Text | Titanium Capital Research Institute
Today, when the global automotive industry is undergoing rapid changes, China's automobile manufacturing industry is leading the new trend of the industry with its strong growth momentum and innovation capabilities. In the face of fierce competition in the domestic market and broad opportunities in the international market, Chinese car companies are standing at a new crossroads of development. How to translate the competitive advantage of the local market into global market share has become a strategic challenge for Chinese automakers. In this process, Chinese automakers need to accurately grasp the opportunities of going global, actively respond to the challenges of the international market, and achieve continuous expansion and deepening of the global market through innovation-driven and brand internationalization.
What is the development trend of Chinese cars going overseas? Recently, Titanium Capital invited Almighty Wyman's Global Management Team for Automotive & Industrial Products and Managing Partner of Greater China & Asia Pacific to share his insights on the theme of "Historical Experience and Future Trends of China's Automotive Industry Going Global". He served as an executive committee member of Ping An Group, deputy general manager and chief operating officer of Smart Enterprise, and co-founded and managed NIO Capital with Li Bin as a founding and managing partner, raising two funds in RMB and USD to invest in automotive, energy, artificial intelligence and high-tech sectors, with an AUM of RMB 12 billion. He also served as a Global Partner at Roland Berger Strategy Consultants, Head of the Automotive Practice and Vice President of Greater China. The host of this issue is Wu Kai, managing director of Titanium Capital, who has long been concerned about smart cars, cutting-edge technology, and specialized and special new fields. The following is a transcript of the sharing:
China's auto industry has gone overseas three times
Since the beginning of the 21st century, Chinese companies have experienced at least three waves of going overseas and are now in the fourth wave. The first wave occurred from 2000 to 2008, when after China's accession to the WTO, the national strategy encouraged enterprises to "go global". Enterprises such as Haier, Huawei, Lenovo and Hisense began to go overseas on a large scale and have become the backbone of today's Chinese overseas enterprises.
After the 2008 international financial crisis, China successfully hosted the Olympic Games, and the national investment plan of 4 trillion yuan accelerated its development. At the same time, Chinese companies have begun to use cross-border mergers and acquisitions to enter overseas markets, and this stage of going overseas involves more capital operations, such as Geely's acquisition of Volvo, Lenovo's acquisition of Motorola's mobile phone business, and Haier's acquisition of General Electric's home appliance business.
The third wave of going overseas began around 2018, when Chinese e-commerce companies began to use domestic business model innovation to try to enter overseas markets. Not only in the general industry, but also in the automotive industry, which began to grow rapidly after 2008. After the epidemic in 2020, the global supply chain was impacted, and Chinese companies quickly filled the gap in the market.
Although China was once a global manufacturing hub, it used to be mainly OEM for foreign brands. Now, with the changes in the domestic environment and the innovation of business models, Chinese companies are entering overseas markets in new ways and concepts, showing strong competitiveness and adaptability.
The status quo of various car companies going overseas
China has made remarkable achievements in the field of automobile exports, and last year China surpassed Japan to become the world's largest exporter of automobiles. Total exports reached a record 5.2 million units, of which 4.1 million were passenger cars and the rest were commercial vehicles. From 2010 to 2023, the journey of Chinese auto companies going overseas has undergone significant evolution. Before 2017, the market as a whole remained stable, and then as the product management matured, the market began to fluctuate. In the wake of the pandemic, exports have grown significantly, driven by both technological maturity and product internationalization, as well as the impact of geopolitical changes.
In addition, the progress of China's automotive technology has made the products not only enter the countries along the "Belt and Road", but also expand to other Asian, African and Latin American countries, especially in Southeast Asia, and began to enter advanced markets such as Europe and Japan.
In terms of export strategy, Chinese automakers are facing the challenge of winning the trust of overseas dealers in local brands. Although the domestic market is actively exploring the innovation of direct sales and agency models, the export market still tends to the traditional sales method, that is, through regional agents to conduct business. Veteran exporters such as Geely, Chery and Great Wall are expanding their overseas markets, while emerging companies such as Li Auto, Leapmotor, Aion and Deep Blue are also actively planning to enter the international market.
