Chinese automakers must adapt quickly or miss out on the EV boom

BEIJING – Chinese automakers, including state-owned auto giant GAC Group, cannot afford to take it easy in the electric car boom if they want to survive.

Adoption of battery- and hybrid-powered cars has soared in China, but an onslaught of new models has fueled a price war that is forcing Tesla to also lower its prices. While Chinese automakers are also looking abroad for growth, other countries are increasingly wary of the impact of cars on the domestic auto industry, necessitating investments in local production. It is now ‘survival of the fittest’ in the already competitive EV market in China.

“The speed of elimination will only increase,” Feng Xingya, general manager at GAC, told reporters on the sidelines of the Beijing auto show in late April. This is evident from a CNBC translation of his comments in Mandarin.

GAC cut prices of its cars a week before China’s May 1 holiday, Feng said, noting that the price war contributed to the sales decline in the first quarter. According to Wind Information, the automaker’s first-quarter operating revenue fell year-over-year for the first time since 2020.

To stay competitive, Feng says GAC is working with technology companies such as Huawei while working on internal research and development. The automaker is the joint venture partner of Honda and Toyota in China and has an electric car brand called Aion.

“If your product is not good in the short term, consumers will not buy it,” Feng said. “You have to use the best technology and the best products to meet consumer needs. In the long run, you have to have a significant competitive advantage.”

Like other car manufacturers in China, GAC is also focusing abroad. According to data from the China Passenger Car Association, domestic sales of new energy vehicles, including battery-only cars and hybrid cars, have slowed the growth rate from March compared to December.

Last year, GAC revamped its overseas strategy with an ultimate goal of selling 1 million cars abroad – electric, hybrid and fuel-powered, Wei Haigang, general manager of GAC’s international car sales and service business, told CNBC in an interview last week .

The company still has a long way to go. Last year the country exported only about 50,000 cars, Wei said. But he said the aim is to double that to at least 100,000 vehicles this year, and reach 500,000 units by 2030 – with sales targets and strategies for different regions around the world, starting with the Middle East and Mexico.

“We are now doing everything we can to accelerate our overseas expansion,” he said in Mandarin, as translated by CNBC.

Chinese car sales abroad soared last year, putting the country on par with Japan as the world’s largest exporter of cars. The EU and US have announced investigations into Chinese-made electric vehicles over the past year, amid efforts to encourage consumers to move away from fuel-powered cars.

Part of GAC’s international strategy is localizing production, Wei said, noting that the company uses different approaches such as joint ventures and technology partnerships. He said GAC opened a factory in Malaysia in April and plans to open another in Thailand in June, with Egypt, Brazil and Turkey also under consideration.

GAC plans to establish eight subsidiaries this year, including in Amsterdam, Wei said. But the U.S. is not part of the company’s near-term overseas expansion plans, he said.

U.S. and European officials in recent months have emphasized the need to address China’s “overcapacity,” which can be loosely defined as state-sponsored production of goods that exceeds demand. China has pushed back on such concerns, with the Commerce Department claiming that new energy faces a capacity shortage from a global perspective.

“There has always been overcapacity in China’s auto industry,” said Stephen Dyer, co-leader of the Greater China business at consultancy AlixPartners, and leader in Asia for its automotive and industrial sectors.

“The difference today is that the overcapacity has now come together with vehicles that are very competitive,” he told CNBC on the sidelines of the auto show. “So in our EV research, I was surprised to find that about 73% of US consumers could recognize at least one Chinese EV brand. And Europe was close behind.”

Dyer expects this to boost foreign demand for Chinese electric cars. AlixPartners’ research showed this BYD had the highest brand recognition in the US and major European countries, followed by Nio And Jump motor.

BYD exported 242,000 cars last year and is also building factories abroad. The company’s sales are roughly divided between hybrid and battery-powered vehicles. BYD no longer sells traditional fuel-powered passenger cars.

In addition to the prize, this year’s Beijing auto show reflected how companies – both Chinese and foreign – compete in technology such as driver assistance software.

Chinese consumers place almost twice as much importance on tech features compared to American consumers, Dyer said, citing AlixPartners research.

He noted how Chinese startups are so aggressive that a car with new technology can be sold even if the software still has problems. “They know they can use over-the-air updates to quickly fix bugs or add features as needed,” Dyer said.

Interest in technology doesn’t mean consumers are sold on battery-only cars. Dyer said consumers are still concerned about driving range in the short term, meaning hybrids are not only in demand but are often used without charging the battery.

Even Volkswagen is participating in the ‘smart tech’ race. The German auto giant revealed at the auto show that its joint venture with state-owned SAIC Motor in Shanghai was working with the automotive unit of Chinese drone company DJI to create a driver assistance system for the recently launched Tiguan L Pro.

The first version of the SUV will be powered by fuel, for which the company’s slogan is “oil or electric, both are smart,” according to a CNBC translation from Chinese.

Battery manufacturer CAT had a more prominent exhibition booth this year, likely hoping to encourage consumers to buy cars with batteries as competitors’ market share grows, said Zhong Shi, an analyst at the China Automobile Dealers Association.

Auto chip companies Black Sesame and Horizon Robotics also had booths in the main exhibit hall.

Lotus Technology, a high-end British car brand acquired by GeelyA survey of its customers found that their top requests were automatic parking and battery charging, which allowed drivers to remain in the car.

That’s according to CFO Alexious Kuen Long Lee, who spoke to CNBC on the sidelines of the Beijing auto show. He noted that the company now has robotic battery chargers in Shanghai.

Lotus and Nio also announced one last week Strategic cooperation about changing and charging the battery.

“I think there is a passing of the baton where the Chinese brands are becoming much bigger and stronger, and the foreign brands are still trying to decide what the best energy route is,” said Lee, who has worked in China since 1998. “Are they still deciding on the PHEV, are they still thinking about BEVs, are they still thinking about combustion cars? The whole decision-making process becomes so complex, with so much internal resistance, that I think they’re just not productive.”

But he thinks Lotus has found the right strategy by expanding its product line and moving straight to battery-powered cars. “Lotus today,” he said, “is comparable to the position of international brands [was] in China, probably in 2000.”