Road rules: the second coming of Chinese vehicles

Despite predictions, we haven’t been swamped by Chinese cars. Electric vehicles could well change that.

DEAL SEP 2019 NO REUSE WITHOUT PERMISSIONMV Pic : supplied

At the 2006 Detroit motor show, one debutant drew curious crowds despite being sidelined from the main exhibition floor. It was Geely, the first Chinese maker to display at the United States industry’s hometown event, and it was thinking big. It would establish a dealer network stateside and soon be selling 100,000 a year.

Chinese car-makers have been attendees most years since, with Guangzhou Automotive (GAC) the most recent to announce US plans.

But how many Chinese brands are actually driving on US roads? None. There’s been a lot more talk than action, and with a trade war in full swing it would be easy to see GAC’s postponed launch this year as simply more of the same.

Decades of phenomenal growth have made China the largest global automotive market by far, with sales of 30 million vehicles a year. It has become a cash cow for European and US car-makers.

More: The second wave of Chinese cars for overseas markets

To date, though, most Chinese cars are built in China, for China. Exports have been a tiny part of the picture — typically around 5 per cent — and destined mainly for developing markets in Africa and Asia. Chinese-made cars which do reach the US have familiar badges, with Cadillac, Buick and Volvo pioneers in sourcing a few domestic models.

Australia’s first Chinese-built car, back in 2004, was a similar exercise by Volkswagen, which for a while shipped in Polo sedans. As a much smaller market, though, Australia represents less of a gamble than the US and a decade ago Chinese brands began dipping their toes Down Under.

Sydney-based distributor Ateco Automotive, a start-up specialist with experience of car-makers from Italy to Korea, was key to those early moves. It began talking to Chinese manufacturers in 2006 and general manager Dinesh Chinnappa has been involved since then. He says the Chinese were persuaded by our potential as an affordable testbed. While Australia’s market is competitive and its regulations strict, mistakes here cost a lot less than mistakes in the US or Europe. “We used to say to them, this is your school to learn to go to developed markets,” Chinnappa says.

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For its part, Ateco was impressed by China’s “six-lane freeways, magnificent facilities and factories that were just gleaming”.

From the scores of potential exporters, two independent operations stood out: Great Wall, an SUV and ute specialist which was already selling into South Africa; and Chery, “the glamour child that everyone was talking to”. Crucially, they were willing to make right-hand drives and homologate to Australian standards.

Chinnappa says both sides had a lot to learn about everything from specifying cars for Australian tastes to pricing. And despite its experience, Ateco was sometimes blindsided. For example, the first Great Wall shipments via Tianjin port were parked on gravel and arrived soiled with dirt and seeds. “They turned up at Australian ports and quarantine would ping the whole shipment, said they had to be cleaned and deseeded,” Chinnappa says.

In a response that has become a cliche of the Chinese way, Great Wall acted quickly and decisively. “Great Wall were amazing. Hardtop was laid, they had crews of people cleaning them. They learned and it was bang, bang, bang!” It was the same story if a mechanical issue emerged. In a matter of months, a part was designed and fitted, problem fixed.

Great Wall’s budget utes and SUVs undercut their Japanese equivalents while Chery’s small cars were the most affordable on offer. Sales took off, encouraging other Chinese players to try their luck. Chinese shipments to Australia went from zero in 2008 to more than 12,100 in just four years.

But as quickly as they came, they went. What some assumed would be a tsunami of cheap imports simply evaporated. Most struggled to gain a foothold and the necessary experience. After a few years, Chery and Great Wall adopted different brand strategies focused on their home market, leaving Ateco high and dry. By 2015, Chinese imports had collapsed to 2300.

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Beijing’s long game

Beijing is renowned for playing a long game but by then it had run out of patience with its original automotive policy. That policy had forced Western car-makers wanting to operate in China into 50:50 joint ventures with locals but conspicuously failed in its goal of technology transfer and no Chinese brand had emerged a winner. The state-owned companies in particular had grown large — by selling joint-venture products with foreign badges — but lazy.

So Beijing announced Made in China 2025, a 10-year plan to advance its manufacturing base through cutting-edge technologies. “It set out ambitions to be number one globally in electric vehicles, autonomous vehicles, AI, robotics, advanced manufacturing. If it’s high-tech, China wants to lead, not follow,” says Michael Dunne, a China automotive industry expert.

Dunne, who was been a China consultant for 30 years, says its control economy means its businesses operate very differently from those in the West. “An order comes down from on high and once it’s understood, everyone goes into action,” he told a recent edition of US podcast Autoline This Week. “It gives China one of its greatest advantages: it can move very quickly to establish infrastructure, new plant, charging stations — you name it, they have a big edge.”

‘If it’s high-tech, China wants to lead, not follow’

China’s goal now is to seize the initiative with electric vehicles using a combination of mandates and incentives. In just a handful of years, the result has been dramatic. China has become the planet’s leading electric vehicle market with more than 400 manufacturers responsible for 60 per cent of global production.

By the end of 2018, there were three million battery and plug-in hybrids on its roads and its goals exceed anything the West envisages: five million a year by 2025 and 15 million by 2030.

Dunne says another result of Beijing’s policy settings is a surplus of car-making factories, because every city and region wants some of the jobs and prestige. But rationalisation along Western lines is not China’s answer.

“There is way over-capacity in China — 46 million units of capacity versus 30 million in production,” Dunne says. “So there should be a shake-out and consolidation but what are the Chinese thinking? We’ll use this capacity to go global, we’ll ship our products everywhere.”

