Will Chinese Electric Cars Challenge Traditional Brands?
By Erik Wernberg-Tougaard
By 2025 China expects 20% of all cars sold to be new energy vehicles. But Shanghai is even more ambitious and wants 50% of all cars sold by that time to be purely electric.
This is great news for electric vehicle makers such as Nio, Xpeng and Li Auto, and shows China´s commitment to catapulting its green transition. It stands in stark contrast to the news from American car makers who are just now talking about phasing out the combustion engine by 2030.
The European market for electric vehicles is also growing and traditional brands are starting to offer more modern electric cars. But we already see fully connected, Chinese new energy vehicles driving on European roads, and we can expect to see much more of that soon. Will the Chinese brands challenges the traditional brands?
Foto: www.nio.com
Domestic darling, NIO, has had its ups and downs since its inception seven years ago. In 2016 their EP9 was the fastest e-vehicle in the world, and they have worked on the future of the driverless car for years.
China catapulted an entire NEV industry
China is the world´s largest, national market for new energy vehicles. It believes that strong companies nationally will later mean strong companies globally. Over the last decade, China has promoted its NEV industry by providing hefty subsidies and setting electric vehicle quotas for manufactures to grow its local industry.
The subsidy scheme employed by China has provided a great environment for start-ups and established players to grow and leapfrog Western markets, and quickly raised EV’s share of total car sales to 8%. While both manufacture and consumer subsidies were partially scaled back from 2019 and the entire industry has been consolidating, the government has continued to invest in the critical infrastructure that is needed to really scale new energy vehicles.
At the same time, China´s regulations towards foreign enterprises have meant that 7 of 10 major battery manufacturers in the world are Chinese. This is all a long term strategy to catapult China´s own ambitions to reduce pollution and have more NEV´s on the streets, but at the same time it fuels the power of its native brands and those foreign car brands who have managed to invest early enough in developing NEVs. With the downturn of Covid the local authorities have been quick to react to the changes in the market, and suggested extension of tax breaks and subsidies. Shanghai’s grand goal is the first, but probably not the last.
Chinese NEV´s are born digital and consumers want connectivity
The new Chinese EV brands that have emerged in just a few years, count brands like NIO, self-proclaimed Tesla killer, and producer of the world´s fastest electric sportscar, or Xpeng which is already driving on the roads in Norway, and AiWays, that have just now begun sales in Germany and Denmark. These brands are not only safe, environmentally friendly, and sleek in the design, they are also born with the connected consumer in mind.
One brand, WM Motor, has said it wants its cars to be the extension of the mobile phone. The cars are built to collect data and optimize to the consumer.
This can completely change the industry and its users’ needs if data is collected and used to recommend services and maintenance for example. The NEV´s come with features like an AI-bot for easy voice command, a complete synchronization to your phone and self driving capabilities. According to a recent survey, a third of consumers in China said in car services and connectivity was key, while half wanted seamless synchronization between their phone and their car. This may very well be true for the next generation of car drivers around the world.
Europe´s NEV market is stepping up
Now EU is stepping up its game, too, and it seems EU is applying many of the same instruments we have seen China applying over the last decade. This is clearly demonstrated by the increased focus on government regulations and subsidies which means that car makers and consumers has increased incentive to buy electric vehicles. In 2020, European companies launched around 65 new electric car models, and is expected to launch an additional 99 new car models in 2021.
These models have been revealed by newer start-up companies but also by well-established companies such as Volkswagen, that have revealed new models such as the ID.3 and the ID.4. BMV and Audi have also launched several EV’s, and Mercedes new EQS model is expected to launch later this year.
Without the subsidies, however, the electric vehicles are still priced much higher than traditional combustion-engine vehicles, and most analysts do not expect this to change in the near future. It will not be until the end of this decade, that technology, economies of scale and competition will be able to drive down the cost and price of EVs.
As national governments in EU are currently planning to phase out many of the current EV subsidy regimes later this year, time will tell whether EU will be able to uphold its newly claimed position as the world’s largest EV market. In contrast, China´s has tapped into its cheaper production, and many available EV´s there are affordable, mass market cars, not luxury cars.
www.statista.com
What all of this means for Western car makers
If the latest projections from the Swiss bank UBS holds true, EVs will penetrate 100% of the automobile market already by 2040. The winners of this market will thus be sitting on a gold mine worth billions of dollars. Therefore, scale is what matters, and according to UBS analysis, the big winners will be Tesla and Volkswagen, who are both strong in software and engineering.
While Tesla may still be the biggest EV maker in the world, and Volkswagen is well-positioned to become a global leader as well, Chinese companies are right behind them. And these companies are looking beyond their own borders, constantly on the look for ways to expand globally.
They are born digital and they are cheaper. With a strong supply chain and government backing in their home markets, they could have a strategic advantage. For instance, Chinese companies are already using their strong position in electric vehicles to gain a larger foothold in Europe.
MG, which is a British brand after partnering with the Chinese state-owned company SAIC, is slowly gaining a foothold on the European market. Its electric SUV accounted for 10 percent of the EV sales in UK in the first quarter of 2020 and was thereby the third-best selling EV car on the market.
Could Chinese brands gain a foothold?
Most likely the Chinese car brands will not dominate Europe. But it is too early to disregard them. It would not be the first time that western industry experts were wrong about China’s abilities to develop faster than what is possible to imagine. This has happened in a number of sectors and industries, such as wind energy, solar panels and robotics. While it is far from certain that Chinese car makers will dominate the sales in Europe, experts have previously underestimated the power of Chinese state capitalism, and it well advised to be cautious in these predictions. In China’s government’s eyes, these national brands are in some cases simply too big and too important to fail.
European companies should therefore expect head on competition from well-equipped Chinese EV companies and prepare to see more Chinese EV’s on the road in Europe and US in the future. Consumers may be reluctant at first, but if the Chinese companies can be competitive on price, while not compromising quality, the future looks bright for the Chinese EV producers.