From an international perspective, European automakers are feeling the competitive pressure on Chinese automakers to expand overseas. Especially at the Munich Motor Show, the strong rise of Chinese auto companies has attracted wide attention from the industry. In this regard, some companies are concerned about the technical level of Chinese models, while others are concerned about the possible subsidies and non-market-oriented practices provided by the Chinese government (but these are actually long-standing in various countries).
In addition, from the perspective of the value chain, Chinese automakers are only in the top five in the world. At present, the export business mainly relies on the finished vehicle export (CPU) model, and there are relatively few cases of establishing factories overseas or adopting the CKD/SKD (fully disassembled/semi-bulk) model. This model has led to a high dependence on specific markets, such as Russia and Iran, which could be a challenge in the future.
In addition, geopolitical fluctuations may also affect the export business of Chinese automakers. Different companies have adopted a variety of strategies to deal with international competition. For example, in the Thai market, Chinese companies have attracted investment from local and Japanese companies by setting up factories. In markets such as Mexico, due to the influence of the United States, policies and tariff policies are changing, which requires Chinese automakers to pay close attention to these changes and make strategic adjustments accordingly.
A new force in car manufacturing
At present, China's overseas cars are mainly pure electric vehicles and extended-range models, while in the field of fuel vehicles, the growth of overseas vehicles is relatively stable. Electric vehicles have advantages in terms of three-electric system and cost, so the need to go overseas is more urgent.
In terms of the necessity of opening up new markets, in order to survive and expand sales, companies need to open up new markets. In the past, companies focused more on marketing in developed countries, but now they are really thinking about selling locally in order to cope with the fierce competition in the domestic market.
BYD plans to build ten ships to support its overseas business, and Xpeng's changes in overseas markets and cooperation with Volkswagen will have an impact on its future. And through cooperation with foreign companies, the leader has acquired technology and market defense capabilities. Companies such as Nezha Automobile began to develop in the ASEAN and EU markets. In the past few years, the decline in brand sales of new power enterprises is partly due to product adaptability problems, but also related to the price war in the domestic market. As for Xiaomi Automobile, I think its overseas plan will be relatively late, because Xiaomi needs to occupy the domestic market as a foothold first. The expansion of overseas markets will be carried out after the product matures, and more adaptation adjustments will be made at that time.
Chinese automakers have begun to manufacture vehicles and parts in Southeast Asia, and the local government has encouraged Chinese companies to build factories in Southeast Asia and provide tax incentives after reaching a certain production capacity. These geopolitical policies are also influencing other countries, such as India, to encourage foreign automakers to build factories there. While the Southeast Asian market has a relatively stable relationship with China, the Indian market is more complex. India's requirement for companies to have a local management team and a majority of the equity to be held in India has led many companies to sit on the sidelines.
Eight key trends in the automotive industry's going global
1. Southeast Asia and Europe are the main destinations
In 2022, Asia and Europe accounted for the top two vehicle export destinations, accounting for 36% and 26% respectively, and their proportions will increase further in the future.
2. Localized production continues to advance
With the advantages of a well-developed automotive supply chain system and low labor costs, Southeast Asia has become the first choice for many Chinese car companies to build factories overseas, radiating Southeast Asia, the Middle East and Europe. At present, Europe is still dominated by the import mode of finished vehicles.
3. Domestic supporting suppliers "go to sea in a group"
Chinese spare parts companies are actively going overseas at the request of customers, and this trend has already emerged during the epidemic. It can be seen that Chinese companies are shifting from the high-end and low-end markets to the mainstream market in terms of price range. OEMs and supporting suppliers "go out together" to jointly build industrial parks and carry out integrated management to reduce costs and increase efficiency and speed up market response.
4. The price distribution has changed from "dumbbell type" to "spindle type"
At present, Chinese car companies mainly enter the overseas market through high-end and low-end models, which are "dumbbell-shaped", and in the future, Chinese car companies will focus on mid-range mainstream price segment models to create a "spindle-shaped" price distribution.
