Electric vehicles: taking the Chinese route to avoid being left behind

Volkswagen seems to be experiencing difficulties in China in order to avoid being ousted by the Chinese brands on the electric or electrified vehicle market. This difficulty, which is also that of Tesla in the face of BYD and the other major Chinese players, refers to the success of the industrial and technological policy of the Chinese authorities, which aimed to ensure that electrification would allow the sinicisation of the Chinese automobile. In China, as in Europe and the United States, this reality calls for reflection and policies that cannot be reduced to a headlong rush to move upmarket.

At the beginning of July, the press reported the appearance in China of the first true copy of the Citroën Ami, priced at 2,500 euros.

The same week, commenting on the figures for global sales of electric or electrified vehicles (the famous NEVs for New Energy Vehicles) in the first half of 2022, commentators stressed that Tesla was losing its global leadership to BYD. For example, Forbes reported, "BYD delivered 641,350 EVs and plug-in hybrids to customers in the first half of the year, up 315 percent from a year earlier, compared with Tesla's 564,743, up 46 percent."

Admittedly, the article points out, sales of battery-powered models alone put Tesla ahead of BYD but, overall, over the first five months of 2022, while Tesla's two models remain ahead with 214,927 sales for the Model Y and 165,343 for the Model 3 respectively, third place goes to the Wuling HongGuang (161,579) and the next five to BYDs offered as BEVs and PHEVs in four of them. The VW ID4 is only tenth (see top 20).

This picture is of course very much linked to the Chinese landscape, where most of the world's EV hierarchy will still be decided for a few years to come: between January and May, the world market for NEVs was 3.24 million vehicles, of which 1.8 million were sold in China. For the year as a whole, the global market for NEVs will be around 5.5 million, of which almost 4 million will probably be in China. On the Chinese market, the ambition was clearly to ensure that electrification would be an opportunity to finally obtain the "sinisation" of registrations that had been aimed at for a long time but always postponed until later. In terms of the 2022 NEV hit parade, 9 of the top 10 places are occupied by Chinese brands, half of which are BYD. Only the Tesla Model Y is in the top 10 (4th with 81,125 registrations, half as many as the Wuling Hong Guang). In terms of brand market share, Tesla is at 6.6%, BYD at 27.9%, SAIC-GM-Wuling at 10.1%, Chery at 4.9% and GAC at 4.2%.

Before we start worrying about a possible invasion of vehicles assembled in China in Europe or the United States, which is not yet very clear, we need to understand this possible eviction of the major Western manufacturers from the Chinese market. To do this, we must first understand the reasons for this eviction and then assess the extent of this movement and its possible effects on the world hierarchy.

At the first level, there is a tendency to focus on Tesla's Chinese challengers such as Xpeng, Nio or Lynk & Co, which are attacking the market in the same segments. These are certainly important movements but, fundamentally, it is what is happening with the Hong Guang, the Ami copy and the BYDs that is probably the most important. It is this orientation given to the market and the capacity to occupy it with technological and industrial resources that are no longer those of the big JVs but of local players that indicates that, on the occasion of this major part of the MIC (Made in China) 2025, which was electrification, China's automobile industry has definitely woken up and has decided to leave by the side of the road those manufacturers that would still believe themselves to be too indispensable.

The book recently published by Dunod, co-authored by C. Midler, M. Alochet and C. De Charentenay, which retraces in detail "the odyssey of the Spring", allows us to understand precisely how an affordable NEVs ecosystem was structured and allowed the emergence of these technological and productive alternatives within the framework of a planning process that is both very determined and very flexible.

The authors call this 'managed Darwinism' and show how, after many twists and turns, it is possible to produce a real affordable electric car like the Dacia Spring and to manufacture it satisfactorily there.

Of course, bringing it up to European standards means that it is a few thousand euros more expensive than the target that Renault had initially set itself for China, but the fact remains that, following the example of what Renault had already done in India for the Kwid, it is by blending into this environment that the project was able to succeed. Gérard Detourbet, the father of the project who died in December 2019, used to say that a manufacturer who travelled the world with the same suppliers recruited "in-house" or by its "global sourcers" was certain to be charged prices for each component very close to "world standards" and thus lost most of the cost and creativity advantages that it could gain from its internationalisation.

What the book shows is that more than low Chinese costs, it is different ways of seeing the car, the market, the factories and the batteries that matter. Not being in China, or being there to do the same thing as at home, means, the authors tell us, depriving oneself of access to an essential part of the world industry and its capacity for innovation. Renault understood this late and was unable to exploit it in China - partly because its partner Dongfeng did not fully embrace the project. GM seems to have succeeded, with SAIC and Wuling, in integrating fully into this ecosystem. One wonders whether Volkswagen - whose very "global" operation is readily criticised by G. Detourbet - will be able to take the turn towards sinicisation.

The recent statements by Herbert Diess worrying about German diplomacy being a bit too watchful on the question of human rights in Xinjiang, where the car manufacturer operates a factory in the capital Urumqi with its Chinese partner SAIC, show that Volkswagen's top management is very nervous about the company's "Chinese dependence" and its current difficulties in gaining a real foothold in the Chinese EV market.

The recently announced reorganisation and the corresponding game of musical chairs tell the same story: in terms of volumes and profits, VW is heavily dependent on China and is gripped by the fear that the windfall may become increasingly difficult to sustain. Obviously, the idea is to decide less in Wolfsburg and to give the brands in China the necessary autonomy, but the road ahead and the history of VW's internationalisation justify a real concern on this subject: the group is, in terms of NEVs, around 5-6% of market share and, therefore, far below its performance. It is not certain that the ID3, ID4 and ID6 range will be sufficient to compete with the BYD and Hong Guang...

Of course, this question does not only concern China and VW. Indeed, what puts VW in difficulty in China is its top-of-the-range approach to the EV market, which contradicts Chinese policy and the proposals of the competition. As a result - and the US press is quick to note this - the expansion of BEVs in Europe and the US is strangely accompanied by rising prices, leaving China far ahead in terms of volumes. As a result, the ability of old (like VW) or new (like Tesla) Westerners to remain at the heart of the Chinese car game is being undermined, while their ability to structure the expansion of their domestic markets or other emerging markets with a credible mass-market offer is very poorly assured. Thus, an article on the Chinese offensive in Europe in Forbes points to the responsibility of European standards - very German-dependent, we might add - by emphasising that:

"European Union (EU) regulations were designed to help local manufacturers sell high-end, high-profit models by allowing heavier vehicles to escape financial penalties, at the expense of smaller vehicles. Until now, electric car sales in Europe have been dominated by expensive or very expensive vehicles. For the electric car revolution to succeed, the mass market is essential. So far, European manufacturers have been reluctant to serve the low-cost segment of the market because of EU rules. Investors fear that small Chinese electric vehicles will soon take over this sector, with Europeans watching."

Indeed, in the face of this difficulty, to which VW and the German manufacturers and equipment suppliers are not completely unfamiliar, one can either persist in defending the path of upmarket cars and ever-increasing safety requirements, convincing oneself that this is the best way to block the road to Chinese expansionist ambitions, or one can move a little more clearly away from the German path and demand that European policies promote a popular electric vehicle assembled in Europe and equipped with European batteries. This is not necessarily what VW would like to see as the standard in Europe, but for us in France, for Italy or for the new member states, it is worth considering.