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German (premium) customer acceptance of Chinese OEMs

Munich, November 2022

German (premium) customer acceptance of Chinese OEMs

Munich, November 2022
I

n the last series of articles, the Berylls China team analyzed the Chinese OEMs’ bumpy market entry story into Europe.The focus of these analyses was a broader scope of understanding for successfully entering the European market and what currently hinders the Chinese OEMs.

From our perspective, all aspects of a successful Go-To-Market strategy require a customer-centric approach. And which customer is more challenging than the loyal German customer?

We conducted a detailed survey to understand the perception and expectations of German customers towards Chinese OEMs.

For this endeavor, Berylls and Civey have teamed up to provide a precise understanding of the German automotive-buying persona.

 

For the analyses, we have conducted two studies, each with one thousand participants and a side study with 60 Chinese OEMs’ experienced customers.

First study: asking the general German customer
Second study: on customers who own a premium car

Both groups are willing to purchase a foreign brand/model. While the first study is still ongoing, the latter had a field time of June 10 and September 15, 2022.

Further, we understand that the premium market consists of brands such as BMW, Audi, Mercedes Benz, and JLR. Although Mercedes Benz announced that it would focus on becoming a luxury brand, we do not think this has had a strong effect on the customer mindset in the brief time span since the announcement.

Authors
Soleiman Mansouri

Associate Partner

Parwiz Torgull

Head of Customer Success Civey

First, the results are astoundingly surprising! Heads-up, owners of premium cars (MB, BMW, Audi, JLR, Porsche) are more positive than general customers.

 

1. One Group German/EU OEMs:

1.1 Chinese are arriving, and the German customers are willing to give them a chance

Among the premium customers, roughly 25% consider Chinese brands when purchasing a car. This is a significant threat to German/EU OEMs, given the fact that most Chinese brands have not yet started their marketing/communication activities. Surprisingly, the general German customer shows notably less willingness (16%) even though “value-for-money” is the key driver for respective purchase decisions (46% general vs. 57% premium). Overall, the EV market will be severely more clustered with the Chinese entrants. Here the existing market player will have to fight to sustain market shares, while the Chinese need to be aware that conversion to a purchase will require investment into the right channels.

1.2. The German customer mindset is surprisingly heterogeneous and difficult to grasp – new generations are open to innovative solutions

As the market becomes fragmented, customer perception and openness to the latest brands are also changing. Almost 50% of the premium customers believe that Chinese OEMs will be successful in Europe, while the general customer is more conservative at only 35%.This high percentage illustrates a leap of faith by German customers toward Chinese OEMs that there is a certain level of trust or an expectation of technical leadership in developing EVs. In particular, the Western OEMs need to underline the strength of their upcoming EV portfolio and provide the WOW-effect of their product substance (clear product USPs). Their Asian competitors, on the other hand, will still have to prove that quality and service will not be causes to reject a purchase of Chinese models.

1.3. High rate of acceptance among the 30-39-year-old premium customers

The struggle to get the attention of first-time car buyers is real. Premium German OEMs particularly know how crucial it is to convince the age group 30-39 or Gen Y to become their first-time customers. German OEMs will face a dramatic challenge as 42% (vs. 16% of general German customers) of this group are willing to acquire a Chinese product. This group is very clear on the reasons to conduct such a purchase (only 10% stated “I don’t know”), while 60% of the general customers at this age state the technical specifications of the Chinese brands. The European first-time buyer in most countries will be a decisive group to convince towards the new entrants or to keep with the existing brands. As such, in particular, marketers should consider focusing significantly more on addressing this respective group with a surgical approach.

2. Chinese OEMs:

2.1 Brand building and brand experience are the most important aspects of a roll-out

A willingness to purchase a Chinese car, not knowing the brands and what they stand for, is obviously an obstacle for premium Chinese brands. Though brands such as Polestar, NIO, and BYD have the highest brand recognition among the Chinese OEMs entering the EU market, it is still a limiting factor not to have experienced the brands on hand. The recognition counts for both premium customers and the average customer. In fact, once customers have any touchpoint with Chinese brands, the purchase consideration jumps from 21% to up to 85%. Overall, this emphasizes the importance of brand and product awareness and the groundwork to be done by the Chinese. It also emphasizes the immense significance of deals such as the recent one between BYD and SIXT, providing a vast number of customers with the possibility of experiencing Chinese products firsthand.

2.2 Knowing Your Customer – who is your target group?

A critical challenge for Chinese OEMs will be gathering valid data to define their target group and clearly understanding the German/European customer in detail. Valid market data can and will help Chinese OEMs to understand their value proposition from the point of view of potential German customers and reframe their messaging. Our data indicate a strong difference among age groups (lowest: 18-29 with 11% and 65+ with 16%) and propose the marketing of the cars among potential premium customers around the attributes of affordability and EV technical features (range and charging times).

