New Horizons – A Deeper Look at Chinese Brands in Europe

ℹ️ The article was first published on LinkedIn on 19.09.2023.

Welcome to the first edition of China EV Pulse.

I'm thrilled to have you join me on this exciting journey. My mission with this Newsletter? To provide comprehensive insights into Chinese automotive brands and manufacturers in Europe. You can anticipate regular editions, richly detailed with information on the market, technologies, and the evolving dynamics of this segment.

To set the tone for each edition, I'm dedicated to presenting perspectives from experts in the field, offering clarity on the multifaceted aspects of the industry. From there, we'll delve deeper into the intricacies of markets, innovations, and trends.

Stay plugged in, and let's navigate the future together. Take your time to read it or skim through it. And if you like, share the newsletter!

I'm honored to welcome Matthias Schmidt, analyst from Schmidt Automotive Research, to this edition of China EV Pulse. Matthias will be addressing our initial queries about the Chinese market, offering his expert insights to set the stage for our deep dive into this fascinating segment.

With the noticeable rise in China's automotive exports to Europe, there's growing debate around subsidies provided by the Chinese government to boost interest and sales in these vehicles. What is your perspective on this situation?

While Chinese OEMs had a touch-and-go aborted landing in Europe in the ICE age almost two decades ago, which resulted in catastrophic crash tests, they have been on a "go-around". They are now once again on their final approach to Europe, but this time with a different cargo onboard: EVs. While they haven't been snoozing, the Chinese government has been assisting in building up domestic champions, having learned the skills of how to manufacture a vehicle thanks to joint ventures Western OEMs being forced to enter into joint operations if they wanted to set up shop in China. With this government support and Western skills sharing, now they have pulled equal or even slightly ahead when it comes to margins and interior quality of European OEMs, and the second approach to Europe promises to have a much more stable landing.

The fact that the Chinese government has supported the industry isn't uncommon. Just look at some of the European financial structures and national governments that are deeply interwoven into corporate structures. Following almost every financial crisis, OEMs don't hesitate to take a trip to national finance departments to ask for state handouts. Now China is on the scene, and Europeans have to deal with it; there is no time for sour grapes. They may have to bite their nails for two to three years until they can reduce their workforce – mainly through natural attrition and cancelling temporary contracts – to become leaner, greener and more agile, leading to more profit.

However, if Europeans really want to fight back, they need to build up a successful value chain for e-mobility here and de-risk from China, and before the first digger begins breaking ground on a new facility, you can bet your bottom dollar (or Euro) that a trip to the local state finance office will be at the top of the agenda to get some state subsidies. We see this all as a delaying strategy by EU manufacturers to give them time to get the ship into order.

Despite the evident push of Chinese brands into the European market, we've yet to observe a widespread adoption among mass-market consumers. Can you shed some light on the reasons behind this?

We are starting to see a relatively mass adoption from SAIC's MG brand, which benefited from purchasing a legacy brand at a time where legacy, long associated with negative connotations, is slowly becoming a positive and a game changer, giving market recognition. But apart from this, we have seen a relatively slow adoption rate from Chinese OEMs. BYD will also likely change this from 2024, opening up new markets for electromobility in price elastic markets in Southern Europe, which have so far strayed away from BEVs.

Italy has already given us an indication if the price and position of the vehicle are right, consumers will bite, be it a Sino or Europan brand with DR Motors performing well here, which are essentially rebadged Chery models from China.

In terms of slow adoption from mass-European brands, this is due to OEMs going after value rather than volume for the past 24 months and are more concerned with increasing profits rather than pushing low-profit BEVs for now and using this to finance the transition. This will begin to change once a new generation of E-platforms slowly enter the market, and economies of scale can be increased by using more common parts etc.

For now, price has been a main barrier in the transition, with the corporate market soaking up a lot of new BEVs thanks to fiscal savings being handed out to these drivers, ending the year with a lower tax bill while private buyers have stayed away. The real transition will begin once those private buyers start coming to the market!

It seems that Chinese automotive brands are positioning themselves more within the premium segment in Europe rather than the entry-level category. Why do you think this is the case?

This has been the case until now with only relative degrees of success, and we see this strategy failing with no brand equity. It will be difficult to position their vehicles with a price premium and go head-to-head with established premium players such as Mercedes, BMW, Porsche and Audi, which are all about to launch EV-dedicated platforms.

