The automotive industry has witnessed a tremendous development of vehicle electrification over the past decade, driven by a convergence of technological advancements, increasing environmental awareness, and supportive government policies. Even the turmoil and uncertainty caused by Covid-19 has not been able to delay this trend. In fact, 2020 to 2022 marked the fastest-growing period for electric vehicle (EV) sales.
Among all countries, China’s electrification journey has been arguably the most remarkable. Chinese automakers struggled to break through from the low-end segment in the era of internal combustion engines (ICEs). However, they have leveraged the ongoing mega trend to establish themselves as worthy (if not superior) competitors for the western EV brands. Nowadays, Chinese brands are dominating domestic EV sales, offering EVs in all price segments. This has been driven not only by several high-profile Chinese EV startups, but also by traditional Chinese automakers that have adapted and achieved great success in the market.
Having established themselves in the domestic market, what are the next steps for the Chinese automakers? Are they ready to embark on a journey to conquer the global market just as the German and Japanese did in the ICE era?
As a global leading consultancy, we at Simon-Kucher conduct an annual Global Automotive Study. Based on our most recent study results, we believe the time for Chinese automakers to go abroad has arrived.
EV technology shouldn’t hold Chinese automakers back
In the beginning, the EV market was niche and with limited options, instead of being the mainstream transportation choice it is today. This can be attributed to several major drawbacks, most notably high purchase price and “range anxiety” (insufficient range and charging infrastructure, long charging duration). Thanks to the tremendous advancements in battery technology and heavy investment from public and private sectors in charging infrastructure, we have started to see the vanishing of these drawbacks.
What are your main reasons for not considering an electric vehicle?
Our Global Automotive Study 2023 further revealed that manufacturers need to offer at least 400 km of real-world range to satisfy most customers. Interestingly, there were less EV owners expecting extra range above 500km compared to the total sample, indicating the current battery technology and charging infrastructure are sufficient for most of their use cases.
What minimum range should a fully charged EV have to be attractive for you?
We also asked the survey respondents a similar question regarding charging duration. We found out that most of the respondents have realistic expectations: keeping the charging duration below 40 min for 300 km range would cover the expectations of most customers, which corresponds to the charging technology today. In addition, showing the anchor of 10 minutes for refueling has limited effects.
How long a charging time would you accept when recharging up to a range of 300 km?
There’s no denying that improvement of electric range and charging duration will further increase EV consideration. However, the current EV technology, combined with the continually improving charging infrastructure and EV offering in various price segments, has made EV a viable option for car purchasers, which was also reflected in our study.
When you think about purchasing or leasing a new vehicle, which engine type will you consider?
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Chinese carmakers have the edge to compete overseas
China has undergone massive digital transformation in the past decade and Chinese consumers are now enjoying the convenience created by digitalization in almost every aspect of their daily lives. This has increased the general acceptance of innovative technologies among customers.
Intense competition in the local market has also pushed automakers to do everything possible to differentiate themselves from competitors. This differentiation effort goes well beyond technology innovation – design and business models have also played a critical role.
The result: China has the most open-minded customer base, whether it’s toward technology e.g., EVs in general, autonomous driving, and battery swaps, or toward new business models e.g., battery leasing, subscription pricing, and dynamic pricing. Such a market environment has forced automakers to constantly develop and test innovative ideas to keep up with customer expectations and market dynamics.
EV considerations in the US, Europe, and China
| USA | Europe Top 5 | China | |
|---|---|---|---|
| EV consideration | 51% for EV vs. 82% for petrol | EV (52%) similar to petrol (51%) | 89% customers would consider an EV for their next vehicle |
| Battery business model | Leasing: 49% Swapping: 71% | Leasing : 56% Swapping: 76 % | leasing: 73% swapping: 90% |
| Pricing models | Vehicle subscription: 48% Dynamic pricing: 48% | Vehicle subscription: 48% Dynamic pricing: 43% | 71% are open to subscription model 74% find a more dynamic pricing approach fair |
To what extent do you agree with the following statements regarding autonomous cars?
Also not to be ignored or underestimated are the Chinese auto suppliers. Having mainly served the western brands for many years in the past, the Chinese auto suppliers have gained profound knowledge in production and R&D. Some suppliers have even achieved technology breakthroughs in certain areas, with CATL being the most prominent example in battery technology. Numerous Chinese tech giants e.g., Alibaba, Tencent, Baidu, and Huawei have also announced their interest/investment in the EV industry, bringing a digital and IoT flavor to the market. The natural proximity between Chinese automakers and these local suppliers will potentially enhance their competitiveness, giving them the edge when competing with western brands, both currently in the domestic market as well as eventually overseas.
This uniqueness of the Chinese EV market (large market size, open-minded and demanding customers, fast pace of product iteration, fierce competition, sophisticated and innovative suppliers) has drawn significant attention from western brands and made them rethink their future China strategy. For instance, during the 2023 Shanghai Auto Show, Volkswagen announced its one-billion-euro investment to establish a new R&D center for fully connected electric cars in Hefei, China. In one of his recent interviews, Jörg Wuttke, the former President of the EU Chamber of Commerce in China, has regarded the Chinese market as a “fitness center.” Even as conditions in China become steadily more difficult, western multinationals “have to be there, it keeps you fit”
The timing will not be better than now
In our Global Automotive Study, we asked the respondents whether they will consider Chinese brands for their next car purchase. At first sight, the survey results did not look very encouraging, with India and the Middle East demonstrating the highest acceptance outside China. The more attractive and premium markets e.g., the US, Western Europe, and the Nordics showed relatively low consideration at only around 20%.
When you think about buying a new vehicle, which brands would you consider?
A deeper dive into the data revealed a more optimistic picture: the EV owners, EV considerers, and younger generations expressed a significantly higher consideration rate for Chinese brands, indicating that the general trend of electrification has been the number one driving force for Chinese brand consideration abroad.
When you think about buying a new vehicle, which brands would you consider?
However, with the EV consideration rate stabilizing but not growing in Europe and the US, the consideration for Chinese brands is unlikely to increase significantly in the short term. The implication is simple: Act now! Now is the time to enter the markets to convince customers with innovative products and build your distribution channel, service network, and brand reputation, all of which are crucial to gain customers’ trust and will take some time.
The Chinese market is large, but the world is larger. Think big and act strategically
Our Global Automotive Study has laid out the legacy of the ICE era perfectly: Germany and Japan are in the top three of every country's consideration. In return, the auto industry has enabled both countries to become thriving economies for almost half a century. Will China achieve comparable success in the EV era? What is the winning strategy for global expansion? How will legacy brands defend their market positions against the rising Chinese automakers? The answers to all these exciting questions will be revealed in the coming years and even decades.
How can Simon-Kucher help?
We at Simon-Kucher have a long history in the automotive industry, working together with suppliers, OEMs, and retail and service providers to achieve long-term, profitable growth. With a dedicated and experienced team located in all the largest automotive markets, we’ll work with you to develop your sustainable outlook for the future.
From advising on the electrification of a vehicle line-up to creating effective strategies to compete with emerging EV manufacturers, or business model reinventions to take advantage of shifting consumer behaviors, we can help you overcome the obstacles across all facets of the automotive industry.
Interested in learning more? Check out the results of our Global Automotive Study, where we surveyed more than 8,000 car buyers from 20 countries. Or simply reach out to Jan Yang for a more personalized discussion.
