26th April 2024, 14:59
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| The Growing Global Domination of Chinese EV Makers China's booming EV Market One of the most remarkable developments in the global electric vehicle (EV) market in recent years has been the phenomenal growth of the Chinese EV industry. China produces almost 70% of all new EVs made in the world in 2023. EVs made up 31% China car market and 37% of Chinese car production in 2023, when accounting for exports. More than 100 new EV models were launched in China in just the last year! China is now the largest exporter of automobiles in the world, having just overtaken Japan by exporting 4.91 millions cars in 2023. This is more than the entire annual production of all passenger cars in India) and EVs make up more than 40% of China passenger car exports.  BYD recently sounded the death knell for its western competitors by launching the Seagull pure electric hatchback at a price of $9668. This has shocked the entire global EV industry, especially the big players in the US including Tesla and the big three Detroit Best auto makers. Chinese EV have become a burning topic in the campaigning for the upcoming US presidential election. With Donald Trump crying that there will be a bloodbath due to import of Chinese EVs if he does not win. The US commerce secretary recently said that letting millions of Chinese EV ply on American roads would give China the ability to shut down the US, by remotely turning off all the EV simultaneously. In February, Tesla CEO Elon Musk warned investors in an earnings call that Chinese EV firms will "demolish" their Western rivals if trade barriers aren't put in place to limit their expansion. A highly Supportive Business Environment The Chinese EV industry has benefited immensely from highly supportive government policies, free availability of capital, large domestic demand, and admittedly, strong innovation capabilities. Besides state-owned players like SAIC, the local provincial governments in China’s 20+ provinces (who compete to create champions in various industries from their respective states), often inject billions of dollars of capital into local players in the guise of buying company share stakes at unrealistically high valuations. Government handouts for electric and hybrid vehicles were estimated to add up to $57bn between 2016 and 2022. This means, many EV companies get richly funded, even if they lack the wherewithal to compete with the best of the players across the country, which results in fragmentation - there are over a 100 EV players in China currently! Average profit margins of the Chinese industry are as low as 5%! This makes it a very hard business case for private enterprises to garner the necessary investments and therefore, the industry is highly dependent on national and provincial government incentive support to grow. The current strategy of the governments in China seems to be to let a 1000 flowers try to bloom – then pick and choose the ones that actually sustain. There seems to be a shift and approach recently with recognition that consolidation of the industry players is required to attain global scale and access. As the below chart shows five of the top ten companies that received the maximum government subsidies in China in the first half of 2023, were domestic Chinese EV companies.  Europe Calling European auto makers stand lose the most from the Chinese onslaught. The import duties levied on Chinese EVs s are not very high in Europe and these vehicles are already flying in most countries. European consumers love them, as the EVs made in the EU are so expensive that many consumers cannot afford them. Imported Chinese EVs offer an attractive alternatives as they match many of the domestically produced EVs feature for feature and powertrain for powertrain, and yet cost 40-50% less the locally produced comparable cars. Chinese firms have been consistently buying up European automakers in the last several years. For example, Geely, a big Chinese carmaker, owns several European brands, including Volvo, Lotus and Polestar (an EV-only spin-off from Volvo). The Euro block is not able to take a stern stance on Chinese EV imports or impose penal duties, as Europe and China are each other’s largest trading partner, with China supplying 20% of all imports across commodities into the EU and accounting for 10% of all EU exports. Retaliatory action by the Chinese to any duties imposed on their EVs by Europe could harm Europe severely, specially at current time where the economy is quite turbulent with the wars going on in your backyard. Chinese car makers are actively working on setting up local manufacturing in Europe, North America and South America, to partly counter the threat of higher import duties for cars shipped from China. For example, the US has a free trade agreement with Mexico, and multiple Chinese companies are aiming to set up local manufacturing there to benefit from this FTA. However, it does not take long for the destination country to figure out clever barriers to isolate and slow down Chinese carmakers trying to make use of this route. Countries such as UK are trying to exclude the Chinese companies assembling EVs in EU from enjoying these lower tariffs, by stipulating that a majority of the core components and value addition in making the EV needs to come from the EU to enjoy the lower import duty.  