Chinese cars, "killing crazy" overseas?

Author: Wu Zhanguo, Editor: Xiao Rong

Thirty years ago, China's automobile industry was relatively backward, domestic cars were just getting started, and owning a car would be the envy of Shili Baxiang.

With the rapid improvement of China's industrialization process, domestic cars are not only being bought by mainland people, but also beginning to export to foreign countries, especially the transformation of new energy vehicle technology, which is leading the world.

The latest data shows that in the first half of this year, China surpassed Germany and Japan to become the world's largest auto exporter.

Not long ago, at the Munich Motor Show in Germany, which has a history of more than 100 years, Chinese car companies have almost become the protagonists, some people jokingly called "Germany on the stage, China singing", and the chairman of the German Automobile Industry Association even said: We are losing competitiveness.

SAIC's MG brand cars have been selling well in Europe for many years, Geely's Volvo, Smart, etc. are also selling hot in Europe, BYD is also opening up the European market, and Xpeng is also at the German Motor Show and announced that it will enter the German market in 2024.

While sales of Chinese cars in Europe were booming, on September 14, the European Union announced that the European Commission would launch a countervailing duty investigation into electric vehicle imports from China, and was expected to impose punitive tariffs of no less than 20% (the current tariff is 10%).

A spokesperson for China's Ministry of Commerce responded that the countervailing duty investigation initiated by the European side was only based on subjective assumptions about the so-called subsidy projects and damage threats, lacked sufficient evidence to support it, and did not comply with relevant WTO rules.

Unfavorable policies have added a lot of uncertainty to the overseas expansion of Chinese car companies.

So, what about China's auto exports? What are the technical advantages of domestic cars? How competitive is it globally? This article will answer these questions.

First, the largest exporter of automobiles, the fastest growth rate of new energy

China's auto exports are growing rapidly, and in 2022, China will become the world's largest exporter of new energy vehicles. In the first half of 2023, China's overall automobile exports surpassed Japan's, becoming the world's first.

From the quantitative point of view, fuel vehicles are the main force of exports, but in terms of growth rate, new energy vehicles are better, or the technical responsibility of going overseas.

Looking at the export situation of automobiles in the first half of the year, SAIC, Geely and other new energy vehicle companies with earlier layout exported more, and BYD, which has stronger technical strength, grew the fastest, and the technological potential of new forces in car manufacturing is emerging.

In the first half of the year, new energy vehicles have become an important responsibility for automobile export foreign exchange earnings, accounting for 42.5% of exports by 32%, and new energy vehicles are bringing rich added value to car companies.

Tesla's Chinese factory is still a hurdle that other car companies cannot bypass, and data from the China Association of Automobile Manufacturers shows that Tesla (Chinese factory) ranked first in exports last year, and SAIC and Geely ranked second and third respectively. This year, Tesla, SAIC, BYD, the number of monthly exports began to alternately lead, Tesla exports are still the most, in March and August, SAIC and BYD ranked first, respectively.

BYD has the fastest growth rate, last year's first year of BYD's overseas expansion, just one year, in August this year, BYD exported 25,000 vehicles a month, which is the largest monthly export of car companies.

Traditional car companies still have an advantage in the quantitative level of exports. Traditional automobile brands such as Dongfeng and Great Wall maintain the number of monthly exports of thousands of vehicles, and only Nezha can maintain the monthly export of thousands of vehicles, while Wei Xiaoli and other new car-making forces export less, NIO's sales in Europe in the first quarter of this year were only 328 units, and Xpeng's sales were only 11 units.

For new energy vehicles, especially new forces in car manufacturing, the number of cars exported is still of secondary importance. The most favored overseas is the technical strength.

From a technical point of view, from the whole vehicle to the vehicle system, Chinese car companies rely on technology, in addition to selling products, they can also be introduced, so that the Middle East and European financial owners can give money financing.

In July, Volkswagen announced that it would invest approximately USD 700 million in Xpeng Motors to acquire a 4.99% stake in Xpeng and obtain an observer seat on Xpeng's board of directors. The two companies have reached a technical framework agreement to jointly develop two Volkswagen brand electric vehicles.

Volkswagen China Business Management Director said: "The cooperation with Xpeng Motors gives us another strong partner in key technology areas in China.