We are seeing OEMs such as premium-positioned FAW's Hongqi having to reduce prices in Sweden heavily despite only having been on the market for several months. Geely's Polestar has been an exception to the rule here thanks to leveraging the brand equity associated with the Volvo Cars performance brand.

Geely may also be successful in stealth however by using the Lotus brand also. Geely, that has just launched the SEA platform (Smart #1 first car in Europe) looks very capable of making a go of the European market by benefiting from lean production methods in China, using similar methods to Tesla and are also leveraging Volvo's know-how and safety expertise into developing new platforms and products.

Wouldn't it be a more effective strategy for Chinese automakers to target the mass market with more basic, affordable vehicles to gain a larger market share?

Yes. This is what we expect now going forward. We expect a large degree of consolidation from Chinese manufacturers, and only a few will be successful in Europe, with the most successful most likely coming from the mass market, targeting established players with low brand loyalty, such as Renault, Peugeot and possibly even the VW brand.

We have already seen hints of this from SAIC's MG, which are outnumbering some of Europe's biggest mass-market players in some European markets. MG is already twice as big as Renault in the UK, for example, and just 0.4ppts behind Citroen in the entire West European region after 7 months this year.

We expect many Chinese OEMs to try and enter Europe and de-risk from their slowing domestic economy but like a spoon full of spaghetti thrown at a wall, only a few will stick!

Globally, 27.7 million full-electric or plug-in hybrid vehicles are now registered. An astounding 53% of these, or 14.6 million, are in China alone. To put this in perspective, the USA, in distant second, has 3.4 million electric vehicles, while Germany, though smaller in size, counts 1.9 million. France and the UK each boast around 1.1 million. As highlighted by the "Handelsblatt", China's lead in the electric mobility segment is growing. In 2022, over 60% of all electric vehicles registered globally were in China.

This surge in popularity explains why German manufacturers are eager to establish a presence in the Chinese EV market, even amidst tough competition from local Chinese automakers. Clearly, China has seized the opportunity to redefine its automotive industry, potentially outpacing established manufacturers. Industry insiders predict that China could soon sell more electric vehicles than combustion engines, further increasing their prominence on the roads.

Chinese 'New Premium' brands are not only gaining popularity among Far East customers but are also overtaking German traditional automakers, especially in customer perception. This is according to a study conducted by Berylls Strategy Advisors.The research evaluates how Chinese electric premium brands are perceived by customers in China, in comparison to established players. Participants included both owners of premium vehicles and those considering purchasing a luxury EV.

Key findings show that Chinese manufacturers lead in areas like smart cockpit features, assistance systems, service, and marketing. When it comes to classic premium attributes like comfort and quality, Chinese brands are perceived as equal, if not slightly superior, to their established counterparts.

Interestingly, while about two-thirds of customers opt for Chinese-made EVs due to perceived strong and reliable features, only just over half opt for a German electric car for the same reasons. For German car customers, about 45% choose them as status symbols. However, for Chinese EV customers, only just above 30% buy for status. They prioritize good service, appealing marketing, and stylish products, closely followed by value for money.

The European Commission's scrutiny of low-cost Chinese electric vehicles entering Europe might uncover a surprising detail: One of Europe's own giants benefits significantly from China's cost-effective manufacturing base.

For years, Renault Group has positioned its China-produced Dacia Spring as Europe's most budget-friendly EV, with a starting price of €20,800 (or €15,800 post-subsidy) in France. Contrastingly, when China's leading EV brand, BYD, introduced its European EV line-up, its most affordable offering was the €38,000 Atto 3 SUV.

Interestingly, Chinese-affiliated brands like MG, Polestar, and Nio have priced their European offerings higher than in their domestic market.

BYD is on track for a significant surge in exports, projecting 250,000 units this year, a marked increase from last year's 60,000 units. In just the first eight months of this year, they've already reached nearly 120,000 units.

This ambitious goal is underpinned by two main factors, as highlighted by Li Yunfei, the company's Branding and PR General Manager. Firstly, BYD has diversified its product range. Secondly, their European footprint is expanding, with 100 new stores already inaugurated and another 100 slated by year's end. Additionally, the location of BYD's inaugural European factory is set to be decided by the close of the year.