The Inflection Point The rapid rise of EV In China can be traced back to a sharp policy shift made by the Chinese government after Beijing and Shanghai became infamous for being the most polluted cities in the world in the middle of the last decade. In early December 2015, Beijing city had to be shut down due to severe air pollution. In 2017, the Chinese government allowed Tesla to make cars in China without a local partner. Tesla then opened a factory in Shanghai in 2019. This was part of a concerted effort to promote the adoption of EVs. Since then, the market has grown at an astonishing pace and it is estimated that 80-90% of all cars sold in China by 2030, will be either EVs or strong hybrids. In Q4 2023, BYD overtook Tesla to become the world’s largest pure EV passenger vehicle maker by volume. Its rise has been meteoric. As the chart below illustrates, while Tesla’s global volumes grew by approximately 140% in the last 3 years, BYD’s volumes grew by 1000% in the same time. BYD has been mainly targeting gasoline engine cars to gain market shares, with its “Electric cheaper than Gas” slogan.  To tackle slowing EV demand in China, BYD has relied on a series of price cuts. Recently, Reuters reported that Tesla may have cancelled the long-promised inexpensive car (Model 2) that investors have been counting on to drive its growth into a mass-market automaker. Target pricing for this vehicle was pegged at $25,000, however the launch of similar electric cars by BYD at $10,000 price point has gutted these plans. This signifies a major shift in the company’s vision – In 2006, Elon Musk declared that Tesla’s mission would be to eventually make available affordable EVs for the mass market once it made enough profit from its premium vehicles. Trade Barriers Recently, Elon Musk said that Chinese EV firms will demolish most other companies around the world, unless trade barriers are established. There is intense lobbying happening in many countries to erect stiff trade barriers against Chinese EV imports. The European Commission launched an investigation late last year, into whether to impose punitive tariffs to protect European Union producers against cheaper Chinese electric vehicle (EV) imports, it says are benefiting from state subsidies. Chinese industry bodies object vehemently, calling this n one-sided probe stacked against the interests of the Chinese manufacturers.  In the future, one can expect there are majority of countries which have a domestic EV industry they are trying to develop, will impose some form of tariff or non-tariff barriers against Chinese EV imports. India is a stark example, with very high tariff barriers on imported automobiles, including EVs. It recently introduced a scheme where global EV manufacturers willing to commit significant investments into local production will enjoy lower import duties for a limited period of time on their more expensive models. This is a delicate balancing act between protecting local EV industry which aims to cater to the lower to mid end of the domestic EV market, versus imports that would address the top end of the EV market. Car Company? Or Tech Company? There is a marked difference in the vision and strategy of Chinese EV companies compared to auto makers in the rest of the world. Many young Chinese EV companies consider themselves to be tech companies who also happen to make EVs. Earlier this week, Xiaomi introduced its brand-new EV – the SU7 (Speed Ultra 7). Xiaomi aims to use is extensive experience in electronics and home appliances to make superior electric vehicles and become a top five maker globally in five years. The SU7 takes aim directly at Tesla Model S and the Porsche Tycan – only, it is being sold for a quarter to third of the price of these competitors! Huawei, a telecoms firm, and Baidu, a search engine, have also teamed up with car firms to make vehicles. One of the reasons to fear the Chinese EV makers is that they are able to pull off much shorter product life cycles effectively. The average lifespan of one generation of a car model in the western world (which are used to making ICE cars) is about seven years. For instance, the Q8 etron was introduced in 2018 and continues to sell with various tweaks and facelifts even today after six years. This cycle provides the automaker with many years of development time and testing time to prepare the next generation model. On the other hand, Chinese carmaker are introducing EV and refreshing them at a rapid rate with much shorter life cycles. This is a completely different clock speed than what European and American car companies are used to. Even Tesla, which is considered a highly agile company, has been selling the same Model 3 since 2017, with only one facelift in between that was introduced in 2023. Manufacturing Process Innovation Chinese auto makers are putting in an extremely level of automation in their factories. It also involves some breakthrough innovation in production scheduling practises. Traditional car production lines, pioneered by Ford, follow a continuous flow, moving to the next step immediately after completing a task. In ideal conditions, this method streamlines the process and reduces production time, and is the standard practice in large-scale industrial manufacturing. However, car production has become more complex, and a purely linear model isn’t always the most efficient for all stages of production. Therefore, this model is continually evolving in its application. NIO’s new factory has multi multilevel parking structures by semi-finished cars are stacked. The vertical car garage functions as an intermediate station bridging two production processes. It temporarily holds vehicles or semi-assembled car bodies, organizing and combining them as needed to align with the requirements of various workshops or processes for batch operations. For example, in the painting shop, the paint pipelines are designed to accommodate various colours, but changing colours typically involves completely emptying the pipeline, adding new paint, inspecting, and changing the spray gun. The common industry practice is to change paint after painting around three or four cars. In contrast, stacking cars in the intermediate vertical garage prior to the paint shop and re-organizing the subsequent flow sequence on the production line based on paint colours, can enable up to 20 cars to be painted simultaneously. This reduces production costs, reduced paint waste, increases efficiency, and stabilizes the production process by lowering the number of colour changes required.  