Xpeng Motors' technical advantages in autonomous driving are the only two car companies in the world with full-stack self-developed and mass production capabilities for autonomous driving, the other being Tesla.

Another car-making force favored by overseas financial owners is NIO.

In June this year, NIO received a strategic investment of US$1.1 billion from the UAE investment agency in the Middle East for NIO's international business expansion.

As we all know, NIO dares to spend the most money on R&D, with R&D expenditure of 6.42 billion yuan in the first half of the year, which is the highest among the new forces in car manufacturing, and the only car company that adopts the battery swap mode.

Not only new forces in car manufacturing, but also batteries, hybrids, electric drive assemblies, vehicle styling, etc., Chinese car companies have achieved world-leading technical capabilities.

Since the beginning of this year, new energy vehicles, solar cells, lithium batteries have become China's export "new three", according to the statistics of the General Administration of Customs, in the first quarter of this year, the total export of "new three" products increased by 66.9%, a year-on-year increase of more than 100 billion yuan, driving the overall growth of exports by 2 percentage points.

Second, the scale effect of going overseas has appeared, and Southeast Asia has become a new point of struggle

After SAIC's annual sales in Europe exceeded 100,000 units, Yu De, General Manager of SAIC's International Business Department, said: "At present, SAIC's overseas business has achieved large-scale profitability and has become an important source of profit for SAIC Motor at the level of listed companies. ”

SAIC Motor is already considering building a plant in Europe.

According to relevant data, a total of 2.38 million new energy vehicles were sold in the European market in 2022, of which 549,000 were produced in China. For every four NEVs sold in Europe, one is produced in China.

Europe is the world's second largest new energy vehicle market, and its new energy vehicle penetration rate has reached 21% in 2021, a year earlier than in China. The aforementioned SAIC MG4 EV surpassed competitors such as the Volkswagen ID.3 and Tesla Model 3 in sales in the UK from January to May.

Europe is a market where Chinese car companies gather, whether it is an old car company or a new force in car manufacturing, most of them choose Europe as the first stop to go overseas.

However, the growth rate in Europe is slowing, with growth rates of 142% and 66% in 2020 and 2021, and only 14% growth in 2022. At the same time, Southeast Asia is becoming an incremental market for car companies.

Southeast Asia has become another export force for China's new energy vehicles, and factors such as the improvement of economic development level, the convenience brought by bordering China, and the lack of deep roots in Japanese, Korean, European and American car companies have brought great advantages to the local sales of China's new energy vehicles.

The largest new energy vehicle market in Southeast Asia is Thailand, and BYD and Nezha almost occupy the new energy vehicle market in Thailand. BYD ATTO 3 (Yuan PLUS Overseas Version) has been the top pure electric vehicle sales in Thailand for eight consecutive months, selling a total of 11,167 vehicles in the first half of this year, accounting for 35% of Thailand's market share. Nezha Automobile ranked second, and the NETA V series accounted for 18.8% of the market share with 5955 sales.

Although this sales volume cannot be compared with China, it is comparable to the scale of the local automobile consumption market, and the sales data such as BYD is very impressive. According to the Thai Automobile Association, the sales of pure electric vehicles in Thailand in 2022 will be 13,454 units.

BYD has also begun to deploy overseas plants. In the early days, BYD's overseas factories were mostly used to develop the local new energy bus market and build battery factories. With the rapid development of pure electric passenger cars, BYD is preparing to build factories in Thailand, Hungary, Brazil and other places, radiating to Southeast Asia, Europe and South America.

On July 6, BYD established three plants in Brazil with a total investment of 3 billion reais (about 4.5 billion yuan), which are scheduled to start operations in the second half of next year.

Not only new energy vehicles have begun to invest and build factories overseas, but traditional fuel vehicles have also begun to invest and build factories overseas.

In 2020, Great Wall Motor acquired GM's plant in Thailand; In early 2022, Great Wall Motor acquired Daimler's plant in Brazil and plans to invest USD 1.9 billion locally to produce new energy vehicles. Under this influence, Great Wall Motor's overseas market accounted for 11% of overall sales in the past three years.

