For decades, German cars made a good showing on the Chinese
market. And earned their makers billions.
Meanwhile, the world's largest auto market has itself become a
major car-producing nation – with the help of Volkswagen and Co.
Putting the Germans‘ sure path to quick money on rocky ground.
“There's definitely elements of dancing on the razor's edge.”
Are the once-so-willing pupils rebelling against their former teachers?
“China uses the economic interests of outsiders, of international partners as a weapon.”
This shifting landscape will impact German carmakers.
“The economy in Germany, including the automotive sector, have for
many years ignored these facts and all the risks.”
Have the Germans fallen asleep at the wheel? What can they do
to hang onto their top spot in the fiercely contested global car market?
“If you don't go to China, you will risk the future of the German car industry.”
“It's a risky bet on China.”
“It's definitely quite a risky development that's taking place
at the moment because carmakers, German carmakers, German industry is
doubling down on investments in China. At the same time that economic and political,
and also geopolitical risks are increasing: dancing on the razor's edge.”
While investing in China is an increasingly risky business for
Germany's automakers, it was long a win-win situation for both countries.
The Germans were there when China was transforming itself from a nation of
bike riders to car drivers. China became the German auto industry's most important market,
accounting for some 40 percent of its total turnover. No other international
car-producing country is as dependent on the Chinese market as Germany.
It all began with the VW Santana. In 1983, Volkswagen set up a joint
venture in Shanghai to build this sedan especially for the Chinese market.
“As Volkswagen, we have also contributed to the quality level of our competitors
there. With the technology, work and outstanding autos we produce for customers,
we’ve left our mark on the market there, though we’ve certainly helped
bring about technological progress in the respective regions, too.
In essence, they have helped China learn from scratch and improve the automotive industry.
For the last 20 or 30 years, German car companies have been excellent
teachers and set an example for the whole Chinese auto industry.
For decades, the Chinese market was dominated by German cars.
The burgeoning Chinese auto industry didn’t even
try to compete and make cars with conventional combustion engines.
Instead, for the last two decades, China has focused its efforts on electric drives.
Government policies and subsidies motivated its industry to build
ever better electric cars that have left German EVs in the dust.
German automakers have captured just 5 percent of this rapidly growing market,
compared with the roughly 20 percent market share their fuel-powered models regularly reached.
Perhaps it’s because their past success was heavily dependent on traditional fuel cars,
and people tend to have different levels of path dependency. As a new company, we don't have any
paths to rely on, nor any baggage that can’t be discarded, so we can move forward more lightly.
Chinese brands like NIO and BYD profit from the fact that, for years,
the Chinese state has pulled out all the stops to make production of e-cars as autonomous as
possible. Like ensuring a steady supply of the raw materials necessary for the entire EV value chain…
Take BYD, which has just snatched VW’s crown as China’s market leader. It develops innovative
batteries and chips, as well as electric motors. That’s why the Chinese are so far ahead with EVs.
“Germany needs to reinvent itself in order to stay competitive internationally. And it
will not be the automotive production - Germany cannot compete with all what China has invested.”
But German carmakers aren’t willing to just accept defeat. They haven’t
given up the fight to become major players in the EV market.
“Volkswagen may not always have been the first to bring a new technology to market.
But when we did introduce it, we did it right,
and conquered the field. And electromobility is a challenge that we’re still working hard on.“
German car companies need to better understand Chinese consumer needs in
the areas of EVs -- and develop and validate their products accordingly.
For instance, young
Chinese buyers think Volkswagen’s electric models are lame, as they lack a karaoke app.
When it comes to infotainment software, German EVs lag far behind.
To better meet the needs of their Asian customers, German automakers
are setting up more R&D centers in China. And discovering that THEY now have much to learn.
“China has certainly become quite innovative and German carmakers want to tap into that.
They want to tap into local know-how when it comes to software development,
when it comes to battery development.”
“The German car industry is dependent on China, not just on sales, but also on technology. It's
the biggest risk if you don't go to China. China is the future. We can learn from China.
Our departments can learn from China. If we don't do that, we‘ll lose the race.”
German carmakers seem to have taken this message to heart.
VW, Mercedes and BMW are shelling out more than 5 Bbillion euros to
get cooperation agreements with Chinese partners rolling: for battery production,
and the development of self-driving cars and mobility software. Germany's auto
industry is doubling its investments in China, compared to recent years.
“China is the place to be. China is where we are at home.”
A targeted, long-term strategy… or just whistling in the dark?
“One of those steps is to make their China operations more autonomous, to kind of
create subsidiaries there that are more independent from the rest of the world.”
“They produce in China for China. This is going to have an immense impact on the German economy.”
Germany‘s foreign
minister Annalena Baerbock isn’t pleased when jobs and supply chains leave the country for
China. The German government is currently in talks about a new China strategy for German businesses.
“Should we, as the German government, should we support that? Or should we say:
If you want to go there, that's your corporate risk,
but we should not give you any investment guarantees to support that investment.
Because ultimately you are supporting trends that could hurt the German economy at large.”
So, with Chinese competitors biting at their heels, will German carmakers have
to find their way without government backing?
In China’s auto industry, more and more foreign managers are now being replaced by Chinese ones.
So what’s the relationship between German and Chinese automakers like these days?
I think there’s a Chinese term that describes this relationship well, which is "Zheng You". It means:
We are friends first, and we learn from and inspire each other in the same field.
“I would definitely say we are more competitors at the moment. And I think China is rolling out
the red carpet to those companies that it needs, right? So I think saying ‘We are friends’ might
be oversimplified here. I think China is very strategic in its outreach to foreign companies.”
Just how much longer will the Chinese “need“ German car companies?
And, after four decades of cooperation, what has the delicate relationship between China and
Germany wrought – other than a lucrative source of revenue for Mercedes, Volkswagen and BMW?
“We have the approach of change through trade. And China uses the economic interests of outsiders,
of international partners as a weapon. You always deal with the Communist Party,
if you are dealing with the automotive institutions. With every investment
that you do, also from the automotive industry in China, you are sawing on
the branch that you are sitting on - on your own liberal, democratic interests.”
Not to mention the looming threat of a military conflict – should China invade neighboring Taiwan.
“If it's going to be a highly military- influenced conflict,
that probably will bring the industry, industrial cooperation in the automotive sector to a halt.”
“There's this gamble that the peaceful coexistence is going to continue, that,
you know, the technology from China can be utilized going forward. You have maybe the
French carmakers like Stellantis, which has basically said: The Chinese market
is too risky. We should retreat. And I guess it will be a really interesting case study to
see maybe in 10, 15 years who was right. So I think, it's a risky bet on China.”
Still, other major carmakers, like Stellantis, aren’t as reliant on China.
So the uncertain outlook for doing business there isn’t as crucial to their survival.
But the future of the German auto industry will be decided in China:
Where German carmakers will have to navigate the fine line between success and failure…