What is changing in the Chinese Automotive OEM Landscape and could we see China-made Electric Vehicles succeed in Europe?
It is more than obvious, that within the global automotive industry, the overall focus shifted on battery technology, vehicle connectivity as well as autonomous driving features in recent years. These are all areas where some of the new Chinese auto start-ups appear to be more and more competitive. Besides some of the state-owned car manufacturers in China, there are a few auto start-ups which deserve special attention, all of them founded around 2014/2015. NIO, Xpeng (Xiaopeng), Li Auto (Lixiang) & Weltmeister (WM Motors) are four increasingly successful examples of new EV players competing with Tesla and established players in China today, although most of these companies have only started delivering vehicles in 2019/2020. NIO, XPeng and Li Auto are publicly listed on the NYSE and have been investors darlings particularly in Q4 2020 leading to record valuations temporarily surpassing most global auto players in market capitalisation. The logical step for these Chinese auto start-ups is to seek expansion overseas. As Europe’s EV market already surpassed the Chinese EV market in 2020, it is no surprise that most of those companies are preparing or are already testing the waters in Europe as customers are gradually adapting to electric mobility. Time and the ability to build a brand as well as distribution setup in Europe will show, whether this attempt will be successful. In my view, especially the question of successful brand building focusing on the advanced technology, international R&D and design teams as well as reliability / safety aspects of the product, will be the critical elements on the way to a successful market entry.
Personally, I believe that the circumstances have never been better. However, speed is of the essence as established OEMs like Volkswagen Group, Ford and Daimler are closing in on its start-up rivals by launching competitive products with increasing pace. Over the past years, heavy investments into pure EV vehicle platforms, new software architecture, Over-the-Air update capabilities, and changes to the distribution model (e.g., introducing sales agents rather than independent retailers) have led to a significant catch-up. The initial success of the Volkswagen ID3 & ID4, the Porsche Taycan or the presentation of the fully electric Ford Mustang Mach-E are only the first signs that the traditional OEMs have learned, acted and are on the way back.
How might the Chinese EV auto start-ups be affected by the Cold War 2.0 aka technology war? Could there be any disruption in the production of technology related products or in the raw material supply chain?
For the Automotive industry in general it seems that it is not as much in the focus of the ongoing dispute on technology compared to the telecommunication sector. Having said that, it is of utmost importance to mention that the future of the car industry partly also depends on the development of highly connected and autonomous vehicles. In that sense, the question of “technology war” plays a role with regards to either having access to critical components or not. Increasingly, there are highly innovative and competitive component suppliers coming also out of China pushing for exporting their components overseas. CATL, the electric vehicle battery manufacturer based in Fujian Province, has obtained the leading position for lithium-ion battery manufacturing globally. This also underlines China’s ambition to be leading within the electric vehicle supply chain. For now, despite the COVID19 pandemic as well as trade disputes, global automotive supply chains have been holding up and there is access to necessary technology. Sustainable success as an automotive manufacturer, as a basis for worldwide success, depends heavily on the ability to export and to compete on this global stage. Therefore, it seems not in the national interest of the involved parties to further restrict trade and access to relevant technology in the automotive sector besides existing tariffs.
Will the Chinese Governments 14th Five-Year-Plan further enable Chinese auto start-ups to succeed in the domestic market as well as pave the way for exporting abroad?
In its 14th Five-Year-Plan, the Chinese government has made it very clear that it focusses on domestic demand, rebalancing its economy with supply-side structural reform (Made in China for China) and a more balanced approach to growth expectations. Nevertheless, they also emphasised on the importance of being an exporting nation as part of the “Dual Circular” policy. Overall, regarding the automotive sector, I believe that it is the strategy of the Chinese government to support exporting locally produced vehicles to other markets. Europe therefore plays a crucial role in the EV sector particularly, as well as all the Asian-Pacific markets under the new RCEP free trade agreement. For the domestic market, the Chinese government has once again underlined that it sees electric mobility as the prevailing form of transportation with regards to cars also announcing further guidelines and incentives to encourage customers and further enabling the local automotive industry to supply suitable products. In that sense, I believe that the trend for EVs is irreversible in China as well as globally. Within this transformation of the global auto industry, I believe there is a very high likeliness to see the one or the other of the Chinese auto start-ups performing on the global stage in the years to come. The four companies I picked in the beginning are on my personal watch-list!
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