are, therefore, heading towards a truly global car market, in which a combination of inherent economies of scale and a race-to-the-top effect between countries has resulted in good safety and environmental standards in most countries. It is a competition were former leaders like the USA can turn into laggards and the new kid on the block, China, can compete for leadership. A family in Germany will have a choice of German/European, Japanese, American, and Chinese cars, but, notably, they will have the same palette of choice as a family in China.
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