The trade war elmat and Elroy counting on is about to do damage to existing car exporting countries, to better make space for new players
Apparently Geely did well for and by Volvo, and now readying to launch own export initiatives
esquireme.com
Soon, we’ll all be driving Chinese carsThe Chinese car industry is poised to take over the world. Here’s why…
Josh Sims
Anybody even remotely interested in cars will know of Volvo — and most people will be aware of its reputation for Scandinavian design purity and safety in bad driving conditions.
Not many people, petrol-heads or otherwise, might have heard of Geely, at least not before 2010. That was when Geely acquired Volvo, following the examples of Rolls-Royce and Mini as another famed carmaker falling under foreign ownership.
But Geely isn’t, like the voracious BMW or Volkswagen Groups, German. Geely is straight out of China.
It’s possible most would not have heard of the likes of Chery, Hafei, Roewe, Foton, Jiangling, Zhonghang Heibao, Liaoning SG Automotive or FAW either. But these Chinese brands have now made China the largest carmaker in the world.
It’s one thing to say that, of course. But it’s hard to picture just how big the Chinese car industry is. In 2016, it sold 23 million – that’s million — cars, which accounted for nearly a quarter of world sales for that year. Last year it made 29.4 million cars. It’s expected to make 35 million by 2025. Indeed, this rapid growth — while now slowing as the industry finds maturity — is remarkable in itself.
Remember that, prior to 1980 — by which point car manufacturing in the US and many European nations had been well-established for at least half a century — China didn’t even allow private citizens to purchase a car for personal use, and had no passenger-car production at all.
Five years later, in 1985, not much had changed: that year records the import of just 3,500 cars. The number of registered vehicles in China expected by the end of this decade? Two hundred million.
The Chinese government knows when it’s onto a winner with a market that in 2015 generated sales of US$470 billion (AED1.7tn). That same year it introduced a temporary five percent tax cut on cars with engines smaller than 1.6 litres — this was designed to encourage the sale of more environmentally friendly cars, but of course helped give the wider industry a boost.
Two years ago the government also ruled that foreign investors could establish wholly foreign-owned enterprises to manufacture motorcycles in China’s Free Trade Zones — a sign that a similar policy is on the cards for cars too.
Central policy isn’t the only factor driving this upwards trajectory, of course. Wider social economic growth in China, the introduction of private welfare, the desire to own cars and sheer population numbers — with a population of 1.4 billion people, and with car ownership standing at just at 140 cars per 1,000 people, China’s carmakers have a gigantic domestic market they can appeal to without worrying about having to reach foreign buyers for some time to come — have all been further spurs to this powerhouse getting ever more powerful.
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The question, especially for carmakers in the West, and in Japan, is when these Chinese car brands will be seen on foreign city streets, and what impact that may have?
One maker has already announced its intentions: at the Detroit Auto Show earlier this year, Guangzhou Automobile Group said it would start selling its vehicles in the US by the end of next year. Geely — one of the independent makers often tipped as the Chinese carmaker that will make a splash internationally first — already sells in South America and Africa.
Its team of 500 designers has to launch a new face lift for its models every year and an entirely new model every three years (against a global industry standard of five years) — such is the pace of the home market, a pace that would leave most international car manufacturers stranded.
Last year the company launched Lynk & Co, a sub-brand designed in Europe and built in China specifically for export. Each car will come with two industry-busting benefits too: a lifetime warranty, and free mobile internet bandwidth.
Given the Chinese car industry’s excess capacity right now — and the start of what looks to be a flourishing second-hand car market in China — it’s likely other makers will soon follow these early moves to export, especially for the likes of SAIC Motor Corp, the Great Wall Motor Co and Guangzhou Automobile Group, which alongside Geely comprise the industry’s current big four.
Just in case, many foreign carmakers are racing to ensure they have some kind of 50/50 joint-venture established in China (50 percent being the maximum level of ownership the Chinese government allows foreign interests to have in a Chinese carmaking operation).
Last year saw Ford team up Anhui Zotye Automotive, Renault-Nissan with the Dongfeng Motor Group and Volkswagen Group with Anhui Jianghuai Automobile to develop battery-powered cars, initially for the Chinese market.
“More has happened with innovation in car design here in China in the last 10 years than has happened in the wider car industry in the last 50,” says Simone Tassi, who notes that, unburdened by the constraints of heritage, Chinese makers in particular seem to feel free to think afresh.
This is why Geely, for instance, has happily repositioned Volvo as world leader in the development of driverless cars. “It’s not just that innovation is what is wanted by China’s growing middle class — which [now exceeds] Europe’s entire population.
