Six reasons why China’s automakers are so successful at home

the authors

Andreas Herrmann is Director at the Institute for Mobility at the University of St. Gallen.
Zheng Han is Professor of Innovation and Entrepreneurship at the Sino-German School for Postgraduate Studies (CDHK) at Tongji University in Shanghai.

For years, German automakers have stared at Elon Musk and Tesla. But that may not be the decisive competitor. It would have been far more advisable to have a thorough understanding of the strategic building blocks on which the Chinese competition is planning its global rise. Six points are particularly important.
1. Digital first!

From the very beginning, Chinese car manufacturers have focused on the digital experience for their customers. This dimension offered a good opportunity to compensate for or even overcompensate for competitive disadvantages in the engine, transmission, brand and design.

For Chinese manufacturers, the car is not just a means of transportation, but a lifestyle product. With this focus, they aim to win the many young “digital natives” in China and abroad as customers. Not surprisingly, Chinese car brands top the JD Power China Tech Experience Index in both the luxury and mass segments.

2. Focus on new customer segments

Chinese manufacturers are always keen to identify new customer segments and serve them with tailor-made products. Thus, in 2020, Wuling Hongguang Mini EV launched an electric four-seater with a starting price of US$4200. The car was already the best-selling all-electric vehicle (BEV) in China in 2021.

Despite the low purchase price, it is considered modern and trendy and is mainly bought by social climbers in medium-sized Chinese cities.

Chinese automakers outsource production whenever possible

3. If possible no assets

Freed from the traditions and constraints of Western car manufacturers, Chinese car manufacturers focus primarily on research and development, design and branding. They outsource production whenever possible. This applies in particular in the early stages of corporate development, in order to ensure a high rate of growth and to conserve capital.

>>Also read: When will e-cars become cheaper than combustion engines?

In addition, they prefer direct sales, at best they build showrooms and experience centers in cities. Everything else is done online, without major investments in a dealer network. For example, despite having its own license to manufacture vehicles, XPeng entered into a partnership with Haima to have its vehicles manufactured there.

4. Think globally, not nationally or regionally
Chinese automakers think and act globally from the start. Nio and XPeng have research and development centers in different locations around the world, especially in Silicon Valley, where the best minds in e-mobility and autonomous and connected driving are located. They also draw on established resources: Nio has a design center in Munich and a center for IT infrastructure in the USA.

5. Monetization of Services

Many Chinese manufacturers are coming onto the market with innovative pay-per-use models to get customers excited about the vehicles. Nio is pursuing the idea of ​​Battery as a Service (BaaS), where car buyers only rent the battery in their e-car.

This not only reduces the price of the entire vehicle, but also removes the customer’s uncertainty regarding the performance development of the battery and the car’s resale price. Like Tesla, XPeng and Nio also offer their driver assistance systems in a subscription model.

Chinese car companies are investing in smartphone manufacturers

6. Breaking down industry boundaries

Chinese manufacturers do not hesitate to cross industry boundaries if it allows them to grow. The car company Geely has taken over 79 percent of the smartphone manufacturer Meizu and plans to launch a new smartphone in 2023.

The background is the idea of ​​integrating the smartphone even better with the car. In essence, this should create a coordinated multi-screen experience. Following this logic, the Chinese smartphone manufacturer Xiaomi has also announced that it will enter the electric vehicle market – doing what Apple has been working on for a long time. The vehicle should be on the market as early as 2024.

XPeng is even interested in Urban Air Mobility. The flight subsidiary XPeng AeroHT has already completed the first test flights in Dubai. Geely is among the investors in Volocopter, a German aviation company that makes electric air taxis and cargo drones. Geely and Volocopter have agreed on a joint venture for China.

Conclusion
China is the world’s largest electric car market. So far, German manufacturers have not been able to exploit their competitive advantages there and are finding it difficult to keep up with the pace of Chinese innovation. At the same time, the high dependency on the Chinese market is leading to an increasing concentration of risk.

It is therefore high time that manufacturers radically rethink their China strategy. It’s not enough to manufacture locally and make one-off product adjustments – rather, they should develop the product holistically for the local market and adapt to the pace of the Chinese market.

The authors:

Andreas Herrmann is Director at the Institute for Mobility at the University of St. Gallen.
Zheng Han is Professor of Innovation and Entrepreneurship at the Sino-German School for Postgraduate Studies (CDHK) at Tongji University in Shanghai.

More: With self-confidence and exchangeable batteries – Nio starts model offensive in Europe

source site-14