How China’s Makeover of the European Car Industry Works

Zaha Hadid Architects

While talk is currently riding high about electric vehicles (EVs) and the global electric car rush, Europe’s automakers are beginning to feel the heat from rising competition in China – where a government-driven boom in EV production is starting to weigh heavily on European firms.

A recent New York Times report details the evolution of EV production in China, which has seen its high-end EV makers share profits in return for the right to use the high-volume, high-volume brand names of established global names. Largely thanks to Chinese manufacturing capacities, EV sales now make up nearly two-thirds of the country’s total vehicle market.

One of the reasons for the EV boom in China is a U.S.-mandated quota program that forces automakers to increase their overall car sales on the mainland. While this incentive is now widely considered a failure, one specific part of the program worked perfectly: a mandate forcing Chinese automakers to develop an equivalent of every car brand in the world.

In order to meet those quotas, Chinese automakers collaborated with prominent global automakers and would-be partners to design and build follow-on cars. With the European automakers feeling the pressure, they have begun to vie to win back important Chinese client relationships.

The European automakers “can’t win if they just dominate Asia,” says Peter Clifton, a partner at Dentons China, an international law firm. “Chinese carmakers that previously used the European majors were not allowed to use their brand names in China, but now they can.”

Though China’s automakers also want to compete with their foreign rivals, there is an additional advantage to ceding future Chinese clients to European companies: market size. Global automakers have struggled with double-digit decline in sales in North America and Europe, so they have resorted to price cuts to stay afloat.

Chinese automobile manufacturers “will leverage lower pricing, stronger brand recognition in China because of their brands of late, and the power of promotion from domestic Chinese suppliers” to gain market share, Clifton adds.

For the most part, however, the European automakers were able to maintain sales levels in China during the 2008 global recession. However, greater competition means the European manufacturers will need to cut prices and bring new products to the market in order to compete with Chinese manufacturers.

Story and photo by Kate McDermott

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