It’s that it has a younger customer base too. And younger customers want innovation. Whenever we go into a meeting with one of the manufacturers there, all they ever say they want from us is whatever’s new.”
Tassi is the general manager of the Chinese design office for Pininfarina, the famed Italian automotive design house established in 1930 and responsible for the goods looks of some 600 cars for the likes of Alfa Romeo, Maserati, Peugeot and, most famously, Ferrari.
Pininfarina has designed several classic Ferraris and most of the prancing horse’s best cars since the 1980s.
Yet in recent years its work has been looking more to the East, for Chinese brands such as Brilliance, Soueast Motors and Changfeng — both because Chinese makers know they still need style input to produce vehicles that will appeal to Western consumers, but also because it’s there that Pininfarina is best able to find a platform for its most progressive ideas, especially when it comes to all-electric and hybrid-engined cars.
Chinese makers are, for example, among the most adventurous when it comes to the use of lightweight materials the likes of aluminium alloy, magnesium alloy, engineering and composite plastics — which is saying something for one of the world’s biggest steel-making nations.
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Flipping China’s reputation as one of the world’s worst polluters on its head, recent years have seen it become a world leader in environmental policy and green technology.
Unhampered by an inflexible brand positioning, its carmakers feel free to do whatever the market — or the planet — calls for, even if that means creating entirely new categories of vehicle: hotly tipped are MPVs (multi-purpose vehicles) and sedan/SUV crossovers.
Last year China produced some 800,000 ‘eco’ vehicles; by 2025 it aims to be making seven million of them. It’s a key strategy of the Chinese government’s 13th Five Year Plan, with strict emissions standards forcing China’s carmakers to think green, and subsidies an added encouragement.
The government has even said that it won’t allow the founding of any new car-making company planning to make fossil fuel-consuming vehicles. Authoritarianism has its advantages when you want to get things done.
“Most consumers outside of China just have no idea what’s going on with the car industry here,” says Tassi. “They may have heard about how fast it’s growing, but not about how progressive these makers are, or the new technology they’re developing. “
“These are car manufacturers that, for example, are opening offices in Silicon Valley so they can focus on in-car connectivity. And while European makers have made the best cars for a long time, they’ve done that with conventional engines.”
“The Chinese may not have been making cars for that time, but they have been making batteries. They’ve been buying the mines that produce the materials you need to make batteries.”
“The Chinese may have started out a long way behind Western car manufacturers, but they’re now developing so fast that it won’t be long before they’re set to dominate the rest of the century. And, as Italians, that’s not easy to say...”
This isn’t to suggest there are no major hurdles. Some analysts have argued that the Chinese government’s coddling of this fledgling industry is actually holding it back. The government’s idea of forcing foreign carmakers to set up operations as joint ventures with Chinese partners (not a restriction in the likes of India) was so that the local company could pick up some tech and management skills from the more established player, but instead Chinese carmakers have made so much money selling those foreign brands they’ve grown complacent in pushing on with their own.
Similarly, China’s state-owned enterprises in the car industry have proven unexpectedly profitable, so the motivation to develop their own branded cars has been somewhat further diminished.
Government support has exacerbated the problem in another way too — by encouraging too many carmakers. The Chinese market is so fragmented and so competitive it hasn’t been easy for its more progressive independent makers to build market share, invest in innovation and, as it were, break out of the country, so some serious consolidation and, with it, improved efficiencies might be expected.
The Chinese can choose between more brands and more cars than any car buyer in any other country — come mid-2016, they were able to pick from 130 passenger car brands, and getting on for half of them made by local firms. Local firms, meanwhile, tend to be supported by local authorities, who are less than keen to give up what might be a major employer.
“Dealing with new emissions standards is a real challenge for a lot of the carmakers in China too and a lot of them will fail to make those standards,” adds Sophie Shen, an analyst of the Greater Chinese car market for the professional services firm PWC, which advises a number of its makers.
“They’re having to make changes and really embrace [electric] vehicles, such that new entries to the market are dedicated to doing that. Of course, a lot of car manufacturing is highly systematic, from design to assembly, distribution to after-sales. But certainly there’s an opportunity there to lead a global market for [what the Chinese industry calls] new energy vehicles.”
Her colleague goes further: “If you look at the quality of what’s being made in China now, it really is amazing,” says Wilson Liu, author of PWC’s 2017 far-reaching report on the Chinese automotive market. “So there’s going to be what you might call ‘healthy’ competition [for the established, non-Chinese car manufacturers].”
