The end of internal combustion engines will change the rules of the game

Internal combustion engines are nearing the end of their lives. In Europe, a deadline of 2035 has been set and, in the US, they have begun talking about a similar date to come into effect, which is already valid in California for example. But the end of internal combustion engines will change the car market in one fundamental way – it will remove the main barrier to entry for Chinese carmakers, and they cannot wait for this to happen.

Inconspicuous China is dominating the EV market

Anyone that knows at least a little about the Chinese car market knows that there are dozens of domestic carmakers that are literally fighting for a piece of the local market. And it’s not a small market. In 2010 it reached a million cars sold per month and just before the onset of the pandemic it was more than three million. The pandemic and ensuing global chip shortage pushed June sales to just over two million, a 28% drop from December 2020, but brought record sales of electric vehicles. They already account for 15% of all vehicles sold and their share is constantly growing (by 160% year-on-year). And Chinese carmakers are continuously pushing out new models. Even compared to the locally very well-established Tesla, the pace of production is breathtaking. At the same time the Chinese market represents 50% of the global EV market and McKinsey expects that by the year 2030, 9 million EVs will be sold in China yearly.

In the first half of the year, 1.1 million EVs were sold in China, while in other than the Tesla Model 3 and Model Y, the ranking of the top 10 best-selling brands was occupied exclusively by Chinese manufacturers. The Wuling Hong Guang MINI EV minivan is enjoying massive success, with an

incredible 181,810 units sold. The monthly sales of this mini-truck in China reach similar numbers as the European sales of the Volkswagen Golf. The top 10 is completed by BYD, Great Wall, GAC (GAIC), Li Xiang, Chang’an and Chery. BYD has been aggressively targeting Tesla, especially in recent months. However, Chinese carmakers are now chomping at the bit in other markets as well.

Why China is beating the US in electric vehicles

Inconspicuous expansion

The fact that the Chinese can gain significant traction is best shown on the Russian market. Russia does not have as strict emission limits as Europe or the US, so the Chinese can even compete with internal combustion engines. The Geely Group, the Chinese owner of Volvo and the 9.7% shareholder of the German Daimler, which last year founded a new EV brand called Zeekr to be launched this autumn, best shows how quickly the Chinese carmaker can succeed here. Geely only entered Russia last year, as part of its expansion out of China to markets in the Philippines, Kuwait, Saudia Arabia, and Myanmar. In Russia it offers the SUVs Atlas, Coolray, Tugella, and Atlas Pro. The latter, built on Volvo technology, climbed up to the ranks of the top 25 best-selling cars in Russia in June 2021, with sales increasing 300%. Coolray can be compared to the Škoda Karoq in terms of size, technology, and performance. In a price comparison, the Karoq starts at 14% more expensive for the base model, but is almost twice as expensive as a Geely when fully equipped. The Geely also comes with a 5-year warranty. Geely’s approach to the Russian market gives an idea of what such an expansion in the EV area might look like. The above mentioned Wuling Hong Guang MINI EV will cost only 4500 USD, a third less than the comparable Citroen Ami.

Western joint ventures in China will help the Chinese in the West

In fact, the expansion of the Chinese to the West may happen much faster than expected. The Chinese can benefit from their current joint ventures (e.g., SAIC Volkswagen, SAIC Volkswagen, SAIC GM, BAIC Hyundai, DPCA (Dongfeng and PSA), GAIC Toyota, GAIC Tesla, and many others), which Western carmakers had to establish as a condition of entry into the Chinese market. Additionally, the Chinese carmakers can benefit from their holdings in Western carmakers such as in the case of Geely or SAIC (GM, Roewe).

China took Norway by storm

The Chinese expansion into lucrative Western markets has already begun. The most lucrative market, Norway, where B/PHEV has reached an incredible 84.9% of total sales in July 2021 with 17,323 cars sold, has seen the entrance of the Chinese BYD with its family SUV Tang. BYD wants to sell 1500 of those vehicles this year and is already operating on Scandinavian markets with its electric buses. On one hand, entry to Norway is much easier than to other European markets, but on the other hand, it is the most competitive electric vehicle market in the world.

At the same time, BYD, as in China, will meet its match mainly with Tesla, who has nearly doubled the sales of the 2^nd most popular electric car, the Ford Mustang Mach-E, with sales of the Model 3 in Norway. The target of 1500 cars sold in the first half of the year in Norway could be enough to place BYD in 10h place, which was occupied by the “British” MG ZS EV with 1579 cars sold. But it may be worth remembering that MG Motor was bought in 2005 by the Chinese Nanjing Automobile Group, a member of none other than SAIC, which is actually has a joint venture between VW and GM in China. In addition, the 9^th place position with 2349 cars sold in Norway belongs to the Polestar 2 model, part of the Chinese Geely. So, in fact, Chinese electric cars have been quietly building a presence in the West for quite some time.

How to prepare for the Chinese? They are not afraid of new business models

Chinese carmakers have long understood that classic sales models are dead, or that they do not work so well with EVs. In addition to the classic model of owning a car or leasing, you will often come across a model for battery leasing in China. You can buy a car from the carmaker, but you will get its battery in the form of a service. Therefore, you don’t have to worry about its capacity decreasing, subsequent exchange, or disposal. The Chinese thus eliminate the biggest barrier to purchase, especially for cars with low battery capacity, which are logically cheaper.

In addition, some dealers have started offering another model – you own a vehicle without a batter, you are leasing a battery, but not a specific one. So, when you need to hit the road quickly, you just have the battery replace by a freshly recharged one and you’re driving. Naturally, such cars are built for this service so that the replacement only takes a few minutes. Carsharing is also very popular, which allows you to rent an EV for a specific number of minutes.

So how can you prepare for the expansion of the Chinese? It is important to know your customers and what they expect from their car. But you must also be prepared for the rapid introduction of new business models, which are so far unusual for Western carmakers. A specialized flexible cloud-based Automotive CRM for car dealers can help you with this, which will not only easily help you add new brands and models to your portfolio, but also introduce new sales and service models using all the existing information you have about your customers.