Being the leader means that sooner or later, rivals emerge seeking the leadership spot. Empires have fallen and new ones have emerged throughout history. In our microcosm of the carthe West, Japan and South Korea are leading the way. Or rather, they were leading the way. Now, China is calling the shots. In 2030, One in three electric cars will be of Chinese origin warns the new report of the consulting firm Alix Partners.
Beyond predicting that China will monopolize the 33% of the global marketwhich accounts for 70% of its domestic market (a market of 30 million cars a year) and will export more than 9 million cars, the Alix Partners study puts in black and white the most profound changes taking place in the industry. Today’s leaders will be tomorrow’s losers.
Continuing to manufacture cars as we have done up to now is a race towards obsolescence.
“Automakers hoping to continue operating under the same old principles are in for more than just a rude awakening. They are headed for the obsolescence“The revolution taking place in the global automotive industry is driven by the incredible and previously unthinkable maturity of Chinese manufacturers, who do things differently,” the New York consultancy firm says.
And it is that the China’s automobile industry is being disrupted by doing things “differently.” Chinese brands have become strong by essentially reinventing four key elements of their business model.
Chinese brands do not always seek the highest profitability, something that is reflected in their relationship with suppliers. In Europe, the United States or Japan, the profit margin of a supplier is 10.6%, almost two percentage points below the brand, according to the analysis.
In China, where manufacturers are more focused on short-term market share growth, suppliers’ margin of 10.4% exceeds that of brands by 3.3 percentage points. In other words, the manufacturer is willing to reduce its profit margin in order to keep prices low and sell high volumes.
In Europe, the manufacturer’s margin is sacred and brands are not prepared to lower their profit margins in order to absorb the costs of their suppliers. This is partly due to the desire of CEOs to please shareholders first, where the mantra is to sell fewer cars, but at a higher price. For Chinese brands, encouraged by the State, the priority is to sell as many cars as possible.
Chinese brands are developing new models at a frenetic pace. They need only two years to design, test and launch a new model on the market.. They are creating new products in just 20 months compared to the industry average of 40 months. However, unlike Western, Japanese or South Korean brands, the level of demand is much lower.
Chinese manufacturers are content with just enough to meet the standards. There is no over-engineering to ensure the model has a useful life of 10 years or more. The brands are not interested in the rental and second-hand markets. Again, their goal is to sell high volumes.
Moreover, Chinese customers prefer novelty. Chinese brand models are 2-3 years newer than non-Chinese brands. The average commercial life of a Chinese model is 1.6 years, compared to 4 years for a Western model before its first update, which will allow it to remain on the market for another 2-4 years.
‘Made in China’ is its greatest asset
But by far the biggest advantage enjoyed by Chinese brands is in Made-in-China. Chinese brands enjoy a 35% cost advantage, which gives them flexibility (in Europe and elsewhere) to lower prices and offset tariffs.
This advantage is based on lower labour costs, state funding, access to cheaper raw materials and greater vertical integration of manufacturing. From raw materials to component suppliers, through final assembly and sales to other car manufacturers, Chinese brands try not to depend on suppliers.
In addition, the rapid increase in overseas transportation capacity paves the way for export, prompting Chinese manufacturers to secure their own transportation capacity.
Battery packs, which account for 35% of the cost of vehicles, are becoming more affordable thanks to chemical innovation. Chinese brands are favouring LFP (lithium iron phosphate) batteries, which, although offering lower energy density than lithium-ion (or NMC, nickel manganese cobalt) batteries, are cheaper than the NMC batteries favoured by European brands.
Lower prices for materials and lower costs for raw materials, the supply of which is largely controlled by China, are other advantages that allow them to lower the prices of their cars.
The trend is that electric cars and PHEVs, what in China they call new energy vehicles, will become increasingly dominant in the market, Chinese brands will become more prevalent and traditional automakers, suppliers, fleets, dealers and others will be under increasing pressure to reinvent themselves.
Meanwhile, brands such as Porsche, Mercedes and Renault have revised their electric sales targets downwards. Porsche, for example, wanted to sell 100% electric cars by 2030. Now, its goal is to achieve 80% electric sales. The paradigm shift has begun and Chinese brands are taking the lead.
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Source: www.motorpasion.com
