China is on the Move

In transportation.  Drive, walk or bike through Shanghai, and you notice a stark different to your experience in the USA. The changing landscape includes bike sharing, raised sidewalks, and a little harder to notice for the untrained eye, those sleek green license plates on a small selection of lucky cars.

Image result for shanghai raised sidewalkOver the next 5 years, the Chinese government hopes to become the world leader in New Energy Vehicles (NEVs), particularly fully electric cars.  And while the Chinese government has stacked the deck in favor of Chinese manufacturers such as BYD, BAIC, and Chery, the sheer size of the population means foreign manufacturers can also land a substantial stake of the market.


Some background.

The Chinese government offers subsidies to consumers who buy electric.  They are substantial, but the total available registrations are limited, and have incentivized millions of citizens to sign up for lotteries in the hopes of winning a coveted green license plate.

The government awards other subsidies to local companies who manufacture their vehicles domestically.  The major manufacturers, BYD in particular, can produce relatively low quality, high mileage cars at reduced rates. This in large part accounts for their impressive success in the last 5 years.  Nevertheless, Tesla, by producing a high end, well-made car, and has landed a distinctive niche in the market. And now the playing field is changing. The government has recently announced that foreign owned manufacturers, by partnering with local companies and moving production to China, are eligible for the subsidies as well.


So what cars do Chinese consumers want?

Speaking for a 1.2 billion person population is unrealistic, but some commonalities exist. In the major cities, are a status symbol, and treated with care.  And electric vehicles are new, untested technology, so many people have safety, reliability, and smart connectivity at the forefront of their minds.  Concerns about battery life and safety are at the core of this, as well as the trend by all car makers toward automated smart control panels.


The secret to success.

Domestic manufacturers comprise the low end of the NEV spectrum.  Foreign companies will never become the low-cost option because the market is saturated and foreign manufacturing costs simply cannot compete. And Tesla currently dominates the high end, which more than anything sells a brand experience.  Consumers interested in status alone will gravitate to this place.

Thus, foreign auto manufacturers, looking to succeed in China’s NEV market, need to be deliberate and play to their strengths.  American companies, such as Ford and Chevy, have reputations for strength and power.  German cars like Mercedes and BMW are known for driving experience.  And many Japanese brands, including Honda, Nissan, and Toyota, put a premium on quality of manufacturing.  In vehicle design and marketing, these companies must typecast themselves.  By accenting one or two stereotypical brand features, and incorporating safety, reliability, and smart connectivity into the bedrock of their design, companies can find a niche in this large and ever growing marketplace.

And due to the size of the addressable market, companies like Ford, Chevy, and Toyota now begin to accept that whether inside China or out, NEV technology is the disruptive auto innovation that will take them into the future of the industry.