5. Intelligent configuration "allocation reduction and dimensionality reduction"
The European auto market is mature, and the Southeast Asian auto market is low-end, resulting in low consumer demand and purchase willingness for intelligence. Chinese automakers will adjust their main intelligent configuration and "return to rationality" in overseas markets.
6. Change the brand to improve recognition
In terms of brand recognition, it is a gradual process for Chinese brands to improve their brand recognition in the international market, and some Chinese car companies have improved brand recognition by "hanging joint venture partner logos" and "changing and acquiring brand logos".
7. Distribution and distribution are the mainstay, supplemented by direct sales
In terms of sales model, although the direct sales model is slowly advancing in Europe, most companies still prefer to distribute through distributors. Direct sales alone cannot support the expansion demand, and Chinese automakers need to efficiently leverage the resources of local dealers and distributors to achieve scale growth.
8. "Subscription" and other flexible car purchase models
Considering the car buying habits of European consumers and the rapid iterative update of new energy vehicles, the subscription system has been promoted in various countries as a new sales model, which may provide a new strategy for Chinese car companies to go overseas.
Case study of overseas car companies
1. The four foundations of SAIC before entering the international market
For example, SAIC Motor has laid a solid foundation in terms of business organization system, industrial chain resources, demand/operation and regionalization characteristics before large-scale internationalization to accelerate the internationalization process. Over time, Chinese automakers have established international R&D centers, sales centers, and supply centers. While the early overseas R&D centers mainly served the Chinese market, some of SAIC's overseas R&D centers originated from early mergers and acquisitions, such as the acquisition of the MG brand, and these centers played an important role in R&D integration.
At the same time, as the market evolves, businesses may need to re-evaluate these decisions. SAIC's early joint venture sales company with CP Group, as well as the acquisition of Ssangyong's acquisition of South Korean engine technology to expand the market, have accumulated valuable experience for Chinese automakers. In addition, Chinese car companies have effectively used local talent in the process of going overseas. For example, Nezha Auto's success in Thailand is due in part to its talent strategy, employing a large number of experienced talent; The person in charge of the international business of Leapmotor has also had many years of experience in SAIC Europe and has been engaged in overseas expansion in joint ventures for a long time.
2. Geely has built itself into a national diplomatic business card
Geely's bold acquisition of Volvo has not only brought great success to the company, but also built its own capabilities. This move is seen as a key moment in Geely's overseas strategy. Over the past decade, Geely has actively responded to the "Belt and Road" initiative in terms of production capacity, and has built itself into China's diplomatic business card, and has received funding and government support in Russia, Ethiopia, Belarus and other countries. In addition, when acquiring Proton Motors, it adopted a concession strategy, reflecting its flexible business strategy. At the same time, local companies are allowed to hold larger shares, while Geely has the right to operate and import technology.
In addition, Geely's preference for existing companies or local talent to manage companies during acquisitions is to help companies better integrate into local operations. At the same time, Geely has gained support and recognition through its coordination with the local government. For example, Geely Chairman Li Chunrong was awarded the honorary title of "Dato" in Malaysia, which shows the importance of Geely maintaining good relations with local government officials. And speed up decision-making in internal management, and customize products according to local market demand to avoid local bad business practices.
In summary, the key elements of Chinese automakers' global expansion journey include talent strategy, international layout, market demand understanding, supply chain management, and local cooperation. By accumulating and applying this experience, Chinese automakers can better adapt to the international market and achieve global development.
The underlying logic and challenges of Chinese automobiles going overseas
The core driving force for car companies to go overseas mainly stems from the following three internal driving forces to meet the needs of their own development.
The first is to build a global leading enterprise. Based on the global development characteristics of the upstream and downstream of the automotive industry, in order to establish the lasting industry competitiveness of the enterprise, it is not satisfied with serving the domestic market, but will build a global leading enterprise.
The second is to break through the bottleneck of local market development. Due to factors such as the slowdown in domestic economic growth, fierce competition, and market saturation, enterprises have to seek breakthroughs through overseas markets to maintain overall performance and enterprise development.
The third is to shoulder the mission of Chinese brand development. Under the influence of government policies, enterprises go abroad and respond to the country's policy calls (such as "going out" and "One Belt, One Road" and other policies) to practice the mission of Chinese brand development.
