The Chinese Are Coming… Or Are They?

Chinese automakers have long been expected to make a concerted assault on overseas markets but, so far at least, have failed to do so in any meaningful way. DTW wonders why.

Coming to Europe? Geeley’s Lynk & Co Model 01 (c) Car

The recent (July 2020) decision by the UK government to ban Huawei, the Chinese telecoms giant, from long-term participation in the national rollout of 5G mobile has profound implications for Anglo-Chinese trade relations. In a post-Brexit world, China had been cited as a potentially major trading partner for the newly independent UK, free to make its own bilateral trade deals. Such hopes now look increasingly forlorn.

The government’s decision has undoubtedly been influenced by pressure from the Trump presidency in the escalating trade war between the US and China, but genuine concerns about Huawei’s independence from the Chinese government, President Xi’s increasingly autocratic rule, the Covid-19 pandemic and the suppression of legitimate protest in Hong Kong have all led to a deepening suspicion about China’s political ambitions, benign or otherwise, as a major economic superpower.

The rapidly growing prevalence of the Internet of Things means that a wide range of Internet connected appliances, including automobiles, presents a security risk essentially the same as that feared from Huawei’s telecoms equipment. But while it may sound highly implausible that your Smart TV might spy upon you, technically-speaking, it is entirely feasible.

Where does this leave Chinese automakers in their supposed ambitions to open up export markets? Even before the recent deterioration in China’s relations with the West, there was remarkably little sign of serious activity on this front.

By far the most successful Chinese (owned) automotive marque in Europe and the US is Volvo. This is because the ownership of the Swedish company has been, if not deliberately obfuscated, then soft-pedalled to a degree that the majority of Volvo customers are probably still unaware of it. It also helped that Volvo was given a high degree of autonomy and its model development has continued largely as before, albeit with greater and more secure funding. Hence, the 2010 takeover by Geely Automobile caused barely a ripple and, apparently, no disquiet. Crucially, of course, (some) Volvos are still built in Sweden.

2019 Volvo V60: autoblog

Volvo’s European sales increased from 232,377* units in 2010 to 337,724 in 2019. Market share increased from 1.67% to a record high of 2.16% over the same period. US sales and market share also increased, albeit more modestly, to 108,234 and 0.63% respectively in 2019.

In contrast, MG Motor suffered from the huge upheaval caused by the collapse of MG Rover in 2005. There was considerable resentment in the UK that the Chinese walked away from a deal that might have rescued the company, but instead picked up its assets and intellectual property post-bankruptcy for a fraction of the cost. It did not help that the MG marque name was initially applied to vehicles that were either uncompetitive or were of a type (SUVs) had no previous association with the marque.

2018 MG ZS: (c) Parkers

The current range, comprising the MG3 supermini and HS and ZS SUVs, while not class-leading in any respect, are broadly competitive and are slowly building a presence in Europe. Sales have risen from a derisory 285 units in 2010 to 14,061 in 2019, a respectable increase, but still inconsequential when compared to MG’s 269,751 Chinese domestic market sales. Can it really be worth maintaining a market presence across so many European countries for an incremental 5.2% extra sales?

Borgward BX5. Image: Borgward AG

There was a ripple of excitement when the long-expired Borgward marque appeared at the 2015 Frankfurt Auto Show attached to the BX7, a new mid-sized SUV with remarkable similarities to the contemporary Audi Q5. Like MG, the new Borgward was German in name only, being built in China and ultimately owned by BAIC, one of China’s largest automotive manufacturers. Other models followed, but Borgward’s impact in the European market is all but invisible: a total of 32 vehicles were sold in 2018 and no figure is recorded for 2019. Even at home in China, Borgward remains a minnow, with sales of 45,321 units in 2019, representing a market share of just 0.21%.

Qoros, a joint venture between Chery Automobile and the Israeli Government’s sovereign investment fund, was founded in 2007 and unveiled its first vehicle, the Qoros 3, at the Geneva motor show in March 2013. The 3 was described as a premium saloon intended to compete with the BMW 3 Series, and exports to Europe were promised. In 2016 there was a pilot programme of sales in Slovakia, but the company announced in April 2017 that it would not be exporting to Europe for the foreseeable future. Qoros apparently sold around 24,000 cars in China in 2016, but no longer appears in any sales data for the country.