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The second phase

Now Chinese exports are entering a second phase. Emboldened by Beijing, its car giants are setting out to conquer.

Once again Australia will be a proving ground, although the names have changed. Leading the way is China’s largest car-maker, state-owned Shanghai Automotive (SAIC). With 7 million sales last year, SAIC ranks seventh globally and comes in 39th in the Fortune 500. As well as joint ventures with General Motors and Volkswagen, it counts three former British operations in its portfolio: Roewe — previously known as Rover; sportscar badge MG; and light commercial maker LDV, sold in Europe and other markets as Maxus.

Two of them now make the running here. Ateco picked up LDV in 2015 during its split with Great Wall while MG set up its own operation in 2016 after its distributor failed to gain Australian compliance.

‘Chinese exports are entering a second phase. Emboldened by Beijing, its car giants are setting out to conquer’

Ateco is finding ready demand for LDV’s competitively priced utes, vans and SUVs, and Chinnappa says Chinese vehicles have come a long way over the past decade. “It was said, the Chinese will do it in half the time that the Koreans did it, who halved the time the Japanese took. And they have.”

LDV’s large D90 seven-seat SUV, for example, starts at $36,990 — below its Kia equivalent — while offering everything you expect from a modern car, from a five-star safety rating to adaptive cruise control, from an auto tailgate to keyless start.

Acceptance here has the double benefit of helping SAIC’s credibility in its home market, where foreign badges are finally losing market share to domestic Chinese brands.

“We’re a major tourist destination, their kids go to school here ... aspirational people want to live here,” says Chinnappa. “If Australians are buying SAIC then it validates that choice.”

At the same time, one advantage of a heritage British badge such as MG is widespread recognition, says marketing director Danny Lenartic. After its false start, MG has moved with extraordinary speed in just three years to establish its own parts operation and dealer network, now 39-strong.

Lenartic says its approach is “think big, take small steps, test, learn, evolve — but once we’re onto it, scale fast”.

It has encouraged buyer confidence with a seven-year warranty and booming demand. Sales are up 250 per cent this year, suggesting it’s on the right track. Its MG 3 light hatchback, which starts from $15,990 and comes with an eight-inch touchscreen, is a hit with younger buyers who might otherwise go second-hand, Lenartic says. Its ZS compact SUV, introduced to the market sweetspot last year with a starting price of $22,990, has quickly become its best-seller.

With MG as its spearhead, SAIC has global ambitions and its leadership team adapts quickly, says Lenartic. Their goal is to “turn SAIC into an international brand with an international focus”.

SAIC already ships to 60 markets, including many in Europe, and overseas sales increased 63 per cent last year, to 277,000. That makes it China’s leading car exporter and its goal this year is more growth, with a target of 350,000.

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Learning from Australia

Success here was part of the plan, Lenartic says.

“Australia is such an important territory because we are competitive, Western, influential, early adopters — we have all of the elements and ecosystem for other international businesses to come in and learn from us, and export that knowledge elsewhere.”

SAIC has embraced the “irreverent, cheeky” flavour of the MG badge and wants to deliver cars that are “fun to drive”. The fact it lacks the sort of sportscar which made the brand famous is not lost on management. But, Lenartic says: “It needs to be layered with where the future of the automotive industry is going. We’re doing a very good job in planning for that.”

MG’s e-Motion concept, unveiled at the 2017 Shanghai motor show, is a window on its thinking. With “design cues inspired by its British heritage” this racy electric coupe accelerates from zero to 100km/h “in around four seconds” and has a 500km range.

From almost zero five years ago, SAIC sold 142,000 electric vehicles in 2018 and it will offer our first made-in-China battery car next year. The eZS, a version of its SUV, has a 110kW drivetrain and a range “up to 428km”. If it is priced around $40,000, as expected, it will come in well under the most affordable electrics, the Hyundai Ioniq and Nissan Leaf.

It will also be shipped to Europe, where LDV is already offering the EV 30 — a battery version of its small van. If Ateco brings it here, then its UK pricing suggests it will be substantially cheaper than the sole electric van now available, Renault’s Kangoo ZE Maxi at $52,527.

Chinnappa believes that if China gets a foothold with electric vehicles and autonomous cars then it could be a game-changer for the global car industry. “They are so far advanced in terms of what they’re doing, the whole dynamic would shift.”

It’s a sentiment echoed by Dunne, who says China’s electric mandates and market dominance mean the industry’s centre of gravity will move east. “The battery, the battery management system, the entire supply chain is now beginning to concentrate in the People’s Republic of China and once that’s established, it’s going to be hard to catch up,” he told a specialist US podcast from Automotive News. “The market will pull the technology and that’s what China is banking on.”

And despite the absence of a Chinese car brand on US roads, Chinese supplier and technology companies have established a huge presence stateside. Dunne estimates that more than 100 businesses have spent $US15 billion on facilities and recruitment. Which means the Chinese are “poised to enter with their cars when the time is right”.

To appreciate that, you need look no further than that first Chinese company to display at Detroit, Geely. Led by “the Chinese Henry Ford”, Li Shufu, it has become one of the industry’s most aggressive and visionary players with an acquisition strategy that has added Volvo, Lotus and Proton, among others. It shocked Daimler — maker of Mercedes — last year with a share raid which landed 10 per cent of the company.

Tariffs notwithstanding, it plans a double-barrelled electric assault on the US — and Europe — via two brands developed with Volvo: Lynk & Co and Polestar, which aim directly at Tesla buyers. It would be a rash Detroiter who laughs them off now.