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Quo Vadis, Chinese OEMs in Europe? Part 1

Munich, August 2022

Quo Vadis, Chinese OEMs in Europe?

Munich, August 2022
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his is the first in a new short series that will focus on the performance of Chinese OEMs (old and new) in Europe. In this introductory article, we take a hard look at Chinese entrants’ achievements so far. Continue reading in the upcoming weeks for further insights.

Executive summary

  • China’s automotive exports are steadily increasing; however, this growth is mainly driven by exports to developing countries, where Chinese brands have built a large fan base
  • In an attempt to replicate this success in Western Europe, Chinese OEMs are targeting the premium segment; interestingly, only two of the many Chinese market entrants have achieved an initial degree of success: Polestar and MG (both originally European brands)
  • The majority of Chinese OEMs in Western Europe are not leveraging their biggest strength: customer-centricity
  • Instead, they are leaving large potentials untapped (similar to Western OEMs in China) by underutilizing strong product substance with targeted tailoring to local customer tastes
Authors
Dr. Jan Burgard

Berylls Group CEO

Willy Wang

Managing Director China

Hongtao Wei

Associate Partner

Lois Yang

Lead Analyst

Soleiman Mansouri

Associate Partner

The export giant is now also shipping cars

Since 2009, China has topped the ranking of global export champions. For several years, the top three categories have been: (1) electronic devices and equipment; (2) machinery; and (3) apparel and textiles. Although China is a trade colossus, it is not famous for automobile exports. But these have been growing in value consistently since 2018, even through the Covid-19 pandemic.

China’s automotive exports hit a new record last year, with statistics from China Association of Automobile Manufacturers (CAAM) showing that they had doubled in a year and exceeded 2mn units for the first time. Exports accounted for 7.7% of total revenues in the auto industry – an increase of 3.7% over the previous year.

This performance has made China the third-largest auto exporter in the world, catching up with traditional auto powerhouses such as the United States, France, and Italy. However, the export volume is still not as high as those of Germany and Japan, with approximately 2.2mn units and 3.4mn units respectively.

China – the eternal workbench for low-price, low-quality products?

Major Chinese OEMs are actively engaged in markets abroad. Traditional Chinese carmakers typically enter developing countries such as Russia and South Africa, and Middle Eastern and Eastern European countries with mostly budget/value-for-money products. But Chinese OEMs also hope to win a share of the premium segments in mature Western European markets with advanced NEVs as well. NIO and Polestar are widely considered premium brands, for example. MG prices can reach more than £31k (in the UK) and ZEEKR as much as €50k, while prices for the upcoming HiPhi X are expected to match those of a Porsche Taycan.

Currently, the main export markets for Chinese automotive brands are South-east Asia, Central and Eastern Europe and Latin America, with Chinese OEMs performing quite well in these countries and regions.

Let’s look at some examples:

Chery is selling its models in more than 80 countries and regions around the world, mainly focused on emerging markets such as Russia, Brazil, and Saudi Arabia. In 2021, Chery exported 269k vehicles, with a year-on-year (YoY) increase of 136%, making it the fastest-growing Chinese auto brand abroad.

SAIC has been the leading Chinese brand abroad since 2019. In 2021, it sold a total of 697k vehicles abroad, a YoY increase of 78.9%. SAIC’s sales performance in emerging markets including the Middle East, Egypt, and Mexico has been good. In Mexico, for instance, SAIC sold 3.5k cars in April this year and enjoyed continuous sales growth for the first four months of 2022. In the Middle East and Egyptian markets, SAIC sold 5.5k and 2.9k vehicles in April respectively, also setting new records.

SAIC’s strong sales were also achieved thanks to the MG brand, with its British heritage. MG enjoys strong recognition and acceptance in mature auto markets such as Western Europe, Australia, and New Zealand, ranking 26th in the European Automobile Association’s list of top car brands by sales in Europe in Q1 2022. MG sold 21k vehicles in the first quarter of this year, nearly three times more against the same period in 2021. This gave SAIC a 0.76% share of the market in Europe, and the company surpassed the growth rate of brands including Land Rover and Honda to set the best record of Chinese OEMs in the European market. SAIC now ranks as one of the top 10 brands in 17 countries around the world.

However, not every Chinese player is doing as well as SAIC in targeting the premium segment in mature automotive markets in Western Europe.

Without heritage, you are going nowhere

Traditional Chinese OEMs have built a large fan base in the volume segment and acquired considerable expertise in entering developing countries. But this is unlikely to satisfy Chinese OEMs, which have their eye on the highly prestigious Western European market. The “if-you-can-make-it-here-you-can-make-it-anywhere” story is simply too sweet to tell at home (in China) and not give Western Europe a serious try at least.

To do so, Chinese OEMs typically target the premium segment: they all want to become premium or at least more upscale and shed their budget/value-for-money image. Preferably, they would like to make their mark with NEVs, where Chinese players believe they have strong products and technology, a solid reputation in their home market, and a legacy-free perception in Western Europe.

However, using NEVs to open the door to Western Europe, particularly in the premium segment, is not an automatic win for all Chinese OEMs.

