Chinese ride Europe's EV wave hoping to gain foothold

The number of Chinese brands selling in Europe will reach double figures in 2022 as they seek to press what they consider a key advantage: an emphasis on electric vehicles.

European consumers are already buying China-built EVs in significant numbers.

Last year 16 percent of the 1.2 million EVs sold in Western Europe were shipped from China, data from Berlin-based analyst Matthias Schmidt shows.

The numbers include Tesla Model 3s and Model Ys exported from the company’s Shanghai plant, along with the China-built Dacia Spring and BMW iX3. But it also includes models from Zhejiang Geely Holding subsidiary Polestar, SAIC’s MG brand, Xpeng, Nio, BYD, SAIC’s Maxus, FAW’s flagship Hongqi brand, Aiways and Seres.

This year Great Wall will return to Europe with two brands, Wey and Ora, both significantly more upmarket than its previous sales push, which focused on small cars and pickups.

Geely will add its new premium electric brand, Zeekr, to its stable of Polestar and hybrid-angled Lynk & CO.

Meanwhile Dongfeng will launch its premium EV brand, Voyah.

The Chinese are taking advantage of an industry shift to electric, which allows to them to narrow the gap to far more established brands.

“This is giving us a huge push because others are just starting in this market. Everybody is starting from basically a clean slate,” Alexander Klose, head of overseas operations for Aiways, said. “We can really focus on EVs. That is our biggest advantage.”

Entry point: Norway

The entry market for many Chinese brands is Norway, where January sales of full-electric cars reached a record 84 percent market share.

It remains a small market but the benefits of buying electric combined with Norwegian consumers’ openness to new brands make it a natural springboard into the rest of Europe, especially for premium-angled brands.

For example, the Hongqi e-HS9, a 5200-mm electric SUV with a starting price of roughly 61,500 euros, was Norway’s No. 16-seller car in January, beating the Kia Niro and Volkswagen ID3.

Chinese brands that make their European debut in Norway are already starting to look further afield.

This year Xpeng will expand into Sweden, the Netherlands and Denmark, while premium electric brand Nio will push into Sweden, Denmark, the Netherlands and Germany with its ET7 sedan following its entry last year into Norway with the ES8 SUV.

Germany is the biggest test for any brand in Europe, said Hui Zhang, managing director of Nio’s Germany operation.

“It’s the biggest car market in Europe, it’s the strongest for premium brands, and German customers are well educated and highly demanding,” he said.

Nio, along with China’s other so-called “smart” EV brands such as Xpeng have borrowed from the playbook of Tesla and put technology and software at the heart of its brand proposals.

The ET7, the company’s flagship sedan EV, for example will eventually become one of the first electric vehicles to use solid-state batteries, the company has promised.

Described as a “supercomputer” by its creator, the ET7 will have a battery size of up to 150 kilowatt hours for a quoted range in China of up 1,000 km (620 miles). The ET7 sedan also comes with a roof-mounted lidar to help give an undisclosed level of future autonomy.

Also going big on tech is the Hongqi e-HS9, which comes with three 16.2-inch screens for its so-called Zhilian infotainment system.

The new Xpeng P7 sedan, the company’s second car after the G3 SUV, comes with Xpilot “advanced driver assistance” with automatic parking. A so-called “Wing Edition” boasts dramatic scissor-opening front doors.

‘Cautious’ European customers

Despite the eye-catching specifications, brands such as Nio and Xpeng could have a hard time persuading customers to switch in markets outside of Norway.

China’s pure EV sales bloomed in 2021 to 2.7 million, up 173 percent on the year before. Much of that was because Chinese consumers are very open to new brands, especially those with a home-grown, tech-first angle, said David Twohig, who previously worked for Renault and was chief technical officer of short-lived Chinese EV startup Byton. This trend is unlikely to extend to Europe, he predicted.

“The Western European customer is a lot more cautious. That reluctance will stay for quite a long time,” he said.

Forget about the old stories of poor quality, however.

“The image of Chinese cars being a bit cheap and not so safe, that’s finished,” he said. “The industry has caught up with the West in terms of quality.”

The supplier base is sophisticated, the test facilities are “as good as any facility in the U.S. and Europe” and software engineers are on par with those coming out of top U.S. universities.

“From the technical point, they are ready. The much tougher question is: Is the customer ready?”

‘Barbell price scenario’

The soundest approach is to avoid the middle market, argues Michael Dunne, former automotive executive in Asia and CEO of Zozogo consulting.

Instead, he said, Chinese automakers should target the “barbell price scenario” going either high-end or low-end.”

Low-end isn’t that cheap when it comes to electric vehicles, but MG is currently leading the Chinese brands in Europe with a strategy of offering some of the best value-for-money EVs based on range.

The SAIC-owned brand, which started life in the UK, made the best-selling Chinese EV in Europe last year with the ZS small SUV at 17,375 sold, beating the Polestar 2 in second place with 16,496, according to figures supplied by Dataforce (see table, below).

In France the ZS starts at 24,990 euros, compared with 31,500 euros for the full-electric version of the Hyundai Kona.

The availability of MGs from China has been mostly good in the past year, boosting the brand’s market share at a time when others have struggled because of parts shortages.

MG isn’t a member of European automotive group ACEA, so market share figures across the region aren’t available, but in January MG’s market share in the UK doubled to 3 percent compared with the same month last year, vaulting it ahead of mass-market heavyweights such as Renault, Skoda, Dacia and Citroen.

China’s focus across all aspects of electrification has helped smooth out some of the issues of securing supply.

“In terms manufacturing and dealing with supply chain issues, building the batteries incorporating those into vehicles, China has experience,” said Jonathan Davenport, automotive analyst at consultancy Gartner.

He cited pauses in production of the Audi e-tron and Jaguar I-Pace last year because of battery shortages.

“Being able to handle that dynamic and also being able to source batteries, that’s going to be increasingly important,” he said.

Also helping the Chinese brands is their focus almost exclusively on full-electric models, meaning they don’t have to balance sales between EVs and more profitable internal combustion engines (ICEs).

“There is a risk that traditional automakers will leave a gap in the door as they did for Tesla as they delayed EV products,” Matthias Schmidt said. “Chinese automakers certainly have the opportunity to exploit primarily the business car market, where drivers are desperate to get their hands on an EVs to benefit from a lower tax rate.”

Only a few Chinese brands offer combustion engine cars in Europe. MG still sells legacy models in its UK market, as well as the HS compact plug-in hybrid across its European markets. Lynk & CO focuses on hybrids and plug-in hybrids with its 01; and Great Wall’s Wey is proposing a plug-in hybrid midsize SUV with the Coffee 01, albeit one with a promised electric-only range of up to 150 km.

At the moment, no Chinese automaker is proposing to build cars in Europe. None of their sales are large enough, although Geely nearly tapped its global network to make Lynk & CO cars at Volvo’s factory in Ghent, Belgium. That plan changed when demand for the Belgium-built XC40 compact SUV exceeded Volvo’s expectations.

China could locate production in Europe as scrutiny falls on the supply chain, according to experts.

“It’s going to be important for sovereign countries and regulators, but important for customers too,” said Richard Peberdy, UK head of automotive at consultancy KPMG. “They will ask where the power [to run the plant] has come from, where the precious metals come from and whether there’s a credible plan to recycle the battery at the end of the life.”

Those questions could be better answered by European-based automakers, rather than Chinese.