China update: EVs on the road to winning market share

The AFC summer conference session examining the rise of Chinese brands in the electric vehicle (EV) market was introduced by David Betteley, AFC’s community head for auto finance, who pulled no punches, pointing out that the switch from ICE in the UK is proving to be a “messy story” of  little to no growth in EVs in the retail sector and better take up in the fleet market, but  marked by heavy discounting, overstocking, and uncertainty about future regulation.

In contrast, China leads the world in mass market adoption, with the Havard Business Review reporting more than half of the EVs on roads worldwide are found in China, while the country also provides 35% of global EV exports.

Recently returned from the Beijing Motor Show and a two-week tour of China, Ian Plummer, Auto Trader commercial director, told the AFC audience that “the centre of gravity has shifted – you get the distinct impression that China has leapfrogged the rest of the western world.  The product has leapt forward.”

Strategic vision

That’s no accident, with Plummer referencing the statement by China’s leader Xi Jinping a decade ago that EVs were the future of automotive.  In contrast, in the West in 2014 the Dieselgate scandal and Paris climate accord were not even on the horizon.

China’s automotive companies had experience from their earlier joint ventures with Western brands, and faced a choice: compete in the same sector, or get better and get ahead on EVs.

Top quality

And in a further break with the past, Plummer pointed out that the cars at the Beijing show were “nothing like the traditional Chinese product which was poor quality copies.  You see cars that are great quality, really stand-out design, incredibly good tech – everything connects, and usually done in partnerships with people rather than trying to do it themselves like the Western brands – and great battery tech, often done locally. Plus the ranges are good, and it’s all at a price people can afford.”    

Prices are very significantly lower than in Western markets, and in Plummer’s assessment, the Chinese offer is “light years ahead of where we are,” with over half of sales in China now classed as NEV (“new energy vehicle”, a combination of BEVs and PHEVs). In the big Chinese cities, half of all cars are BEV, incentivised by the authorities making it easier and cheaper to go electric in preference to ICE options, in a way which Western government have so far failed to match.

Betteley concurred with the view that Chinese EV brands win top marks for design, quality and performance – but they still have to overcome the hurdle of no heritage and no reputation compared with Western brands.              

Korean lessons         

AFC speaker Yin Noe is joint head of EU & UK with the Yangtze River Delta (YRD) Automotive Alliance, which was set up in 2019 by the governments of Shanghai, Jiangsu, Zhejiang, and Anhui, in partnership with industry leaders such as SAIC Motor, Geely, Chery, and the Jiangsu Society of Automotive Engineers.

“On the commercial side, the biggest thing is strong after sales service – we don’t want to make the same mistakes with parts that take over a month to come, or not having very skilled service people. OEMs tend to think ‘oh the cars look great and they’re cheap’, but there’s a lot more to the market and at YRD Alliance we’re trying to fix that,” she said.

As well as the focus on after sales, Plummer said analysis showed that at every category from entry level to premium, Chinese automakers offer options which are cheaper than those available in the UK.  Chinese manufactured car currently account for 10% of all sales, and 33% of all EVs, with predictions suggesting a roughly 20% share for pure Chinese-owned brands by the beginning of the next decade.

With brands like BYD sponsoring major international sporting events, such as Euros 2024, brand awareness will increase, while Chinese brands being stocked by reputable national dealerships will increase the credibility of the offer.

After sales

However, as Betteley pointed out, a great price and good quality offer is not the only consideration in the UK market, where monthly payments put residual values into focus. Noe confirmed that remarketing and RVs are hot topics with Chinese firms who are currently looking for finance partners for specific brands.

Despite around 60% of cars in China being sold on finance, Plummer argued there was an underappreciation of the role of finance in selling new cars. “But the thing to remember with Chinese brands is that they learn very fast. If you point something out, they react quickly.  But RVs are less important in China so they need to understand that here, and that needs a good used car operation which will take a while.”

“One bed, two dreams”

Looking ahead, many retailers are interested in adding a Chinese brand, given the current levels of interest, while Chinese manufacturers are more likely to favour a dealer model over a B2C approach, since this improves cashflow and adds the all-important retailer reassurance factor wary consumers are looking for.

Plummer predicted a likely scenario will be more multi-franchise retail operations, which fill a space between agency on one side and franchise on the other.  “We’ll see more agency-lite or franchise-plus operations,” he forecast.

That prediction chimes with the Chinese approach of “one bed, two dreams.”  Under this model, Chinese manufacturers are likely to opt first to sell via a dealer network with a good reputation and then, once their own reputation has become more established, consider other options.

“Each company we talk to has a varying strategy, but it’s fair to say most OEMs have hinted at the dealer model. They are likely to come in via the dealer model and then, when they have more presence, switch to the agency model which offers better messaging, improved customer experience and better price. But it’s early days and it’s a case of ‘to be continued’,” Noe concluded.