From copycat to follower, and now a leader

China’s automotive industry, for so long a follower of established global manufacturers, is now pulling alongside and preparing to overtake.

If you are unfamiliar with brands such as Lynk & Co and WEY, it won’t be for much longer. Their relentless ambition and agile business models illustrate how domestic players will inspire and shape the future of the industry.

Watching this fascinating scenario develop first hand, we have identified five reasons why we believe China is emerging a genuine global industry leader.

Quality in quantity

First, they have really come to grips with creating better looking, more robustly-built vehicles. As recently as ten years ago, the Chinese car-buying public had to endure heavy-handed design, clunky mechanicals and fragile build.

But now, exposed to consumer goods that developed nations take for granted, Chinese public are much more discerning and demanding and car manufacturers have risen to the challenge.

By acquiring better technology and aesthetic insight through joint ventures with established brands, and adding their agile and high-tech touch, Chinese manufacturers have almost closed the quality gap.

Crucially though, the price differential between their better-built cars and those from established markets remains just as wide. This is partly why Chinese domestic brands’ market share has grown 10 per cent in the past three years.

Built-in value

It has also contributed to the second trend we’ve noticed. Better quality in new cars means second-hand values do not suffer from the cliff-edge plummet they used to.

Residual equity is firmer due to better reliability and increased desirability. This supports buyer confidence as they now don’t face crippling depreciation. The cars don’t just hold the road better, they hold their value better too.

Rethinking ownership

With better cars and a stronger resale market, Chinese manufacturers have grown in confidence and as a result, grown their distribution footprint in smaller cities. Overall, they have a more agile approach, harnessing the power of e-commerce and actively promoting car sharing.

Manufacturers such as Lynk & Co are reimagining the buying process with purchasing and servicing collection now delivered by their online platform. They are disrupting traditional usage models with subscription packages (akin to mobile phone contracts) and communal ownership options.

The effect is clear, simply by looking at sales figures for the first two months after the launch of Lynk & Co. Owned by Geely who also own Volvo, they out-sold the competitors in their sector from a standing start. They left Jaguar, Infiniti and Tesla in their wake, with only Porsche outperforming them.

They will not be in second place for long, especially if they follow the trend set by another Chinese premium brand WEY.

They entered the SUV market in mid-2017 and by January this year, had already established themselves among the top five premium brands selling an incredible 20,300 units in that month compared to Jeep’s 15,000 and Volvo’s 12,600.

Growing reputation

Our fourth observation is linked to an increase in the Chinese people’s appreciation of quality and design, as it has also improved the credibility of Chinese manufacturing.

The worldwide success of consumer electronics brands such as Huawei, Oppo, Vivo, Xiaomi and home appliance giant Haier, contributes to domestic car-buyer brand esteem, but we also see it helping augment the domestic car manufacturer’s international reputation.

Although created exclusively for the home market, Nio’s ES8 SUV is now touted as a credible rival to Tesla, not least because of its clever three-minute battery-swap refuelling feature, stunning exterior design and in-car AI system.

Sustainability

Appreciating their role and responsibility in the global car market leads us to our final observation about China’s new approach.

By supporting the manufacture of more environmentally sustainable cars, China has positioned itself ahead of most other countries.

Where Western markets wrestle with how to wean people off diesel power, China takes a more positive approach — actively subsidising manufacturers who show zero emission innovation.

They grant ownership licences easily to electric car buyers, in contrast to combustion-powered drivers who either have to enter a lottery or pay sky-high prices for registration plates.

And crucially, they insisted that 10 per cent of manufacturers’ annual sales by 2019 must be ‘new energy vehicles’ (NEVs), rising to 12 per cent by 2020. Despite pushbacks, regulation is clearly positively powering the development and uptake of hybrid and fully electrified cars, with their ultimate ambition of a total eradication of combustion engines arriving in the not-too-distant future.

Rather than resisting a move away from petrol and diesel-powered vehicles, China is openly embracing it as a new opportunity.

Without a hundred years of car-making heritage and legacy hanging heavy round its neck, or a population brought up knowing only combustion and therefore sceptical of NEV, China’s nimble approach signifies a crucial moment in the global development of the automobile. A transition from copycat to follower to ground-breaking, dynamic leader.

Rana Deepender is CEO for Kantar’s Insights division in Greater China, while Guillaume Saint heads its global Automotive business