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Quo Vadis, China: From bad to worse? Where German innovation leadership is heading in the biggest automotive market

Munich, June 2022

Quo Vadis, China: From bad to worse? Where German innovation leadership is heading in the biggest automotive market

Munich, June 2022

I

n our recent viewpoint on NEVs in China we looked at China’s vital first-mover advantages in battery cell production and charging infrastructure and how critical it is for German and other foreign OEMs not to rely on their previous and current success with ICE vehicles.

There is no other way to put it: Chinese NEVs are leaving traditional German car brands far behind in the NEV sector, and not only in sales growth. Mainland customers are also giving Chinese NEVs rave reviews, as Berylls’ Big Data research reveals.

So, a swift reaction by German OEMs should be top of their CEOs’ agendas, in order to win back customer approval for their electric models and compete more effectively with China’s NEV start-ups. The following sales numbers in 2021 show the dramatically changing composition of China’s NEV market:

Authors
Dr. Jan Burgard

Berylls Group CEO

Willy Wang

Managing Director China

Hongtao Wei

Senior Associate

Lois Yang

Lead Analyst

  • Xpeng sold 98,155 units, an increase of 275.2% YoY
  • NIO sold 91,429 NEVs, an increase of 109.1% YoY
  • Li Auto sold 90,491 NEVs, an increase of 177.4% YoY

In contrast:

  • VW Group delivered approximately 119,000 NEVs, an increase of 128% YoY (Nota bene: in 2021, the entire ID series sold 70,625 vehicles in China, missing the targeted 80,000 to 100,000 units)
  • BMW sold approximately 48,000 NEVs, an increase of 69.6% YoY
  • Mercedes-Benz’s NEV sales performance in China last year was also not great. The company sold only 6,098 of its main NEV model EQC, while its recently introduced EQA and EQB models had total China sales of just 327 and 473 vehicles respectively

NEV Sales in China – Chinese Startups vs. German OEMS

220331_Quo Vadis_Blog #1_FBTW

Now to be entirely fair: Each of the German OEMs mentioned above are coming up with numerous new NEVs that are entering the Chinese market this year. Volkswagen and Audi for instance are introducing the VW ID.5 and the Q5 e-tron this year.
Mercedes-Benz customers can prepare for a double debut: EQS and EQE are both celebrating their world premiere this year in China.
BMW goes even further: five pure electric products will be presented to the Chinese market: the BMW i3 (launched March 31st already), iX, iX3, i4 and i7.
Most of these models come with significant technological innovations and improvements that don’t just demonstrate a step forward under the hood but also at least equally important in China, visible for the customer in terms of a more “techie interior feeling” inside of the car.

The game of tag goes on

However, NEVs are just the start of where we see a gap opening up between German and Chinese OEMs. The next area where German OEMs will need to catch up is already emerging: ICVs (Intelligent Connected Vehicles), a new collective term that stands for deep integration of connectivity and autonomous driving. And the risk is imminent that Chinese ICV players will repeatedly outcompete their German competitors.

During the recent “Two Sessions” (the National People’s Congress and the Chinese People’s Political Consultative Conference), ICV and autonomous driving were one of the hot topics for the automotive industry. New laws and regulations were approved to promote the faster development of ICVs, with special emphasis on the implementation of autonomous driving.

How the Chinese walk the talk

ICVs are yet another case where one can see the advantage enjoyed by new Chinese players that can keep up with the dynamics of national policies and make rapid responses and adjustments. While traditional car companies are still studying “digital transformation and software defined vehicles”, these new Chinese players are already introducing them. Meanwhile, they have shifted their attention to ICV hardware and software upgrades for connectivity and autonomous driving functions.

For instance, the NIO ET7 has seven times the computational power of Tesla’s Hardware 3.0 (HW3.0), the US company’s AI self-driving hardware, released in 2019, which is deployed in the latest Tesla models. NIO’s Adam supercomputing platform within ET7 uses four NVIDIA Orin chips, with a total computational power of 1016 total operations per second (TOPS). In contrast, the computational power of Tesla’s HW3.0 is 144 TOPS.

Chinese players are also pioneering new sensors. For instance, Xpeng’s P5 uses a fusion of millimeter wave radar, camera and Lidar, while NVIDIA’s Xavier is used for autonomous driving (called XPilot), which can provide 30 TOPS of computational power. Equipped with twin Lidar sensors, the Xpeng P5 can deploy navigation-guided piloting (NGP) in urban environments. Moreover, the car roof is equipped with solar panels, which can provide 62W charging

Not a pure spec competition

But are Chinese players paying so much attention to ICVs, in particular spec and functionalities, as a means to extend their spec lists beyond their competition? Probably not.
It is more likely to be because they truly understand that “customer centricity” and digitalization go hand in hand. Customer demands are more diverse than ever before. It is not enough to offer just a digital customer interface with rich functions; in addition, timely software updates and rapid system upgrades are essential to react to these diverse and changing demands. All these capabilities require a strong technological base.

Even a traditional car with some smart functionality requires powerful hardware at the start of production (SOP). But updates are very limited and usually come with a facelift or at least require a physical service appointment. This means that car features are rigid, with little room for changes. Moreover, there is no application development ecosystem, with only a small range of applications developed by OEMs or Tier 1 suppliers.

The only way forward is upwards. Upstream.

