Meituan officially launched its own ride-hailing APP Meituan Dache (美团打车Meituan ride-hailing) for Shanghai and Nanjing’s markets.

Meituan Dianping is a Chinese website and APP for food delivery services, consumer products and retail services. As a very typical representative of mobility in China, Meituan Dianping was originally called Meituan. After merging with Dazhong Dianping it changed its name to Meituan Dianping.

As a leading food delivery APP, Meituan also started to develop its ride-hailing service in China, which is a significant step of its business strategy to improve the system of mobility in China. Meituan Dache, Meituan’s ride-hailing app in China, ranked third in the App Store Free download list after its official launch in Shanghai for a week in February, 2017.

On March 21, 2018, Meituan officially announced its first batch of expansion cities of new ride-hailing business, including Beijing, Shanghai, Hangzhou, Xiamen, Chengdu, Fuzhou and Wenzhou. Also, Meituan began to recruit drivers in these cities. However, the plan was not implemented after a year-long period of stagnation.

Challenges for Meituan: Competition and regulations

After entering Nanjing, Meituan heavily subsidized the drivers to grasp more opportunities to compete with Didi. Also, Meituan divided the drivers into three levels and gave different subsidies accordingly. For instance, at the beginning, the standard earning for new drivers was 2,200 yuan per week. After reaching the standard, the drivers can get 800 yuan extra bonus per week.

Hence, the cost associated with its ride-hailing drivers increased exponentially, from 290 million RMB in 2017 to 4.46 billion RMB in 2018, with an average monthly investment of 370 million RMB in 2018.

Date Source: Meituan Dianping 2019 annual report – Meituan’s ride-hailing driver related costs (million RMB)

In order to expand the market share quickly, Meituan launched a price war against Didi through subsidies in Shanghai and Nanjing. But the war did not last long since Meituan cut its subsidies shortly after. To maintain its market share in Nanjing and Shanghai, Meituan lost 50 million dollars per month. Additionally, the transportation sector intervened and warned Meituan against disturbing social order by starting price wars.

The Meituan Dache APP drained Meituan’s finances

According to the Q1 2019 financial report released by Meituan, the new Meituan business, including the travel business, spent 31.3% of the sales cost but only contributed 20.8% of the revenue. This added to a total loss of 439 million RMB in Q1 of 2019.

The cost of sales of Meituan new business decreased from 5.2 billion RMB in Q4 2018 to 4.4 billion RMB in Q1 2019 and the revenue also decreased from 4.2 billion RMB in Q4 last year to 3.9 billion RMB in Q1 2019.

As for the two financial figures, the report explained that it was mainly due to the significant reduction of subsidies for ride-hailing services in China in Q1 2019 and improved profit margins of new businesses and other divisions. Meanwhile, Meituan will continue to restructure mobike’s overseas business in order to reduce the loss of the bike-sharing business.

Merged to Meituan APP from Meituan Dache APP

Since late April 2019, although Meituan’s ride-hailing endeavor has once again been launched in Nanjing, Shanghai and other 17 cities, it is no longer the former Meituan ride-hailing APP. Meituan Dache was transformed from the self-management team to an aggregation platform.

The new Meituan ride-hailing APP in China provides travel services for users by accessing travel service providers such as Caocao travel service, Shouqi car-hailing service and Shenzhou special car service. This means that Meituan no longer did its own business, but instead became an aggregation platform.

Users can go directly to ‘ride hailing’ from the restaurant booking page, which allows them to call a car in real time or for reservation. Meanwhile, users can choose from a menu of car types including taxi, economy, comfort, business and luxury by Shouqi Taxi, Caocao Taxi and Shenzhou Private Car.

Source: Meituan App open interface

If the users of Meituan ride-hailing want to call a cab to a restaurant, they can also directly click the ‘ride-hailing’ button on any restaurant business page in the Meituan APP. The system will identify the location of the user and the address information of the restaurant, automatically fill in the starting and ending address. As a result, Meituan created a ‘one click’ solution to call a car directly to the restaurant, all within the same app.      

Didi Chuxing started its food delivery business in China

Source: losborgia.com – Didi launched the food delivery business in China

Didi Chuxing Technology Co., formerly named Didi Dache, is a Chinese transportation company. As the leading company in ride-hailing in China, Didi Chuxing (滴滴出行) launched its food delivery service locally. On March 6, 2018, the first 9 cities to launch Didi Takeaway (滴滴外卖) were Wuxi, Nanjing, Changsha, Fuzhou, Jinan, Ningbo, Wenzhou, Chengdu and Xiamen. Didi Takeaway wanted to win the first batch of merchants and users by reducing commission and issuing rewards. Wuxi city was the first target city for Didi, in June 2018, and then Didi entered Nanjing, Taizhou, Chengdu and Zhengzhou in July. Didi Takeaway has posted their discounted information on the platform, such as 1 RMB ice cream, 2 RMB tofu pudding and 2.5 RMB barbecue. These discounts have helped Didi attract many users in a short time. However, Didi failed to enter the sixth target city, Ji’nan, due to the low profitability in previous five cities.

