China is and will remain the most important market for German carmakers. Beijing is continuing to woo the Germans, as we saw when the Ministry of Industry eased up on controversial e-car sales quotas. The People’s Republic is presenting an open-minded image, but it is already clear that doing business there will get tougher for the Germans. China wants to lead the global car market. And to do that, the political brass is relying on a mix of subsidies and covert protectionism.
The Germans have ignored the subject far too long. VW, Daimler, and BMW have been resting on the laurels of their successes in China. For years, the Chinese government has been signaling that they should focus on future technologies like electromobility and automated vehicles (AVs). But they waved that off. The market isn’t ready, they said in unison.
But conditions have changed. More than any other country in the world, China is radically focusing on developing electromobility. More than half a million e-cars and hybrid cars, vehicles with electric and combustion engines, were sold there last year. At first, Beijing's economic planners were bogged down in the finer details and lagged behind their expectations. But, they have readjusted and now business is really taking off. Nowhere will this be more evident than at the Auto Shanghai 2017 international exhibition starting on Wednesday.
BMW, Daimler, and Audi are poorly represented among the electric cars humming down the streets of Beijing, Shanghai, and Guangzhou. Vehicles from China’s king of e-cars, BYD, or the state-owned SAIC and BAIC, make up the bulk, while wealthier Chinese buy Tesla. Elon Musk’s company was able to triple its Chinese sales to cross the $1 billion mark last year.
Beijing hasn’t issued licenses for batteries from Japan and South Korea, so if German carmakers want to avail of buying premiums for their vehicles, they’ll have to use Chinese batteries.
The Germans are now pressing down on the accelerator to catch up and all the major carmakers have announced ambitious plans. The world's largest automaker Volkswagen is bringing its first Chinese-made e-car onto the market and hopes to sells around 400,000 e-cars and hybrids in China in 2020. Five years later, it’s aiming for 1.5 million.
This new mindset is long overdue but good intentions aren't enough. While bosses procrastinated, ensconced in the company headquarters in Germany, Beijing had already busied itself setting new standards. An e-car that is licensed in Germany won’t be allowed on the streets in China with the same specifications. Those wanting to use Chinese charging stations will have to use Chinese technology.
China wants to bring all the steps in the production chain to the People’s Republic. Cars must be manufactured domestically if they want to enjoy all the subsidies, creating another set of problems. Beijing hasn’t issued licenses for batteries from Japan and South Korea, so if German carmakers want to avail of buying premiums for their vehicles, they’ll have to use Chinese batteries.
Company executives are working intensely on solutions. Strategists in Wolfsburg, Munich and Stuttgart are even considering producing the batteries themselves to ensure quality and retain more of the value added within the company. Daimler’s China head, Hubertus Troska, has already publicly considered setting up a battery factory in China.
If German carmakers do start mass producing e-cars in China, they face another problem. Beijing dictates that the state must be given constant access to the driving profiles of all electric cars in China. However, producers want to establish data protection as a German trademark in e-mobility. From an industrial policy point of view, it also leaves German carmakers vulnerable to espionage as production secrets can be pulled from the sensor data that Beijing wants to tap.
The Chinese government is already looking beyond e-mobility to AVs. State economic planners have established a complex system of precisely coordinated standards, subsidies and regulations intended to ensure local businesses dominate the production chain. Satellite navigation is supposed to be handled by the Chinese BeiDou system and only Chinese companies are granted unfettered access to all cartographic material in the People’s Republic.
China is placing itself to one day control the lucrative business of e-mobility and, later, self-driving cars. The Germans are lagging behind, and they themselves are partly to blame for waiting too long to take e-cars seriously. While it takes the scenic route, Beijing is in the fast lane in establishing a highly elaborate system of state support, funding and protectionism. Everything serves one goal: Catapulting Chinese businesses to the world’s top spot.
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