Customers in China used to quite reliably replace their aging German cars with new German cars. But now the demands, especially on an electric car, have changed. Young Chinese are not looking for traditional brands, but for a smart device.
A muggy June afternoon is coming to an end as the German auto industry loses a customer in China. Mr. Cao, finding his BMW too cramped, packed his wife, his four-year-old son and his elderly mother into the X5 and drove into downtown Shanghai. The father of the family is now standing there in an air-conditioned showroom of the Chinese electric car manufacturer Li Auto and only has one decision to make: Should he take the voluminous standard SUV – or would he prefer the three-row six-seater?
There were times when customers in China quite reliably replaced their aging German cars with new German cars. Over. A government-driven shift towards e-mobility has transformed the world’s most important car market in recent years. Young startup manufacturers such as BYD, Nio and Li Auto, whose names still have little resonance in the West, are rapidly pushing their foreign competition to the sidelines. VW, for example, which has long been the undisputed top dog among combustion engine manufacturers in China, only has a little more than two percent market share for electric cars – while the Chinese market leader BYD now sells more of its electric and hybrid models worldwide than its US competitor Tesla.
When Mr. Cao bought his BMW in 2019, a regulation was already in force in Shanghai that China’s party leadership based primarily on the smog problem in the country’s major cities. Since 2016, new cars have been registered with different colored license plates depending on the drive: the green one for electric and hybrid models is free, the blue one for combustion engines costs money. Mr. Cao, sales manager at a Shanghai software company, still decided on the X5 – and paid the equivalent of more than 11,000 euros for its registration. He could now continue to use the blue license plate if he bought another combustion engine. In his case, the fact that Mr. Cao wants to switch is not even due to the gasoline surcharge, which has given China the highest proportion of electric cars among the world’s major car markets in just a few years.
“Conservative car” vs. digitalized hotel rooms on wheels
Rather? A kind of mentality change that you only really understand once you’ve watched Chinese customers test cars. Mr. Cao, for example, likes the thermal compartment that sits under the center console of the Li-SUV and warms up baby bottles or cools beer cans as needed. His mother likes the skylight, which can be moved using a hand gesture or voice command, as well as the seat adjustment, the massage function and practically every other moving detail in the car.
The driver’s navigation screen is huge, the passenger’s own entertainment screen is no less large, and a third screen hangs in the middle under the vehicle ceiling. “Great for the little one,” says Mr. Cao. “If the ride gets too long, you can keep him entertained with cartoons.” Meanwhile, the four-year-old is counting the USB ports in the car that his ten fingers can’t reach – smartphones can be plugged in at every corner, the car battery can power a film projector, the electric grill for a camping trip or the air pump for a dinghy.
Mr. Cao likes his BMW. But he thinks it’s a “conservative car.” One that is still primarily about driving, while Chinese manufacturers have long since transformed their electric vehicles into fully digitalized hotel rooms on wheels. What has recently been developed in China is simply “smarter,” says Mr. Cao. Another detail that he uses to determine this: Whenever the BMW needs an update, he has to take it to the dealer or install the new software via USB stick. The Li, on the other hand, does it all by itself.
Not far from the Li showroom, on the 25th floor of a Shanghai office tower, Bill Russo stands at the conference room window of his consulting company Automobility and looks down at the city center traffic, where, even from up here, the green and blue license plates that symbolize China’s mobility transition can be seen became. Russo, an American with a broad chin and a sonorous voice, has known China for almost two decades; he managed the regional Chrysler business before becoming self-employed as a consultant.
Will BYD soon be trimmed down by the state?