Take, for example, the cars being produced by Hybrid Kinetic Group, one of the Chinese brands that has worked with Pininfarina — last year they signed a HK$531m (AED249m) strategic partnership — and developer of a car that can be fuelled with bio-alcohol, propane and natural gas.
The Geneva Motor Show earlier this year saw the unveiling of the HK GT, a saloon with the company’s proprietary electric power-train technology, with a micro-turbine acting as a range extender — promising close to 600 miles. But there’s more to it than worthiness.
The company’s previous concept models claimed an acceleration 0-100kph in a blistering 2.9 seconds, and — while figures have not yet been released — the GT is believed to be faster still, up there with Tesla’s top-of-the-range P100D Model S.
But then just look at the car too: it’s a four-seater, but only has two doors. They’re gull-wing doors that run the entire length of the cabin. It’s not a design you’d call dull. The package isn’t one you’d call uninteresting.
“[The fact is that] rapid growth of the [Chinese] market has bolstered speedy developments in areas such as R&D, manufacturing, marketing, and supporting systems, especially in the last dozen years or so,” says Jason Xu, Hybrid Kinetic Group’s CEO.
“In styling, connected car technology, battery technology, and new electric vehicles, China has found its uniqueness and I believe these aspects will contribute massively to the development of the global automotive industry.”
“Yes, Chinese auto products are still in a state of improvement. The distinction [between some makers] isn’t obvious, but the differences are increasing. As the distinction grows, some automakers will become new players in the global auto market and some will be eliminated.”
“But the joint venture brands manufactured in China have undoubtedly met global quality standards — and I believe the arrival of the HK car will overturn global perceptions of the Chinese auto industry.”
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Indeed, non-Chinese consumers have long regarded the ‘Made in China’ label as denoting cheap but not necessarily well-made. That image has shifted over recent years, in large part through high-end fashion embracing Chinese manufacturers, and shoppers coming to understand that China is quite capable of making upscale goods if directed to do so.
In 2010 an 80-point quality gap existed between Chinese and international car brands, according to studies by the research company McKinsey; by 2016, that was a 14-point gap.
Certainly the Chinese are finding a new nationalism and are enthusiastic buyers of home-built cars. Not that all Chinese carmakers are exactly reaping the rewards of that famously cheap labour — 80 percent of Geely’s production line is state-of-the-art robotics.
Besides, stereotypes die hard — but they do die. Japan was not known for its car production until it revolutionised the global industry throughout the 1980s with new high production standards and a reputation for reliability, if cased in rather pedestrian design.
More recently, the launch internationally of car brands out of South Korea — the likes of Daewoo, Kia, Hyundai and SsangYong — has seen car buyers ready to put received wisdom aside to make some kind of honest assessment.
“There will be some resistance to cars made in China, or there will be concern about after-sales service — which is what happened with Japanese manufacturers,” says Tassi. “But, if nothing else, the price of Chinese cars is going to make them very attractive.”
“They make plenty of entry-level, everyday cars, but they’re also making luxury genuinely affordable. I think we can expect at least two or three of the manufacturers to match the big European makers for quality too. And if they can’t, they’ll just buy them anyway, as Geely did with Volvo. These companies are really huge…”
And, it seems, really set to shake up the industry dynamic. The Germans — responsible for the badges on four-fifths of the world’s premium cars — must be especially worried.
Rocked by the Volkswagen Group’s emissions scandal, credibility is arguably at an all-time low. It, like other makers across Europe and the US, is woefully behind in the development of electric and other forms of eco car — China alone now accounts for as many sales of electric and hybrid cars as the rest of the world put together.
And, frankly, with every day that passes, the West looks to be more and more stuck in the past, experts in making sophisticated mechanical machines for an age that is rethinking the car as something closer to a data-crunching computer on wheels.
Of the 35 million cars that China plans to be making by the middle of the next decade, a fifth of them will be new-energy vehicles. Small wonder that China’s Ministry of Industry and Technology reckons that, by then, Chinese carmakers will be among the global top 10 by sales.
“Asian companies just have this incredible ambition,” notes Paolo Pininfarina, Pininfarina’s chairman and the man who led the family firm’s move into China. “And once that domestic market is saturated, they will quickly want to export, as Japanese makers did.”
“Japanese products have long been considered among the best. And, you know, there’s no reason why Chinese cars won’t be considered just the same. If you’re in the car business you have to be looking at China now. What’s going on there is just incredibly exciting.” |