Due to different internal driving forces, car companies will have more detailed consideration of the strategic intentions and goals they expect to achieve overseas, and they often have the characteristics of diversity. With the saturation of the domestic market, Chinese automakers are actively seeking to build global presence and momentum to enhance their brands and increase profits by becoming global players, while gaining access to global resources such as batteries and motor electronic control markets.
There were once more than 300 Chinese car companies, but only 17 are still in operation, indicating drastic mergers and acquisitions and closures. Great Wall Motors, for example, demonstrated the effectiveness of its globalization strategy by building its own car-making capabilities through the export market because it was unable to obtain a license in China.
It is undeniable that Tesla is leading the technology and market, and its open source technology has a tendency to lead the industry, including suppression technology and intelligent driving solutions. With the development of technology, the way cars are used, regulations and implementation in China, including attitudes towards L3 and L4 autonomous driving and the use of robotaxi, will have a significant impact on the market, and the recent discussion of the introduction of FSD in China will also have a positive stimulating effect on the market.
Therefore, in the face of the challenges of digitalization and intelligence, enterprises need to have a clear self-positioning and value proposition when formulating overseas strategies to adapt to the ever-changing overseas market. Long-term planning is key, and a time horizon of more than 5 to 10 years needs to be considered, including regulations, policy risks, and market coverage effects. In addition, enterprises also need to establish overseas sales, service, marketing systems and talent support systems. Economic, geopolitical, technological, and social responsibility risks have a significant impact on business operations, as demonstrated by transportation challenges and resource scarcity during the pandemic. Chinese automakers are responding to transportation needs by building their own ships, such as BYD's plan to build 10 ro-ro ships,...... At the same time, it is necessary to conduct in-depth analysis of overseas market risks and talent management, which together affect the effectiveness of Chinese automakers' overseas expansion, which is worthy of in-depth discussion and strategic planning by enterprises.
interlocution
Q1: Can you elaborate on the sense of threat to the development speed of China's electric vehicle industry by the EU and the US, and the specific impact of their relevant policies, including countervailing measures and adjustments to the development path of electric vehicles, on the overseas strategy of Chinese car companies?
A: Although the EU is not the preferred destination for Chinese automakers to go overseas, its regulations, technical requirements and market barriers pose certain challenges. When choosing a model, EU consumers are more likely to consider the performance of the vehicle itself rather than the technical configuration. Chinese automakers have certain advantages in terms of intelligence and electrification, especially in terms of commercialization and maturity of the supply chain.
The EU's subsidy investigation for Chinese automakers focuses not only on direct subsidies, but also on implicit subsidies, such as free factory construction and land concessions. In trade, if the supply chain includes state-owned enterprises, they should not simply be treated as a government, which can complicate the situation. EU investigations and policies have limited the willingness of European dealers to cooperate with Chinese automakers, creating hesitation and uncertainty.
I believe that even in the face of punitive tariffs, as long as there is a price difference between the cost and selling price of the products of Chinese automakers and the local market, these problems can be covered. The key is to be able to consistently produce high-quality cars and serve European users.
Q2: What do you think of the current potential of the Russian market in terms of cars going overseas?
A: Looking back at the early importance of Chinese automakers in the Russian market, and the subsequent period when Chinese automakers faced challenges and cold cooperation due to the improvement of relations between Russia and the EU. Exporting vehicles to Russia is only the first step, and the key is to be able to effectively repatriate the benefits and resources back home, which is a challenging issue. In the face of geopolitical changes, different companies are exploring new coping strategies. Although Russia is still an important market in the short term, Chinese automakers should not rely on it for a long time, and need to have a longer-term perspective and diversified market strategy. Because historical experience teaches us that Russian politics and markets are always wavering, and there needs to be a plan B.
Q3: In view of the fierce competition in the domestic market, is it possible for the export market to provide more favorable conditions than the domestic market in terms of pricing, and will the follow-up supporting costs be higher, which will affect the overall cost performance of going overseas?