Raised ride height and black cladding. Image: Autoblog.com

Great Wall Motors, China’s largest manufacturer of SUVs and pick-up trucks, exported its hilariously named Wingle  double-cab pick-up to Europe from 2013 to 2016, where it was renamed Steed to spare builders’ blushes. It was a budget-priced offering, starting from around £14k plus VAT in the UK. That represented a saving of at least £3k compared with its competitors, but its quality and perceived durability were well below par. Autocar Magazine rated it at just 2/5 stars. Sales were poor and the Steed was withdrawn in 2016 because its engine could not be made to comply with Euro 6 emission regulations.

That pretty much covers the exports of Chinese vehicles to Europe. Why so little apparent effort and success? It may be that the Chinese automakers, with a large and (until recently) rapidly expanding domestic market to supply, are more profitably focused there, rather than on the already saturated European market where excess manufacturing capacity has seriously eroded margins.

Another factor might be that China’s automotive industry is still highly fragmented, with so many different automakers duplicating each other’s efforts. This makes it pretty inefficient. In the West, market forces have already driven and will continue to drive the ongoing consolidation in the automotive industry, but no similar pressures exist in China. The industry will only consolidate if and when President Xi determines it to be the right course of action.

Given the already huge trade imbalances between China and the West, perhaps it simply makes sense for China to export goods on which it can maximise profits? It may be the case that automotive exports are not sufficiently profitable, especially when one factors in the cost of meeting increasingly demanding safety and emissions standards in the West. Maybe China is biding its time until EVs become more widely accepted instead of putting a great deal of effort into soon to be obsolete ICE technology?

This is a difficult and somewhat impenetrable subject, now made even more complex by the growing trade tensions. Who knows where the automotive industry will be in a decade, and what role China will play in it?

* All sales data from www.carsalesbase.com

Author: Daniel O'Callaghan

Shut-line obsessive...Hates rudeness, loves biscuits.

7 thoughts on “The Chinese Are Coming… Or Are They?”

  1. Good morning Daniel, this is an interesting argument.
    I can imagine that a first, very strong reason is to be found in the numbers, if they are correct:

    “Even at home in China, Borgward remains a minnow, with sales of 45,321 units in 2019, representing a market share of just 0.21%.”

    This means a huge domestic market of 25 millions car per annum, more or less a half of the world number, which would mean that the Chinese producers are still occupied in satisfying the internal requests.
    At the moment, therefore, they still might not be interested in exporting cars, especially to a difficult market as the European one: it would be better to begin sales of cars, less impaired by unattainable Euro norms, in Africa, Asia and South America, and there are signals in that direction.
    A different strategy, instead of directly exporting cars which are not up-to-date, would be to buy directly European marques and the connected know-how, and I would suspect the Volvo Cars buy and the MB share are part of this strategy: I would also not forget that MB is a leader in heavy trucks, and I think this might be an highly interesting market, perhaps more interesting than cars.

    Finally, I would not forget that these firms apparently move independently, yes, but they all have a state share of at least 51%, which means that the final control of their movements and strategies is in the state hands, linked not only to purely economical, if such thing exists, but also to political grounds.

    1. Good morning, Anastasio, and thank you for your comments. I’m sure you’re right about the Chinese domestic market, which is likely to be a much less demanding in its expectations, hence more profitable. Given the efforts China is making to strengthen its economic ties with sub-saharan Africa, that would appear to be a more interesting export market than Europe and (especially) the US in the present climate.

  2. Yes, Daniel, I agree on lightly regulated sub-Saharan Africa.
    Toyota’s “utes” are everywhere, but often made to EU-type regs, so easy to undercut on price.
    But poor reliability would be unacceptable there.

    China would be better devoting their huge resources to developing EVs, as I expect they are.

    1. Hi Charles. You’re right, Geely acquired a 51% controlling stake in May 2017, a fact that completely slipped my mind when I wrote the piece! I wonder if the commercial logic behind the deal is that Lotus Engineering’s expertise would benefit Geely’s products? Lotus Cars’ output is negligible in Geely terms and it’s hardly a ‘halo’ brand.

    2. Hello Daniel – yes, I’m sure the idea is to benefit their products, as well as to sell consultancy services in their own right.

      The Chinese also own LDV and Pirelli, interestingly. One thing they seem very good at is letting the brands they own get on with it, while providing behind-the-scenes backing.

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