To date, more than 10 Chinese OEMs have launched, or are about to launch, NEVs in Europe. Among them are some of the most illustrious and well-known OEMs, new players and established ones alike, including NIO, Xpeng, BYD, and Great Wall.
However, only two have achieved initial success: Polestar (originally Swedish) and MG (originally British). Both are among the top 20 best-selling NEVs in Europe. By contrast, other Chinese OEMs have barely made an impression in Europe.

Chinese OEM sales in Europe 2021 (vehicle units)

It is no coincidence that the two most successful brands are of Western European origin. Technically, they are not pure Chinese brands, and it is true that their starting point (in terms of branding) is far ahead of traditional Chinese OEMs. Polestar and MG seem to owe a lot to their inherited European brand ‘halo’ giving them a solid, existing brand awareness and image in Europe. Xpeng, NIO, and other Chinese brands that have just entered Europe still have some distance to go to win over European customers, especially those in Western Europe. (Sneak peek: We do believe that, in theory, “dinner is served” for Chinese OEMs – traditional and new – and the starting position for traditional Chinese carmakers could be a lot worse, as we will describe in the next article in this short series.)

Ready to compete

Operating in Europe is very different from operating in a market where brand loyalty is low and Chinese NEV players are considered to be the avantgarde. In Europe, traditional brands still hold a strong position and new players, in particular from the US, implement quick go-to-market approaches. Thus, Chinese players will have to go the extra mile to succeed.

In terms of product spec, for example, Chinese NEVs are highly competitive, particularly in new areas such as NEV range, digital functions, connectivity, ADAS and AD. We are convinced that both the product and portfolio of the NEV players pose a big threat for traditional European OEMs. Combined with aggressive pricing levels and digital/mobility functions (in particular wallbox, mobility services/charging network access, mobility guarantees etc.), the offering should be more than competitive.

However, several key issues remain. Firstly, Chinese OEMs (like any other OEM) need to find the right partners to make the ecosystem described above work, starting from the basics including sales, aftersales and call centers. Another critical task is branding. The key question for Chinese OEMs is how to promote themselves to European customers and create trustworthy brands in Europe. The timing could not be better to introduce their cars to Western Europe as public interest for electric cars is steadily increasing plus current challenges of Western OEMs to supply cars for their customers. But in the light of past failures – for example, the infamous Brilliance Euro NCAP flop in 2009 – every move this time must be flawless.

About unleveraged strengths

To this end, Chinese OEMs should lead on their biggest strength: customer-centricity. They must understand European customers, how they differ from Chinese customers, and most importantly, how European customers differ among themselves. Based on these customer insights, targeted promotion programs need to be developed along with a pan-European roll-out plan. In parallel, points of sale and the entire ecosystem need to be established, so hard-earned buzz and leads get picked up in the transition from digital to physical sales efforts.

That being said, we appreciate this is easier said than done. Chinese OEMs typically send whatever they have available in China to Europe, without adaptions. So, whether it’s product spec, sales model, apps or customer experience, Chinese OEMs tend to provide the same range of solutions in Europe as they do back home. This again neglects their core strength in customer-centric product and solution design.

For example, OEM-led customer communities work well in China, as seen in the case of all new players. It is assumed that they will work well in Europe, too. But OEM-community activities in China are a mixture of auto and non-auto events, while traditional grassroots communities in Europe are mostly fully auto-focused. Although there is nothing wrong with community building, the purpose and content must be adapted toward European customers’ preferences and expectations.

Interestingly, what we are seeing in Europe is now also happening in China – but to Western OEMs. Many of those have a long success story in China, but they are facing trouble with their EV portfolios. While domestic brands including Xpeng or GAC Aion are enjoying strong sales, this is not the case for Western marques. What is missing is the tailoring of design, digital services and other features to suit Chinese tastes. The one-size-fits-everywhere concept – selling the same models to the entire world – doesn’t work anymore. It doesn’t work in China for Western OEMs and doesn’t work in Europe for Chinese OEMs.

So despite the fanfare that has accompanied the entry of Chinese players into Europe, they have relatively little to show for it so far. What are reasons for this discrepancy? Is it only cultural, or are there more significant reasons, such as a lack of understanding of European business practices, and how different markets and customers behave? What are the real challenges for Chinese OEMs?

In the weeks to come, we will dig deeper into these issues and discuss possible ways for Chinese OEMs to succeed in Europe. 

This is the first in a new short series on Chinese OEMs’ performance in Europe. Stay tuned in the upcoming weeks for further insights. Up next: Dinner is served – why the new market entrants from China have only themselves to beat.

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Career
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.

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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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Hongtao Wei

Hongtao Wei (1988), Associate Partner, joined Berylls Strategy Advisors in 2015, an international strategy consultancy specializing in the automotive industry, where he focuses on all issues related to the Chinese automotive market. In addition to Western manufacturers in China, his clients also include Chinese OEMs, investors, provincial governments, and state-owned enterprises.

He has profound expert knowledge in the areas of sales and aftersales. His other areas of expertise include digitalization, connectivity, and turnaround management.

He studied Sinology, Economics and Statistics at the Ludwig-Maximilians-Universität in Munich.

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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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