How can China surpass the United States and Europe in the automotive industry?

"The survivors will be very strong," said the president of XPeng, "but it's a cruel and competitive process."

BYD reduced the prices of 20 models in May this year, including the entry-level Hai'ou model priced at 55,800 yuan (7,789 US dollars), raising concerns about China's electric vehicles falling into a price war.

Chairman of Great Wall Motor believes the automotive industry is currently in an "unhealthy" state and points out that the increasingly common practice in the Chinese automotive industry is to sell new cars as "used cars" with significant discounts to clear excess new car inventory.

Tesla's limited edition models (Reuters)

To compensate for losses, Chinese automakers are racing to expand global exports. In many countries, their cars are priced similarly to those of global automakers, approximately twice the retail price of the same brand in the domestic market.

"Traditional automakers cannot compete on price because Chinese automakers always win," said the managing director of consulting firm "Stacks," who has worked with both global and Chinese automakers. However, in markets such as Europe, established global automakers "still understand their customers better, and they invest heavily in new models, continuously improving their products."

City of Enterprises

BYD's sales in China grew from about 400,000 units in 2020 to over 3.7 million units last year, covering a wide range of models. BYD announced that it added 200,000 employees in a recruitment campaign between August and October 2024, exceeding the total number of employees at General Motors.

BYD's current market value is $141 billion, three times that of Volkswagen, but still cannot match Tesla's market value of nearly $1 trillion - the highest among all automakers.

However, BYD's product launch speed exceeds Tesla's, and its annual sales are more than twice that of Tesla.

Tesla has five models, of which only two are mass-market models. According to market data, since Tesla launched its best-selling "Model Y" in 2020, BYD has launched over 40 new models and 139 upgraded or renovated models.

Different from Tesla, BYD's hybrid electric vehicle business is also thriving. The number of models and derivatives from the four brands under its umbrella is so numerous that even the company spokesperson struggles to remember them all. "Too many," she laughed, "our strategy is different from Tesla's."

Another factor that keeps BYD efficient is its ability to produce most of its components internally rather than purchasing them from suppliers. For example, according to data from analysis firms, 75% of the parts of BYD's electric sedan Sail come from internal procurement, compared to 46% for Tesla's "Model S" and 35% for Volkswagen's "ID.3" electric vehicle.

Chinese automakers' engineers prefer to make changes to their designs and components later in the development process, while foreign competitors use strict schedules and precise review milestones.

This difference became evident when Toyota and BYD jointly developed the Toyota BZ23 electric car, which is sold only in the Chinese market. An employee said that the Toyota team was "shocked" by BYD's willingness to change designs and components late in the development process.

Toyota employees added that the Japanese company, known for reliable cars and meticulous manufacturing processes, rarely makes major changes after determining the specifications of a model in the early stages of a four-year development process. Unlike most Chinese automakers, Toyota usually builds six different prototypes of a model and rigorously proves its reliability through thousands of miles of test drives.

Toyota employees added that BYD's quick actions impressed them, but they were concerned about its potential impact on long-term reliability. One source said that BYD provided "a series of lessons learned," but these lessons rarely apply to Toyota.

The source added that skipping prototype and road tests and making design changes at the last stage, which could affect quality, "is completely unacceptable in our world," and added that the automaker remains skeptical about BYD's long-term durability and is closely monitoring it.

BYD Chairman Wang Chuanfu told reporters as early as 2008 that BYD would one day surpass the world's largest automaker, Toyota. Recently, the Chinese company told investors that it plans to export half of its cars by 2030. If this goal is achieved, BYD will surpass Toyota.

However, maintaining rapid sales growth for BYD outside of China may be difficult, especially with trade barriers set in other major markets, such as the United States - where Chinese brand cars are almost banned.

Tu Le, founder of the consulting firm "Sino Auto Insights," said regarding BYD's global sales goals: "If it can't enter the U.S. market, BYD will find it hard to achieve this goal."

As China's largest auto exporter, Chery has sold 1.14 million cars. Its cars are sold to more than 100 countries

Traditional Companies "Can't Control the Speed"

The luxury brand Zeekr, under the Chinese auto giant Geely, has refined its production methods, which were initially developed by Japanese automakers, allowing multiple models to be produced on the same production line.