So far, Didi has not entered a sixth city and the previous five cities are still operating normally. Nevertheless, according to consumers, because the subsidies lasted only a short time and there were only a few merchants in the app. Additionally, some said Didi poorly designed the interface of the takeaway platform, hence Didi delivery was largely forgotten in the market.

Didi has invested 1 billion rmb in food delivery service in China in 10 months

In December 2017, Didi launched their food delivery business in China. Some people think that as Meituan entered the ride-hailing market in China, Didi fought back by entering the food delivery Chinese market.

There have also been media reports that profitability of UberEats, a food delivery business run by its international rival Uber,  inspired Didi.

However, although Didi invested more than 10 billion rmb in food delivery business in China, the result wasn’t as good as expected. On 15^th February 2019, Cheng Wei, founder and CEO of Didi Chuxing, announced that Didi will focus on its most significant ride-hailing business in China, continue to increase investment in safety and compliance while improve efficiency, so the non-core business may be closed.

Didi will shift the market for its food delivery business abroad

Mobility in China is becoming more mature and competitive. As a result, companies try to develop into overseas markets. Didi launched its food delivery service ‘Didi food’ service in Osaka, Japan in April 2020.

Source: Twitter.com – Commercial of Activities by Didi post on twitter in Japan (Summer delicacies for you to eat! Activities in progress)

Meanwhile, DiDi Food announced its expansion to Aguascalientes, Toluca, Chihuahua, Torreón, and Saltillo in Mexico on 22th April, 2020. So far, the company has already been operating in Mexico City, Guadalajara, and Monterrey. The mobility in Mexico is still in its infancy compared to the mobility in China.

Additionally, Didi has expanded restaurant delivery service from convenience stores and pharmacies to encourage people to stay at home during the COVID-19 epidemic.

87% of restaurants in the Didi app are small and medium-sized enterprises. Sales of these partner restaurants have risen 45% since the lockdown began. So far, restaurant enrollments have increased to 75% per week, while delivery partner enrollments have increased to 250% per week.

Source: kr-asia.com – Didi wants to challenge Uber by bringing Didi Food delivery service to Mexico City

The challenges that Meituan and Didi are facing

Didi and Meituan are definitely the giants of mobility in China. However, there are still big challenges as they try to overlap the ride-hailing business and food delivery business in China.

As an instrumental APP, the simple platform of Didi is far from being a life-oriented aggregation platform, as it focuses primarily on ride-hailing. At present, users have not yet cultivated the habit of ordering food from Didi, since users are used to the aggregation platform like Meituan or Ele.me (an online food delivery service).

Different from the ride-hailing business in China, which basically needs only online operation and maintenance, Didi needs a large offline business develop team to expand its food takeaway market.

Also, it’s not easy for Meituan. The transportation bureau intervened and warned Meituan against disturbing social order by starting price wars on the day Meituan launched in Shanghai. They announced that all registered cars and drivers of Meituan ride-hailing business in China must obtain the relevant business license for online ride-hailing in Shanghai and the relevant data need be connected to the regulatory platform.

In addition, the Shanghai Municipal Commission of Communications, Municipal Public Security Bureau, Market Price Bureau also warned Meituan that they shall not disrupt the normal market order for the purpose of crowding out competitors or monopolizing the market by operating at a price lower than the cost. Meituan’s should change its advertising slogans such as “starting with one yuan”.

Wang Gang, CEO of Didi analyzed that the competition between Meituan and Didi is not just about ride-hailing business and food delivery business, but “a battle for access to secondary traffic”. Whether Meituan is involved in ride-hailing service in China or Didi is involved in food delivery service in China, both parties can take good use of their users’ consumption scenarios as the basis and form a data circulation system about their users’ consumption preferences for ‘basic necessities of life’. If successful, it will greatly enhance the development of mobility in China.

Author: Qing Zheng

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This article Mobility in China: Opportunities and challenges of when ride-hailing meets delivery is the first one to appear on Daxue Consulting - Market Research China.

China has been the world’s largest automotive market for years. That is why carmakers around the world are fighting to sell their cars to Chinese consumers. However, in a market mainly dominated by Chinese brands (42%), what are the trends and growth drivers that international carmakers can follow?

The automotive sector is one of the top pillar industries for China’s economy and a major employer. In 2019, for example, the automotive sector contributed 9.6% of the total retail sales of consumer goods. The sector also accounted for around 10% of total employment in China.

COVID-19 impact on the automotive industry in China: decline in sales

COVID-19 placed significant burdens on the automotive industry in China. Hubei Province where the outbreak started, accounting for about 9% of the country’s auto production. Wuhan, Hubei, as one of the key development cities of the country’s six major automobile industrial clusters, not only gathers many vehicle manufacturers, but also has more than 500 automobile parts enterprises.