However, with the advent of ICVs, hardware has become very powerful at the time of release as it has to have the ability to support future software updates. Software can be continuously updated remotely (over the air, or OTA) and new software functions added at any time (functions on demand, or FOD), while third party partners can engage in the development of software. The car’s functions and applications will be richer, since vehicle features are no longer rigid and can be extended via connection to the cloud. Chinese players have got the message that the accompanying hardware development cannot be ignored and must, more than ever, be a top priority.
To be fair, German players have not been sitting idle either.

For instance, the BMW iX is equipped with two Mobileye EyeQ5H chips, which are mainly used for visual perception processing. The computational power of a single chip is 24 TOPS. Two Intel Denverton 8-core processors, together with EQ5H, are responsible for data fusion, decision-making and planning.

However, according to BMW, this system only supports L3 level autonomous driving, as L4 / L5 levels require up to three EQ5H chips together with five Lidar sensors and seven cameras. A gap still exists with the current BMW iX configuration, which only has six sensing cameras, four surround cameras, one Lidar sensor, five millimeter wave radars and 12 ultrasonic radars.
VW Group, Mercedes-Benz and Audi do not make public as many specifics as BMW and are still at the planning stage. Audi has launched the Artemis Project, which will focus on new technologies including electrification and high-level autonomous driving. Its first model is due for release in 2024, with no further detailed information.
The same goes for Volkswagen, which will first launch Trinity, a flagship model to be produced in Wolfsburg and released in 2026. Again, there is no detailed information about the car.

Mercedes-Benz is cooperating with NVIDIA and has announced that the next generation of its models will use an NVIDIA platform, which will be launched in 2024.
It seems, therefore, that Chinese players are already far ahead when it comes to ICVs. They are putting out finished models while German players are still deciding what to do. Viewed from this angle, the traditional German players appear much slower than new Chinese competitors, which of course has a lot to do with the Germans’ scale, legacy and culture.

Can traditional German players regain innovation leadership?

As customer demands become more unpredictable and competition increasingly fierce, staying ahead in China will become the overarching objective. This is why, in the digital era, customer centricity will remain the common key value for every NEV player. A genuine mindset shift from product-orientation to customer-orientation should be the starting point for all moves by all players along the value chain.


To be specific: What do customers want? How can OEMs make customer demands transparent? How can they translate customers’ expectations into real products and services? And how can OEMs systematically deploy customer requests along the entire value chain, to meet different individual needs? To answer these questions, OEMs need data.

Data – the alpha and the omega

We believe that data fusion, analysis and processing will greatly assist OEMs in creating transparency around present and future customer needs. It is therefore critical to design a data strategy and deploy dual systems for data analysis and action derivation.
From the outset, data is fundamental in creating strategy. Customer data is required to forecast future customer needs, demands and preferences, so that OEMs can develop a proactive rather than a reactive strategy. The entire value chain needs to be covered by the strategy which has customer-centricity at its core, hence the importance of data collection and analysis.

It is then time to review the strategy and proposed actions. Firstly, data needs to be collected, analyzed and processed in a modular way, so it can be classified into categories such as marketing, retail, customer interface, and products. Regular reviews and analysis of the collected data are required to determine the difference between customer expectations and the products or services provided by OEMs.
Secondly, it’s time to plan & start actions based on the results from each category, which need to be distributed to the relevant departments. Using this data, each department then needs to find solutions and actions that close the gap between customer reviews (for cars on the road and customers’ demands for future models) and adapt the existing strategy in the short, medium and long term. Deep integration of upstream and downstream functions is more essential than ever.

A plea for a new virtue – proactivity

If there is one lesson to be learned from two years of COVID-19, resource shortages and now war, unfortunately, it is that OEMs can’t rely on strategies built on hypotheses and leadership experience. Instead, traditional German players should anticipate potential shocks, size up new situations, reposition themselves and master the rules of the new game as soon as possible. This change needs to happen in a structured way, rather than reactively following the trend. In particular, it’s time for them to rethink their whole value chain, redefine cars and be game-changers in the digital era when it comes to setting new trends and getting ahead of China’s agile and aggressive NEV start-ups.

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About the authors
Dr. Jan Burgard

Dr. Jan Burgard (1973) is CEO of Berylls Group, an international group of companies providing professional services to the automotive industry.

His responsibilities include accelerating the transformation of luxury and premium OEMs, with a particular focus on digitalization, big data, connectivity and artificial intelligence. Dr. Jan Burgard is also responsible for the implementation of digital products at Berylls and is a proven expert for the Chinese market.

Dr. Jan Burgard started his career at the investment bank MAN GROUP in New York. He developed a passion for the automotive industry during stopovers at an American consultancy and as manager at a German premium manufacturer. In October 2011, he became a founding partner of Berylls Strategy Advisors. The top management consultancy was the origin of today’s Group and continues to be the professional nucleus of the Group.

After studying business administration and economics, he earned his doctorate with a thesis on virtual product development in the automotive industry.

Willy Wang

Willy Lu Wang (1981) joined Berylls Strategy Advisors in 2017. He started his career participating in the graduate program of Audi focusing on production planning. After stations at another strategy consultancy as well as being the strategy director for a German Tier-1 supplier, he is now responsible for the China business at Berylls.

He has a broad consulting focus working for all clients in China, whether they are JVs, WOFEs or pure local players. He is also responsible for the development of AI and Big Data products dedicated towards the Chinese market further strengthening the Berylls End-to-End strategy and product development capabilities.

Wang studied Electronics & Information Technology with focus on Systems and Software Engineering and Control Theory at Karlsruhe Institute of Technology.

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