How should foreign automakers enter China's fast-growing EV market -- with pricey luxury cars, or no-frills models for the mass market?
The answer appears to be both.
To meet Beijing's tough fuel economy targets, Volkswagen Group and Daimler each has adopted a twofold strategy, and other foreign automakers are likely to follow suit.
The two German automakers recently signed agreements with Chinese companies to build low-priced electric vehicles.
By marketing these cars under Chinese brands -- or via newly created joint-venture marques -- VW and Daimler can produce high volumes of cheap EVs without muddying their brand identities.
Under an agreement approved by Beijing last month, VW and state-owned Jianghuai Automobile Co. will form a 6 billion yuan ($870 million) EV joint venture.
The partnership will sell electric cars for a new brand, and the venture's assembly plant in Hefei will churn out as many as 360,000 EVs a year.
Likewise, Daimler announced last week that it will acquire a minority stake in Beijing Electric Vehicle Co., a subsidiary of BAIC Group., to produce EVs. Details of the agreement have yet to be disclosed.
By sourcing all parts locally, JAC and BAIC can produce EVs with starting prices that range from 130,000 to 150,000 yuan ($18,800 to $21,700) before government subsidies.
Those are relatively affordable prices that have allowed JAC and BAIC to boost sales quickly. So VW and Daimler soon will have a strong presence in the mass market for EVs.
To penetrate the luxury market, Daimler and VW will stick with their own brands. This will allow them to protect their brand images and market cutting-edge EV technology.
Volkswagen, for example, will introduce a new generation of electric cars under its I.D. brand around 2020. Volkswagen's joint ventures with China FAW Group Corp. and SAIC Motor Corp. will produce those cars.
Meanwhile, Daimler announced last week that it will upgrade a Mercedes-Benz assembly plant in Beijing -- which it runs with partner BAIC -- to make EQ electric cars.
Volkswagen, Daimler and other foreign automakers are adopting this two-pronged strategy for China's EV market in a bid to meet tough fuel economy goals.
China has ordered automakers to reduce their average fleet fuel consumption to 5 liters per 100 kilometers (47 mpg) by 2020 from 6.9 liters (34 mpg) in 2015.
That's not all. Beijing's proposed carbon credit scheme includes draconian EV sales quotas. Electric cars, plug-in hybrids and fuel cell vehicles would have to account for 8 percent of an automaker's total sales in 2018.
After heated complaints from Volkswagen and the German government, China is likely to postpone its timetable for carbon credits.
But Beijing is clearly determined to goad automakers -- especially global players -- to quickly expand EV output.
According to a government blueprint released in May, Beijing aims to boost annual EV sales to 2 million vehicles by 2020, nearly four times the tally in 2016.
That's why global automakers likely will adopt Daimler and VW's two-part strategy for mass-market vehicles and luxury cars. In China's EV market, there will be something for everybody.