This is in contrast to the textbook Toyota Production System, thought to be the mast efficient in the world and adopted by so many global manufacturers, which requires that changeover be very rapid. In this system, vehicles would arrive in a linear sequence and the station would change over its operation ever more rapidly, through continuously analysing and improving the changeover process, so that a “production volume of one” can be achieved. This model assumes that the sequence of arrival of the chassis on the line cannot be altered. The new production model turns the assumption on the head, whereby those operations with inherently longer change over times are not actually interrupted for changeover, instead, the sequence of arrival of the incoming chassis is altered, to reduce the number of changeover required. With advanced robotics and vertical stacking technologies, this type of alternative production philosophy to achieve efficiency and speed of production and reduce cost is perhaps the way to go in the future. Another example is on production lines where different body shapes can be assembled for the same underlying platform. Although most modern car manufacturers pride in the fact that their platforms are highly flexible and multiple body types can be built on the same production line in a sequence of just one unit at a time, this is not exactly the most efficient from an assembly operation perspective. It is more efficient to have groups, of cars belonging to the same body type arriving in sequence, before switching over to another body type, as it is easier and faster on the assembly operation itself. Intermediate vertical stacking and sequence re-shuffling can make this possible Another innovation is that adjacent to the production line in the final assembly workshop, Nio has set up dedicated work areas for assembling components like tailgates, dashboards, windshields, and panoramic sunroofs. The vehicle body is transported to and from these work areas using automated guided vehicles. While traditional lean production methods utilize the same machine to assemble a set of component parts, Nio’s approach employs robots to autonomously assemble them on separate “islands.” Structuring certain operations in this manner can boost production efficiency and flexibility. By isolating “islands” from the assembly line, the method is also able to minimize the impact issues in any single island process from affecting the overall production pace. This approach is highly adaptable to changes in different components, easier to implement, and less disruptive to the primary assembly line’s tempo. According to Nio, upgrading a production line to incorporate non-major changes, such as adding a feature to their ET5 model, would only take about two weeks at the Nio factory, whereas other companies might require up to six weeks. This creates competitive advantage in faster pace market for newer variance and introduction of new features. What Next? The Chinese EV industry is not content with dominating its domestic market, but has ambitious plans to dominate the industry globally. They are disrupting the established pricing models of manufacturers such as Tesla, BMW, and Mercedes. The recent sharp drop in Tesla share price and the internal announcement of the company abandoning their low cost, entry-level EV, are a clear hint that their strategy is succeeding.  Chinese players are forming partnerships and alliances with local automakers, suppliers, and distributors in overseas markets (example - CATL's joint venture with Honda, and BYD’s battery sourcing agreement with Mahindra). They are leveraging their cost advantages, technological innovation, and diverse product offerings to appeal to vastly different customer segments. Chinese EV manufactures are opening their purses wide, and can well afford to do so, given the plentiful access to cheap money. They are investing, not only in Research and Development, but also in branding and marketing - to enhance their reputation and credibility among international consumers, regulators, and media, A good example of BYD's sponsorship of the COP26 climate summit. These companies are also re-inventing manufacturing and supply chain processes. They have come to the realisation that the First Age of auto manufacturing using classical assembly line techniques, initiated by Ford over hundred years ago, nor the second Age, based on Just In Time, invented by Toyota 50 years ago, will fit the EV age. The future of automobile manufacturing will be dominated by Advanced Personalisation, Shrinking Product Life Cycles, driven by massively cheaper robotic capability and rapidly changing manufacturing process technologies. I fully expect Chinese EV makers to invent the next Age of auto manufacturing, throwing out outdated practices and bringing in the full power of robotics and automation.  