2.3 Politics are not as strongly influencing premium customers as expected

The omnipresent discussion of the notion that politics are an influential factor in the purchase decision of the German/European customer seems to be a valid point. Whether it is political topics or purely the mistrust in Chinese technology, such as the Huawei/ZTE case, the media perspective is always a polarized picture of opposing Chinese products. However, our study indicates that German customers are less influenced by these political arguments than expected. In fact, 50% of the customers (general and premium) state that it merely has an effect on their purchase decision. Thus, when confronted by political provocation, OEMs are recommended to emphasize the separation between the mere attempt to offer customer-oriented mobility solutions to political turmoil while keeping their ground on the fundamental values of the brand proposition.

 

So, after this short excursion, what are the detailed results?

Awareness

While most German customers cannot name any Chinese brands (more than 70% – see figure 1), this figure reduces strongly with premium customers (57% – see figure 2) and the ones experienced with CN OEMs to only 2% – see figure 3 (can name several brands). Polestar, Nio, and BYD are the best-known brands named by at least every fifth customer asked. Brands such as WEY (GWM) or Xpeng are barely known. From our point of view, this obviously has a lot to do with the heritage (Volvo-Polestar), strong marketing efforts, the presence of cars on the road, and also the stock market attention where many customers are hoping to invest in the next Tesla (Nio/BYD).

1. Brand Awareness among general German customers
2. Brand Awareness among premium German customers
3. Brand Awareness among premium German customers who have had experience with a Chinese OEM

Consideration

What is much more outstanding is the general openness toward purchasing a Chinese model. Only 17% of the general German customers showed strong or somewhat openness towards purchase willingness, while this figure increases to every 5th (22%) premium customer asked. Once a customer gains experience with Chinese OEMs, it appears that the Chinese are unstoppable within the purchase decision basket of the German customer (74% of the customers asked). This indicates that the key purchase barrier might still be the strong lack of brand/product awareness and brand/product experience. While the Chinese are champions at playing the game of customer-centricity on their home ground, this provides the impression of a fantastic opportunity for opening up to German customers.

4. Brand consideration among general German customers
5. Brand consideration among premium German customers
6. Brand consideration among premium German customers who have had experience with a Chinese OEM

Though asking premium customers about specific brands, the willingness decreases roughly 2/3, with Polestar being in the forefront (12%), followed by Nio (6%) and BYD (7%). This changes decisively with customers experienced with Chinese products, Polestar (83%), Nio (34%), and BYD (71%). From our point of view, this shows that legacy and history do make a difference when it comes to customer trust. Polestar is perceived as a Volvo company (and, as such, with European DNA), BYD has been around for more than 20 years in European discussions, while Nio is the new kid on the block and still to convince customers. Besides legacy and history, Polestar specifically has been marketing the brand heavily since 2018. The Swedish/Chinese brand has gained brand momentum throughout all media outlets with its high-street stores and social media presence. It seems that once German customers have taken comfort in a Chinese OEMs driver’s seat, they are willing to stay.

7. Openness towards Chinese OEMs among premium German customers
8. Openness towards Chinese OEMs among premium German customers who have had experience with a Chinese OEM

Purchase (reasons)

On the other hand, not-so-surprising key reasons for purchasing a Chinese car are mainly “value-for-money” (45% premium / 54% general) and key electric vehicle features such as range (19% premium / 41% general) and charging time (11% premium / 47% general). The most emotional purchase reason, “design,” is only stated by every 12th premium customer, while over a third of premium customers who have had experience with Chinese OEMs say that this would be a trigger. As such, more investment in sleek and distinctive European design is necessary for all new market entrants. In paradigm examples such as the Hyundai Ioniq 5, we can observe that such an adaption has a strong impact on direct acceptance by customers and sets the pace for a successful story of a model.

9. Purchase (reasons) for Chinese OEMs among premium German customers
10. Purchase (reasons)for Chinese OEMs among premium German customers who have had experience with a Chinese OEM

Asking the customer which Chinese attributes might be superior to German brands is not so astounding – the majority believe, analog to purchase reasons, in “value-for-money” (42% premium / 53% general) and “base equipment level” (19% premium / 48% general). What is shockingly low, though, is eRange, charging time, and design – all main decision factors for the latest brands. Here, Chinese OEMs need to prove their designs being able to convince buyers of any premium price. As such, the current price strategies of the Chinese OEMs (e.g., BYD, WEY, NIO) are on shaky ground if customers cannot observe clear competitiveness for these attributes.

11. Superior attributes of Chinese OEMs compared to German ones from the perspective of premium German customers
12. Superior attributes of Chinese OEMs compared to German ones from the perspective of premium German customers who have had experience with a Chinese OEM

(Purchase) Decision

Once all the factors are taken into consideration by premium customers, the page no longer looks so peachy for Chinese brands. Only 2% of premium customers state that it is highly likely that they will purchase a Chinese model, and 4% are somewhat likely to buy one. Considering the volume sold by the premium brands in Germany in 2022, this would mean a max potential volume of 25-40k units. Obviously, even most optimistically, it is a tiny market for the number of brands launching in this segment (Nio, Xpeng, HiPhi, RedFlag, Wey, etc.).

