Key learnings from my China trip – A moment of truth for the automotive industry

Driving on the highway through Shanghai during my visit one thing surprised me: western brands still dominate on the roads despite the remarkable progress made by Chinese car brands. Yes, you see some Tesla’s and BYDs, but a Nio, XPeng or Zeekr still stick out! Though, looking at the sales numbers, it won’t take long until that picture will change significantly: EV sales in China rose from 1m in 2020 to 5m in 2022 and they are mainly driven by Chinese brands and Tesla!

At the Auto Show itself, most foreign car brands were focusing on launching EV models tailored for the Chinese market, such as the MB Maybach EQS SUV or the Volkswagen ID7 in order to catch up on the huge EV interest. It was though interesting to witness that the domestic brands seemed to have attracted more interest from media and visitors during the press days. And one player was even not present: Tesla!

I was truly impressed to see hundreds of Chinese car models displayed by the domestic manufacturers. These Chinese brands were mostly all launching new EV models and announcing their internationalization strategies and ambitions. I think in general during all my conversations, I was impressed with the ambitions (number of models that they have in the pipeline to launch, but also sales numbers they want to achieve internationally) and speed (how quickly they want to grow and expand) at which the Chinese brands are moving.

The Chinese brands seem to have made tremendous technological progress and show well designed, sophisticated cars with high-quality finish. Even the more traditional Chinese brands that have been around like BAIC, GAC, JAC, Changan seem to have made significant progress.

With respect to their interior, Chinese brands are way more digital and experimental with multiple large, often movable screens. They also put more emphasis on comfort for their passengers with innovative seating concepts (nearly all come with advanced voice control, avatars, and heated/ventilated seats with massage functions), much better interior quality than in the past and a strong focus on a premium look and feel. Many models come equipped with multiple exterior cameras and LIDAR sensors moving towards autonomous driving. In general, autonomous driving was a key trend at the show for the domestic brands. It seems they are developing their own systems in China for China.

As mentioned, the screens are massive and everywhere. The infotainment solutions seem advanced and designed to perfectly integrate into the Chinese modern digital technology ecosystem (or I would argue the younger digital generation in general). It was impressive to see Chinese visitors play with the built-in devices and test the apps, voice control and connectivity options. I think this gives Chinese brands a huge competitive advantage in the Chinese market and with younger consumers. It will be interesting to see how the Chinese brands will transfer these to the western digital ecosystem – which is really very different.

This is a good moment to talk about the Chinese digital ecosystem. With our Western apps and phones, we are pretty lost in China. Nobody accepts credit cards or wallet payments, google maps works, but has no traffic information and so on. China runs fully digital on its own ecosystem based on QR code payments through WeChat or Alibaba which you can only use with a Chinese bank account. Also, Email is a thing of the past, if you do not have WeChat and your WeChat QR code to connect, then you won’t do business in China (and I would argue you won’t survive. I could not even buy a metro ticket without a local person borrowing their WeChat account)!

On the cost side, the Chinese manufacturers have huge scale effects resulting from the fast adoption of electric mobility in combination with world-class battery technology innovation and better access to raw materials. So, they will be able to offer their models at highly competitive prices. With these benefits, Chinese brands will put the legacy manufacturers under significant cost pressure. The on-going price war in the Chinese market (driven by massive production over-capacity) is only the beginning and will most likely intensify further. This will then drive strong consolidation locally, but also challenging the western brands which were dominating the market so far. Ultimately, this will lead to the emergence of some true Chinese automotive champions.

I think the coming years will be super hard and challenging for the western brands in China, which today is their most profitable and often biggest market. They will need to work hard to defend their position and they especially need to catch up with their EV offering and their digital integration into the Chinese tech ecosystem which is currently dominated by local brands. On the EV side there is only 1 foreign exception: Tesla. They could secure a significant market share in the Chinese EV segment, and they are also leading the price war!

One thing is for sure – the competition in the automotive industry is intensifying in China and soon also in Europe.

Talking about Europe and the international ambition of Chinese (EV) brands, I would differentiate between three groups:

1. Traditional Chinese brands that have been around for a while like BYD, BAIC, GAC, Chery (Omada, Jaecoo, Exeed), Changan, Dongfeng (Voyah), FAW, Greatwall (Ora & Wey), JAC, SAIC and Seres. They have all made significant progress with design, the quality of their models, as well as advancing into the infotainment era. All of them want to go global now (or already are), have been creating new brands (mainly for their EVs and global markets) and have huge ambitions to build out their product offering with a really big variety of EVs (for all segments). They all seem to think more traditional, have traditional Chinese management and they mostly want to be working with importers or directly with the traditional dealer model when going global. Most of them are very product focused and rather traditional and comparable with the legacy brands in the West.
2. The new Chinese (startup) brands like LiAuto (the only one not talking about international) Lynk&Co, HiPhi (Human Horizons), Nio, XPeng or Zeekr. They all have very international management teams and think more from the customer. They celebrate the fact that they are more than the car itself, they talk about their communities (especially Lynk&Co and Nio), their advanced digital technologies and self-driving car ambitions and their focus to cater to the new wealthy generations (currently in China, but soon also globally). They clearly want to create the next Tesla and change the traditional thinking in the industry, but they also nearly all want to be in the “premium” segment with the exception of maybe Lynk & Co. All those new players are also way more open to think about digital marketing from the beginning and are probably easier to work with for carwow 🙂
3. The third category is a mix of Western & Chinese brands (MG, Polestar, Lotus and smart) and so to say a mix of the first 2 categories. These are legacy western brands with Chinese technology and manufacturing. They do not publicly talk much about their Chinese roots, but celebrate their modern western brand and utilize the cost advantage of their Chinese partner/manufacturing and technology. They are currently also the most successful in Europe.

There are two brands I have not mentioned yet but are both super interesting to talk about as well. One is Aito, a car brand founded by Huawei and built by Seres. So far only available in China, but very successful. They also have huge international ambitions but want to stay away from their Huawei branding due to political reasons.
The other is Aiways, already available in Europe. I was really surprised to hear that their sales in China have dropped to below 700 a month and that they are financially heavily struggling. Also, I heard that they generally seem to have some quality problems. So, I would not be surprised if this was the first Chinese brand to disappear again.

Finally, let’s talk a little bit about the key topics that came up in nearly every meeting.

• Which business model to work with in Europe? Traditional importer/dealer model, agency or direct?
• Going through fleet first to gain learnings and get user feedback to improve and adapt the product for the broader retail market
• Which models/segments are right for Europe? In China Sedan’s and big (I am talking really big) SUVs are very popular, while small cars (A, B and compact segment) rather not. This is because in China, families often live together with 2-3 generations and a car must always be able to carry the entire family. So, the question nearly everyone asked me was “Why do Europeans and especially Germans not like big Sedan’s?” We thought they love the E-Class?”

It will be extremely interesting to see how they will all go global and how users will adopt them (or not).

A few additional nice and scary facts

• Chinese car exports tripled since 2020 and now account for 2.5m cars per year. Only Japan (3m) and Germany (2.6m) currently export more. But if China keeps growing at the same rate, it will soon be the number 1
• EV sales in China grew from 1m in 2020 to 5m in 2022. If EV sales continue growing at this speed, then we might see as soon as 2025 more EV sales in China than ICEs. This would mean more than 10m EVs per year in China alone