During a visit to the factory of this enterprise in Ningbo, Zhejiang Province, Reuters found that a production line continuously switched between producing the Zeekr 001 sedan, the 009 minivan, and the electric sedan Polestar 4 from another brand under Geely.

Continuous engineering design accelerated the entire process from concept to assembly. According to the vice president of Zeekr and project manager of multiple models, after work ends each day, engineers at Zeekr's Shanghai and Hangzhou offices transfer their work to colleagues at the design center in Gothenburg, Sweden, enabling 20 hours of continuous development.

All companies have adopted these technologies. The automotive industry has adopted digital design, virtual reality, and artificial intelligence to varying degrees, but industry experts report that Chinese automakers like Zeekr have increased their investments in these technologies to shorten development time.

Engineers in Gothenburg connect various components to a "hardware-in-the-loop" system to run high-speed digital simulations, testing important components such as turn signals in half an hour and providing test results.

More critical components such as brakes or suspensions require several days of testing. Zeekr also has a simulator similar to a car, where real drivers can test the systems by running them in digital driving scenarios without testing physical products.

Traditional automakers often use linear operational models, where departments queue up waiting for parts or system development. Chinese automakers, however, use parallel deployment teams. Zeekr's vice president estimates that using "traditional processes" could double the development time of a car.

Compared to many global automakers, Chinese automakers use more unified car platforms and components across their vehicle series, saving time and money. According to a technical and commercial feasibility expert at Zeekr, the electric vehicle manufacturer is using artificial intelligence to extract data from a digital library containing 20 years of Geely designs to tell engineers which available parts perform best and are the cheapest.

At the Shanghai Auto Show in April this year, when asked about the most challenging aspects of the Chinese market, Matt Nune, Executive Director of Design for Buick at General Motors, did not hesitate to answer: "Keeping up with their speed is a constant challenge." Nune added that Buick's goal is to reduce the model development time from four years to two years.

The Buick GL8 is a luxury minivan that remains a bestseller in General Motors' market, while General Motors' sales in the Chinese market have rapidly declined in recent years.

General Motors said it is taking measures to enhance its product competitiveness in China. Volkswagen plans to launch 30 electric and hybrid vehicles by 2030, and XPeng and its Chinese joint venture partner FAW are part of this plan.

Christian Hering, Head Engineer of Zeekr Platform in Europe, previously worked with a supplier of Volkswagen to develop navigation software, starting in 2017 and lasting for three years. He said that Volkswagen's actual testing procedures are very strict, "even for modifications." Minor software changes are treated as hardware changes, and each change requires 25,000 kilometers of road testing.

Hering said he once changed the color of trees in Volkswagen's navigation system. This simple change required 75,000 kilometers of testing because its target market includes three regions - North America, China, and Europe.

"That's why traditional automakers can't develop quickly," Hering added. Despite fewer tests, Chinese brand vehicles consistently receive the highest five-star safety ratings from the leading European New Car Assessment Programme (Euro NCAP).

"Don't think that Chinese cars mean poor quality or safety performance anymore," said Matthew Avery, Strategic Development Director at Euro NCAP, adding that the quality of the new generation of Chinese cars is "better than most cars."

Three Challenges

Most Western car buyers have never heard of Chery, but this fast-growing automaker poses the most direct challenge to global automakers in markets outside of China.

This manufacturer based in Wuhu is China's largest auto exporter, having sold 1.14 million cars in over 100 countries outside of China, accounting for nearly half of its total sales last year. Chery began exporting cars in 2001, and its experience in overseas markets is richer than that of most Chinese peers, including BYD.

Another advantage of Chery is its production of various types of cars, including internal combustion engine vehicles. Internal combustion engine vehicles still dominate most markets outside of China. Last year, pure electric vehicles accounted for only one-fifth of Chery's sales.

Chery plans to build factories in Europe (including Spain), part of a joint venture with a Spanish automaker, which will start production this year. According to Jochen Tuting, General Manager of Chery Europe and former Ford executive, Chery expects achieving growth in European sales will require building at least two more factories in continental Europe.

He also said, "Chery is a mass production automaker, so we want to achieve significant growth in Europe."

Source: Reuters

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