Again, this picture is significantly different with customers who have already gained experience with Chinese brands, with 14% highly likely to purchase a Chinese model and 21% somewhat likely. Though, still keeping in mind that these customers expect “value-for-money.”

13. Likelihood of premium German customers purchasing a Chinese OEM’s product
14. Likelihood of premium German customers who have had experience with a Chinese OEM purchasing a Chinese OEM’s product

So, do premium German customers believe that Chinese OEMs can sustainably position themselves in Germany? The question is a clear “YES”!

Almost 50% of premium customers believe so (19% highly likely, 28% somewhat likely), while those customers who have experienced Chinese products are absolutely convinced (74% highly likely, 11% somewhat likely), cementing the risk for the existing market players.

15. Will Chinese OEMs make it in Germany from a premium customer POV?
16. Will Chinese OEMs make it in Germany from a premium customer POV who has had experience with a Chinese OEM?

And how important is the omnipresent political discussion of the behavior of the Chinese government around this topic? Does it influence customers’ choices?

Here, the answer is not so clear but rather a 50/50 statement from a premium customer’s POV. The figure looks different from those who have had experience with a Chinese OEM – here, 60% respond that it has an impact on their decision. This indicates that although these potential buyers have a great willingness to purchase Chinese OEMs, they have a critical view of the political landscape.

17. Does politics have an influence on your buying decision? POV of a premium German customer who had experience with a Chinese OEM.
18. Does politics have an influence on your buying decision? POV of a premium German customer.

German premium customers show curiosity towards Chinese OEMs with clear USP expectations

Going forward, there is obviously much more potential to dig deeper into this topic and understand more profoundly the challenges of the customer needs in Germany and beyond – especially as we think all business aspects should start with understanding customers and their respective needs. We conducted further detailed analysis on customers who experienced Chinese brands, revealing many more insights about where the future will lead to. In this case, we would like to conclude that though there is somehow a visible potential for Chinese premium OEMs with clear USP expectations, the future touchpoints with customers will be the decisive factor. One size does not fit all, resulting in Chinese OEMs creating unique brand propositions or providing best-in-class customer experience touchpoints, as Polestar highlights. WOW moments will be of key need, positioning the brands in an effective approach. A brand that demonstrated this momentum was Tesla – creating first a WOW and harvesting the crops – now the most sold electric car in Germany is the Model Y.

 

At Berylls, we have profound experience and understanding of the challenges of the automotive markets, focusing on customer-centric approaches and trying to understand the customer needs in all levers while contributing our knowledge to successfully market products and Go-To-Market strategies.

Civey, as one of our partners, provides us with the core tool to understand the consumer and their respective needs in a thorough but swift approach, allowing us to grasp the smallest changes in customer attitudes and needs.

As such, we can provide you with a short-term analysis of certain customer groups while translating the results into clear actions toward a successful strategy.

Also, our diverse and international team has a significant understanding of cultural and market challenges, enabling us to passionately help our clients in surgical tasks or larger strategy developments.

Soleiman Mansouri

Soleiman joined the Berylls Group in March 2022. He has set his focus on customer-centrist solutions, gaining experience in Product- and Corporate Strategy, Consulting with the focus on the OEM business. His Automotive career started with digitalization of the Aftersales of an US OEM in Europe and took him to China to the leading German OEM group, heading the Product and Portfolio department. He gained intensive consulting experience with one of the top management consulting firms and as a freelance consultant. Before joining Berylls, he was the Director Go-to-Market of one of the top Chinese OEMs supporting their entrance into the EU market. Soleiman is a graduated M.A./MBA in International Business from the University of Hamburg and ECUST/Shanghai.

Soleiman joined the Berylls Group in March 2022 and is part of the Asia-team, responsible for supporting all players in a successful market entrance. Also, provides profound expertise of customer-centric Product Marketing and Portfolio Strategy approaches to our clients.

Soleiman is expert in customer-centric Product-/Portfolio Strategy, Go-To-Market, Corporate Strategy and Entrepreneurship.

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Parwiz Torgull

Parwiz has started his automotive journey in early years at Mercedes-Benz going through all levels of the automotive industry. Starting at Flagship Dealership, working at its HQ in Stuttgart and experiencing the Chinese markets has allowed him to gain deep knowledge of all industry challenges and opportunities. After Mercedes-Benz he continued his automotive journey with Volkswagen Group & Audi. His roles varied within Sales, Business Development & Marketing, while spending almost 4 years in China. Since 2018 he has shifted his career towards brand strategy, design and tech and now heads the Customer Success Team of Civey (Opinion Tech) in Berlin.

Parwiz holds a M.B.A & MSc. in International Business at the Steinbeis University Berlin and Universidade Católica de Brasília.

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