Russo describes what has transformed China’s car market as a “generational change”: Younger Chinese, who grew up with smartphones and are often more open to the digitalization of all areas of life than their peers in the West, have different expectations of a car than their parents. “For them, an electric car is primarily a technology product,” says Russo. “And they’re not looking for traditional brand names, but rather for a smart, digitally networked device.” Chinese manufacturers understood this change in mentality earlier than their foreign competitors. The turning point, says Russo, was Tesla’s entry into the Chinese market, the impact of which European car manufacturers were not aware of – unlike their Chinese competitors, who at the time set the decisive course to get involved in the exploding market for electric cars. The pandemic and China’s years of self-isolation as part of the state’s zero-Covid policy have exacerbated Western misjudgments, says Russo, but the fundamental decisions were made well beforehand.
According to Russo, China’s party leadership pushed the mobility transition primarily to make the country more independent of energy imports. From the consultant’s point of view, the rise of domestic electric car manufacturers was a welcome industrial policy side effect, but Beijing was not interested in forcing Western competitors out of the market. “Ultimately, the state-owned Chinese car companies, on which millions of jobs depend, are suffering the most from the transition to electromobility,” says Russo. He could even imagine that the party leadership would soon slow down the rapid market shift in order to give the state-owned companies a breathing space.
Russo therefore assesses the market development differently than VW boss Oliver Blume, who recently predicted that half of all new cars in China would be electric by 2025. China’s government, says Russo, set a target of 20 percent for 2025 three years ago, which has now long been exceeded. However, according to central planners, the 50 percent mark should not be reached until 2035. The party leadership is not interested in strangling the market for combustion engines too quickly, says Russo. “And it certainly wasn’t their goal to create a playing field dominated by a single private company.”
This refers to BYD, by far the most successful of the Chinese electric car manufacturers. Russo assumes that sooner or later the company will be trimmed down by the state, similar to what happened with the trading conglomerate Alibaba when its market position became too dominant for the party leadership. If BYD shares these fears, there is little sign of it at the company headquarters in the southern Chinese metropolis of Shenzhen. Visitors are guided through an exhibition on the company’s history, which is brimming with self-confidence. It explains how the company, which originally started out as a battery manufacturer, began turning its batteries into cars – and in just a few years put itself at the forefront of the Chinese electric revolution. It can be dizzying to see the steeply rising sales, profit and unit sales curves that flicker across the presentation screens on the museum walls.
For a long time, Gaga gadgets were looked down upon
What perhaps reveals more about the market leader’s success than the company’s entire self-portrayal is the demeanor of a Chinese influencer who is testing the BYD flagship model on display there in the company foyer, the Han e-limousine. While his assistant films him from the back seat, the young man is not holding the steering wheel, but a singing microphone. He shows his followers the integrated karaoke system as if it were the core element of the entire car.
For a long time, such Gaga gadgets were only laughed at with disdain in Germany’s established car manufacturing caste. But today, with a bit of luck, you can witness scenes like the one that took place on a June day in Shanghai, in a showroom of the premium manufacturer Nio, the declared favorite brand of high-earning Chinese millennials. An employee there is explaining why she speaks of “users” when she means her customers when a group of about 20 people enter the car dealership, half of them Chinese, the other half of them European-looking foreigners. All of them, it turns out, are Audi employees. The Chinese among them work in a German competitor’s showroom not far away; the Europeans have traveled from Germany. Everyone is interested in looking at the elegant Nio SUVs. They wanted to see “where our weak points lie,” says one of the Ingolstadt residents who worked in product marketing.
When the Audi people realize that a German journalist is in the room, they become extremely tight-lipped. A Chinese Nio employee watches the chance encounter with amusement. “Interesting,” she says. “We Chinese used to go to the West to learn how to build cars. Now they come to us.”
One of the trademarks of the Nio cars is the animated driving assistant: a small avatar face on the front console that goes by the name Nomi and finds AI-generated answers to all user questions in a sweet female voice. “Hey Nomi,” you can ask her, for example, “what do you think of German cars?” “Of course the quality of German cars is quite high,” Nomi replies in Chinese. “They have a relatively high standard. That’s why their security is also very high.” He doesn’t sound enthusiastic. Not afraid at all.
This text is first Capital.de appeared.