A: Under normal circumstances, Chinese car companies are profitable to go overseas, but profitability depends on the stability of sales. Selling cars in overseas markets is not just about selling, but also involves long-term warranty and maintenance services, a process that is particularly demanding in developed countries. These costs, including the potential cost of carbon emissions, can have a significant impact on the bottom line if factored in.
If Chinese automakers are highly concentrated in overseas markets and adopt a domestic price war strategy, especially if they have not yet established a brand image and bargaining power, it may lead to adverse consequences. Taking the Thai market as an example, I believe that Chinese companies should adopt a long-term development attitude in overseas markets, rather than just through price competition. In addition, the way in which Japanese companies compete in Thailand is a model worth learning from for Chinese companies. Despite the profits of going overseas, companies need to take a long-term view to avoid repeating the mistake of the motorcycle export market declining due to price wars. Recently, some companies in Thailand have begun to reduce prices to less than 1 million baht, which is not a very good signal.
Q4: Can you discuss whether the export experience and model of the mobile phone industry are comparable to the export of the automobile industry, and whether it can provide some reference value for the export of the automobile industry?
A: Although China's mobile phone industry has made progress, there is still room for improvement in core technologies such as operating systems. For example, Huawei's HarmonyOS system will take time to reach or surpass the current level. However, the development cycle of the automotive industry is long and the investment is large, and the development of a new model can take two to three years, which poses a huge challenge to enterprises. Today, the market is becoming less tolerant of faults, emerging brands are under more pressure, and companies with state-owned backgrounds may have more resources.
In my opinion, Chinese companies are still in the early stages of going overseas, and parts companies should consider directly serving overseas car companies, rather than just following Chinese car companies to go overseas. When supply chain companies go overseas, they should consider the global layout and think about how to serve a wider market, not just the Chinese market.
Q5: Could Mr. Zhang please analyze which subdivisions of China's automotive supply chain have advantages in the direction of going overseas?
A: Although the concept of "going global" has only been widely mentioned in recent years, Chinese auto parts companies have a long history of going overseas, and the commodity companies involved, such as glass and tire manufacturers, have been exporting in large quantities for many years. Through mergers and acquisitions and integration on a global scale, Chinese companies have completed their layout in certain areas over the past few decades.
At present, emerging parts companies with higher technology content, including manufacturers of core components related to new energy vehicles, such as "three electrics" (battery, motor, and electronic control), are actively going overseas. Enterprises related to intelligent networking face challenges in data and enterprise services when going global, but in the long run, these enterprises will gradually cooperate with the international market.
Q6: Can you discuss the specific support and advantages that China's capital market can provide in terms of helping auto companies and their industrial chain to go global, whether through the primary market or the secondary market?
A: Investors are showing a positive attitude towards auto companies with overseas intentions, because it means an increase in sales, service scope and profits. Although geopolitical factors have made it more difficult for Chinese companies to acquire globally, financing and private placement funds still support overseas expansion. Primary market investors play a key role in helping SOEs and private enterprises go global. At the same time, companies are also seeking financing opportunities in cash-rich regions such as the Middle East, and hope to give back to their own development through overseas investment and business layout. Companies are also exploring listing opportunities outside of China and the U.S. to bolster resources and capabilities. Post-investment management, especially when investing overseas, is critical to promotion. International investors are generally more optimistic than domestic investors about China's secondary market assets, believing them to be at lower valuations. Start-ups may consider expanding into overseas markets at an early stage of their establishment. Finally, companies in sensitive sectors are advised to be cautious when listing overseas, especially in the US market.
Titanium Capital Research Institute observes
With the frequent appearance of Chinese auto companies at international auto shows and the active layout of the global sales network, global consumers' perception of Chinese auto brands is undergoing positive changes. Chinese automobiles are no longer just synonymous with "cost performance", but have gradually become a trusted and respected competitor in the global automotive market with their innovation, technology and design.
This leapfrog progress not only marks the maturity of China's auto industry, but also injects new vitality into the development of the global automotive industry. Looking ahead, with the continuous innovation of technology and the further development of the market, Chinese auto companies are expected to play a more important role in the global automotive industry.