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As local manufacturers catch up to and overtake offerings from Western automakers in China, is it still feasible for foreign companies to compete in the Middle Kingdom? Peter Campbell reports in the Financial Times:
When a market turns against you, how should businesses respond? This is the question being pondered with some urgency across the automotive boardrooms of the world.
The market is China, the world’s largest auto market. It was once the breadbasket of the industry, flush with a hugely profitable pool of newly-wealthy consumers, many of whom were eager to flaunt their status with a shiny Mercedes-Benz or Buick. The entry price for overseas carmakers — a technology-sharing joint venture with a local manufacturer — seemed worth every yuan.
But the tide has turned. The build quality of the Chinese brands have caught up with global nameplates, no doubt aided by the experience of running joint factories. And inside the vehicles, the technology — the key to unlocking the hearts of Chinese consumers — is now superior.
Whether the touch screen systems, the connectivity, or the batteries themselves, many of the Chinese-made models are now considered comparable, if not better.
Already, the difference is being felt at the showroom. While Volkswagen once accounted for almost one in five engine vehicles sold in China, its market share in electric vehicles is less than 5 per cent.
Others, from Nissan to General Motors, have faced similar drop-off rates. Nissan’s chief executive Makoto Uchida admitted last week that local brands were moving “much faster than we expected before”.
The question is how to respond. VW, a company so wedded to China it has a board member dedicated to the market, is doubling down. The group flew a host of executives out to the Shanghai auto show last month, where it unveiled a pledge to invest €15bn by 2024.
Ford this week laid out a different road. Chief executive Jim Farley told the Financial Times it would pursue a “lower investment, more focused” approach, paring back to commercial vehicles and keeping some other operations as a “listening post” on battery developments and consumer trends. The winners in electric vehicles are not, Farley warned, the western (or Japanese) carmakers, but new, local brands.
The move is a strategic one, made in the knowledge that carmakers have limited resources and a growing number of investment mouths to feed, from engines and batteries to software. Pouring money into a market that has decided it does not want your vehicles is imprudent.
Read more here.