Strategies that Indian EV makers can adopt to counter the coming Chinese competition Close home, the BYD Seal has been challenging the BMW i4 for a few months now and sitting the Indian market at half the price of the i4 but includes a significantly higher powered variants as well. Competition is coming hard and fast in every segment. The recent reduction in prices of the MG ZS EV is creating a dent in the sales of mid-size SUVs powered by ICE and Hybrid engines. below are some strategies that Indian manufacturers could think of to counter the abominable competition that is coming to our shores very fast. 1. Become an EV leader for the world’s developing markets: Developing markets like India have peculiarities that the more developed countries such as China, the USA and Brazil may not have. These include very rough roads, erratic power supply, hot and dusty weather conditions, exposure to water during floods, etc. the Indian EV manufacturers have an opportunity to develop not only domesticity but also be able to export to other markets with similar characteristics. For this strategy to work, Indian EV manufacturers have to be very agile in their learning curve, being able to capture detailed data from their flat, already on the roads relating to failure, modes, service, case, histories, etc. 2. Emphasis on low cost serviceability The Indian market is one of the most value extending markets in the world. Products are not easily thrown away or scrapped, rather their handed down across multiple buyers and used to the last economic possible point of the useful life driving around in the streets of India you can still see Maruti 800s from the early 90s, the Toyota Qualis and first generation Honda Citys from the late 90s, and the first generation Innovas from 2005 onwards in plenty. Many civil similar export markets are likely to be putting equal emphasis on the ability to extend the life-cycle of the car and have it serviced at a reasonably low cost point. Neither the luxury EV manufacturers nor the volume manufacturers from China put much emphasis on the suspect. For luxury manufacturers, a battery replacement is not a significant cost as a percentage of the vehicle cost and most owners may not mind such a replacement a few years after purchasing the EV. In the case of Chinese mass market players where speed and volume are more than focus. There is less management, attention and service and life-cycle cost. 3. Globalize by Expanding presence and reach in other emerging markets where the demand for EVs is growing rapidly and the competition from the Chinese EVs is less intense. Indian EV makers can leverage their existing networks, reputation, and cultural affinity to establish strong footholds in these markets. 4. Advocate for favourable government policies and regulations Policies and regulations need to support the growth and development of the Indian EV industry, such as subsidies, tax incentives, infrastructure development, and standards harmonization. Indian EV makers can also engage with the government, industry bodies, and civil society to raise awareness and promote the adoption of EVs in the country. Sources: 1. Global Electric Car Sales Trends – International Energy Agency’s “Global EV Outlook 2023” report: https://iea.blob.core.windows.net/as...7/GEVO2023.pdf 2. Chinese Car Makers dominate top subsidy Recipients: Nikkei Asia: https://asia.nikkei.com/Spotlight/El...n-in-subsidies 3. New Car Registrations in Europe Data: Autocar Professional March 2024 https://www.autocarpro.in/news-inter...-europe-119853 4. BYD Surpasses Tesla: Statista 2024: https://www.statista.com/chart/31496...les-tesla-byd/ 5. Shorter Chinese EV product Life Cycles: Wall Street Journal: https://www.wsj.com/business/autos/h...-else-df316c71 6. About Xiomi SU7 : Mint: https://www.livemint.com/news/xiaomi...695501163.html 7. Manufacturing Innovation at NIO: a. Youtube channel of CCTV Video News Agency: b. NIO’s LinkedIn Channel https://www.linkedin.com/pulse/peek-...ing-nio-lqnzc/ Last edited by Aditya : 21st May 2024 at 05:35. Reason: Sources added |
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11th May 2024, 22:35
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| Distinguished - BHPian  | |
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2nd June 2024, 13:15
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2nd June 2024, 14:46
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| Team-BHP Support  | Re: The Growing Global Domination of Chinese EV Makers Quote:
Lets get the terminology right Complexity of a Product usually refers to the sheer amount of components that might go into a vehicle and also the difficulty in manufacturing. In EV's, it is much more simplified - There are less parts, less complex Variety/Variations - Paint Choices - Powertrain Choices - Trim - Transmission Transmission - simplified - no transmission Paint - most companies reduce the choices Powertrain - This is simple for an EV - Bolt the desired pack from a set of components. Control power via software. Trim - Most of the variations are bolt on/stick on stuff except for sunroofs The simplicity of design allows one to make unnecessary sophisticated innovation. Quote:
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I won't deny the strides that China have made in the EV space including fit and finish. Having looked at the BYD Seal and Dolphin - they are at snapping distance. | ||||
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3rd June 2024, 22:41
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| Senior - BHPian Join Date: Aug 2008 Location: Bombay
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