The market capitalization list mentioned in "Talk about cars going overseas, selling cars is only the first step", car export, selling cars is only the first step, and the next value chain needs to go overseas.

From the overseas plan, to the final delivery of the car to the hands of consumers, car companies also need a huge sales network, in China, BYD relies on nearly 3,000 dealers to sell cars to various places, overseas, almost all car companies need to rebuild the sales network.

In June, BYD reached an important cooperation with overseas auto dealer ATL Auto Group, which plans to provide a full range of new energy passenger vehicle sales and after-sales services for 10 countries and regions in the Caribbean.

At this stage, China's automobile overseas has moved from pure product export to "research-production-sales" and other value chain output, but only a few car companies have formed scale effects and started to build factories overseas.

Third, what difficulties must be overcome to reconstruct the global automotive industry?

The automotive industry chain involves steel, rubber, electronics, textiles, etc., and insurance, finance, maintenance, etc., and the industrial chain is very long. Whether car companies go overseas or transition to new energy, they need to learn from their partners around the world and complement each other.

Some domestic car companies, such as SAIC, Geely and BYD, have achieved value chain expansion.

Taking Geely as an example, the SOA architecture released by LEVC Tech Day, Geely's new energy and intelligent technology platform, is a comprehensive application in overseas home-commercial composite scenarios, realizing a step from product output to technology output. Dai Qing, senior vice president of Geely, also said that the future strategic goal is continuous technology output.

However, the value chain is not all about the wind, and its difficulties and risks cannot be ignored. For example, the EU's so-called countervailing investigation of Chinese car companies is an important confirmation of the difficulties and challenges faced by automobiles going overseas.

Subsidies are an important means to support the development of local industries, and on a global scale, the development of new energy vehicles is inseparable from subsidies. Changes in local subsidy policies also affect the layout of Chinese car companies going overseas.

On the one hand, there are differences in subsidy policies, such as Nordic countries implementing a tax-free policy, which reduces taxes by 20% compared with fuel vehicles in terms of customs duties and consumption taxes; Western European countries are direct cash subsidies, such as France and Germany, the highest subsidy is more than 7,000 euros; Southern Europe has a smaller subsidy of around 5,000 euros because of limited finances.

At the same time, these subsidies are likely to decline, southern Europe because of financial difficulties, is introducing various restrictions, Germany and France subsidies this year has also dropped to about 5,000 euros, European countries are considering the implementation of subsidy restrictions on new energy vehicles, which has led to a decline in the overall growth rate of new energy vehicles in Europe.

The attractiveness of the European market is weakening, which has limited impact on car companies such as BYD, Great Wall and Nezha, which deployed the Southeast Asian market earlier, and is even more unfavorable for car companies such as SAIC, Geely, NIO and Xpeng, which are more dependent on the European market.

In addition, most countries have eliminated subsidies for hybrid models (PHEVs), which for BYD, which is better at hybrid technology, means that pure electric models are needed to open up the European market.

At the same time, many European countries are considering eliminating or reducing subsidies for non-locally produced electric vehicles. For car companies such as SAIC, Geely, and BYD, which have a large number of exports, the subsidy policy has become an important factor in whether they consider building factories in Europe as soon as possible.

On the other hand, there is also a big difference between European consumption and Chinese mainland consumers. For example, young people prefer second-hand cars, and new car buyers are generally older, over 40 years old; Moreover, their car buying decisions are often influenced by the comprehensive evaluation of traditional print media and automotive media, rather than emerging vertical media. Therefore, car companies selling cars in Europe need to target older consumer groups through traditional media to achieve better results.

In addition, car buying habits are also very different, and European users are more inclined to use cars through rental and other methods, rather than buying directly. For example, many companies in the Netherlands will buy cars to rent to employees, and more than half of new users in Germany and Denmark will use operating leases or financial leases to obtain the right to use the car, rather than ownership.

This is why NIO uses the "subscription model" to sell cars, that is, let the owner rent a car "in the medium and long term", and support the buyout model when it expires.

In the process of China's automobile globalization, local policies, user habits, market characteristics, etc. have tested the ability of car companies to plan and layout. Europe is the first stop for most of China's new energy vehicles to go overseas, and whether this battle can be fought well is related to the global layout of many car companies.