Geely unveiled the Panda Knight in China with a notable price tag of 7410 US-Dollar. A special discounted price is also available at 6860 USD. This vehicle boasts rear-wheel drive and is powered by a 17.03 kWh lithium iron phosphate battery, offering a range of up to 200 km (CLTC).

Its motor, a 30 kW permanent magnet synchronous variant, not only delivers a peak torque of 110 Nm but also touts an impressive efficiency of 96.5%. Furthermore, the Panda Knight comes with an enhanced charging system, accommodating both fast (22 kW DC) and slow (3.3 kW AC) charging. Geely highlights that fast charging from 30% to 80% is achieved in a mere 30 minutes.

Xiaomi is gearing up for an electrifying year with plans to roll out its inaugural electric car. Currently, in the trial production phase, the Beijing factory is diligently crafting about 50 prototypes weekly. The electric sedan, aptly code-named MS11, is designed for endurance, with its 101-kWh ternary (NMC) battery offering an impressive 800 km range (CLTC). Notably, it boasts support for 800V DC charging.

Expected to be priced at approximately 27.400 US-Dollar, the Modena sedan is set to rival the likes of the Tesla Model 3, BYD Seal, Deepal SL03, and other Chinese EV sedans within the same price bracket.

Nio and SVOLT, are rumored to be forging a joint venture dedicated to cylindrical battery development. Insiders suggest that the venture will focus on piloting a production line in Maanshan, complemented by a combined R&D team.

Interestingly, while both Nio and SVOLT will retain their respective procurement and manufacturing endeavors separate from this venture, mass production through the joint venture might commence by 2025. This partnership has reportedly influenced Nios recent battery development initiatives, with the timeline for a battery facility in Hefei undergoing adjustments.

Mercedes-Benz is set to commence production of electric vehicles powered by BYD batteries come 2025, as revealed by an insider to the Chinese CBEA newspaper. The buzz follows the unveiling of Benz's CLA Concept at the IAA Mobility Conference in Munich.

While details remain scant, what's known is its impressive 750 km WLTP range and the incorporation of an 800V MMA platform. Enthusiasts can anticipate the concepts commercial launch in 2025.

Nios forthcoming smartphone will bear its hallmark design style, remarked William Li, founder, chairman and CEO of Nio in a recent dialogue with the automotive media house, Cheyun. Emphasizing its unique approach, Li shared, "This is possibly the globe's maiden phone genuinely crafted with cars in mind." The intention is to amplify the interaction between Nio phones and vehicles, rendering it especially tailor-made for Nio car owners. While the smartphone caters to all users, its core design revolves around enhancing the Nio vehicle experience.

Recollecting past endeavors, Li mentioned a car company that had once experimented with a phone-like car key, signaling the value in such innovations. Nio is set to unveil this anticipated smartphone on September 21. Manufactured by Lens Technology, a noted supplier for giants like Apple, this phone promises features consistent with elite Android models.

The European Union plans to launch an anti-subsidy investigation to ascertain the extent of the Chinese government's financial support to domestic car manufacturers, potentially flooding global markets with affordable electric vehicles, as revealed by Commission President Ursula von der Leyen, according to a report by Tagesschau.

While Europe welcomes new competition and the challenges accompanying the shift to electric mobility, it won't tolerate unfair undercutting. Von der Leyen recalled the solar industry scenario, where many promising European firms were overshadowed by subsidized, low-cost Chinese counterparts.

The EU remains cautious, aiming to prevent a similar occurrence in the electric vehicle sector. Current efforts also focus on reducing dependencies on China, especially regarding resource procurement. However, the EUs goal is cooperation, not confrontation.

The Chinese government has issued a guideline aiming to boost car sales within the nation, with a special emphasis on New Energy Vehicles, encompassing electric and plug-in hybrid vehicles. The strategy prioritizes not only financial incentives for buyers but also a robust enhancement of infrastructure.

Proposed initiatives include an extension of the tax exemption for New Energy Vehicle purchases, a swift expansion of charging infrastructure, and rural power grid enhancements. Additionally, there's a push for the establishment of battery-swapping stations and ensuring their compatibility. The public sector is also being nudged to acquire more electric vehicles.

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Sebastian | China EV Pulse