To prosper in Europe, Chinese firms such as BYD (002594.SZ), Nio (9866.HK), and SAIC’s MG (600104.SS) will have to overcome stereotypes of Chinese production, import costs, and a less mature EV market.
They are off to a good start.
According to auto consultancy Inovev, 8% of new EVs sold in Europe this year have been manufactured by Chinese firms, up from 6% last year and 4% in 2021.
And there will be more. According to an Allianz analysis, at least 11 new mass-market Chinese-made EVs will be available in Europe by 2025.
Western automakers are concerned, with Carlos Tavares, CEO of Peugeot-to-Fiat carmaker Stellantis (STLAM.MI), predicting an “invasion” of inexpensive Chinese EVs in Europe last month.
They are, however, fighting back with their own slew of EV debuts and pledges to reduce production costs and prices, so the Chinese newcomers will have to be on top of their game.
Chen Shihua, deputy-general of China’s vehicle industry association, cautioned its members last week at a briefing in Beijing that they may be spreading themselves too thin in their expansion plans.
“It isn’t that smooth for our automakers to go global,” Shihua stated. “We should pay attention to the risks… currently companies might be over-stretched, stepping into every region without a clear focus.”
ADDED COSTS
The World New Energy Vehicle Congress, organised by Chinese EV manufacturers, will be hosted in Munich this September as part of Germany’s IAA auto trade exhibition, marking the first time the conference has been held outside of China.
Price is their ace in the hole. According to Jato Dynamics, the average price of an EV in China was less than 32,000 euros ($35,000) in the first half of 2022, compared to roughly 56,000 euros in Europe.
However, Chinese automakers are unlikely to sell automobiles as inexpensively in Europe as they do at home.
Logistics, sales taxes, import duties, and achieving European certification standards all increase costs, according to Spiros Fotinos, Europe CEO for Geely’s (GEELY.UL) Chinese brand Zeekr.
MG, Europe’s best-selling Chinese-made brand, claimed the largest problem was moving automobiles from China to European distribution facilities through congested ports with extended lead periods.
European preferences, such as large batteries to power longer trips, may potentially raise expenses, according to Alexander Klose, overseas CEO of Chinese EV company Aiways.
CUSTOMER TRUST
While some Chinese companies, such as MG, are well-known in Europe, others, such as XPeng (9868.HK) and Nio, must establish credibility.
According to surveys, the majority of potential EV consumers in Europe are unfamiliar with Chinese brands. Those who do are cautious to buy a Chinese car, echoing the decades-long struggle of Japanese and South Korean automakers to gain trust and adapt to European tastes.
In 2022, only 14% of 1,629 German customers polled by YouGov were aware of BYD, the world’s second-largest EV manufacturer behind Tesla (TSLA.O). 17% have heard of the premium brand Nio, 10% of Geely’s Lynk & Co, and 8% of XPeng.
According to the survey, 10% of the 95% of consumers who are aware of Tesla would consider purchasing one as their next automobile. However, only 1% of people who are aware of Chinese brands would consider purchasing one.
Aiways stated that it chose not to advertise its Chinese heritage owing to fears that consumers would be unwilling to purchase Chinese-made products.
Several Chinese automakers have received five-star safety ratings under European safety standards, going well beyond legal requirements to assuage customer concerns.
According to Zeekr’s Fotinos, the company will seek to gain consumer trust through test drives and showrooms where European customers can examine the quality of its EVs firsthand.
“When they come into contact with the product… the quality and specifications are much higher than a comparable European product they are used to.” “That takes them by surprise,” Fotinos explained.
GAC, China’s third-largest EV seller, has built a design studio in Milan to better understand consumer preferences before entering into sales.
“The only way to get around (the stereotype) is to embrace the competition,” said Aiways’ Klose.