The auto industry is especially facing major challenges both on supply and demand side—new passenger car sales in the Chinese market slumped by over 80 percent in February 2020. Forecast shows that China’s automotive market will decline 15.5% in 2020.

Data Source: Statista, PwC, China’s auto market size

China’s first quarter vehicle sales saw the biggest impact. According to the China Association of Automobile Manufacturers, sales of passenger cars declined 42.4% year over year during that period. SAIC, one of China’s largest manufacturers, reported a 44.9% percent drop year to date in April. Its SAIC-Volkswagen and SAIC-General Motors joint ventures, dropped 50.4% and 47.7% year over year in retail sales from January to April respectively.

Government policies to help the automotive industry in China

To stimulate the automotive market, government launched some policies. 10 cities released incentive schemes. For instance, Guangzhou announced a subsidy of 10,000 RMB for New Energy Vehicles sold between March and December. Additionally, a State-level subsidy to New Energy Vehicles was extended until 2022.

Epidemic highlighted imbalance of car brands in the Chinese market

The epidemic has exacerbated the imbalance between the various car brands. From January to March 2020, the total sales volume of the top ten enterprise groups was 3.295 million units. It had a year-on-year decrease of 41.7%, which was 0.7 percentage points lower than the industry decline. It accounts for 89.7% of total car sales, which is 1.1 percentage points higher than the same period last year. This shows that under the impact of the epidemic, the market share of small brands has shrunk even more.

A phenomenon worth noting is that compared with last month, the sales of major foreign brands also showed a rapid growth, of which the growth rate of Korean brands is particularly significant.

COVID-19 boosted electric cars market

China’s reaction to the crisis shows a commitment to new technologies, signaling how the crisis could build resiliencies moving forward. The real opportunity after COVID-19 lies in the shift from internal combustion engines to cleaner, electric vehicles in China. China is set to keep its long-term strategic goals for automobile electrification and meet climate change goals set by the Paris Agreement.

In March 2020, the production and sales of electric vehicles were also significantly better than that of the previous month. The growth rate was rapid and the year-on-year decline was narrower than that in February. For example, electric car maker Wei Lai released the delivery data for March 2020. The delivery volume reached 1533 units, an increase of 11.7% year-on-year and an increase of 116.8% month-on-month.

The auto industry in China slowly rebounds back

On February 2020, due to China’s recovery from the coronavirus outbreak, car companies ushered in the first wave of resumption of work. They include Geely Automobile, Great Wall Motor, Changan Automobile, Xiaopeng Automobile, Weilai Automobile, Tesla Shanghai Super Factory and so on. The outbreak of the epidemic has also made car companies pay more attention to the online car sales model. Many brands have launched online car purchase activities during the epidemic, thereby stimulating consumers’ desire to consume.

In March 2020, as the industry’s orderly resumption of production, the monthly production and sales volume rebounded significantly, but still did not reach sales level of 2019.

Data Source: China Association of Automobile Manufacturers (CAAM), China car sales 2019/2020

Retail sales of light passenger vehicles also surged ahead in March, as reported by the China Passenger Car Association. Year over year, March 2020 sales were still below 2019 levels, but 26%, not the 80% drop seen in February. Sales in April 2020 have begun to catch up with just a 2% drop year over year.

Automotive brands show signs of recovery

From the perspective of different brands, Changan Automobile sales reached 119,000 in April 2020, an increase of 32% year-on-year, ranking first. In April, the company achieved sales of 105,400 units, an increase of 44% month-on-month and 2% year-on-year. Great Wall Motor sold a total of 81,000 new cars in April, an increase of 35% month-on-month.

Chery Automobile increased by 15% month-on-month in April 2020, but continued to show negative growth year-on-year. 

Volkswagen’s China terminal sales in April 2020 were 16.57 units, an increase of 9.9% year-on-year and an increase of 41% month-on-month.

Weilai (also known as NIO) delivered 1,533 vehicles in March 2020, an increase of 117% QoQ.

Data Source: China Automobile Association, Weilai sales January-March 2020

Therefore, key automotive brands show the signs of recovery, however this process will take time.

In 2020, mainstream automakers supposed to have many new models launched on the market. However, due to the impact of the coronavirus epidemic, it is difficult to carry out offline listing activities such as test drive, auto show, and press conference.

Data Source: China Automobile Center, Summary of originally planned models to be launched in the first quarter of 2020

Chinese auto industry still has big potential

Despite the significant impact of COVID-19 on China’s automotive industry, the market potential is still quite huge. China is still expected to become the largest vehicle market with around 260 million units in operation. At 173 units per person now, there is room in China for more light passenger vehicle purchases.

However, after COVID-19, the market will definitely not simply snap back to where it was before the pandemic. According to a forecast from IHS Markit , light vehicle sales will decline 15.5% in China for 2020.

Why 2018 was a turning point for car manufacturers in China?

For the first time in twenty years, sales in the automotive industry in China are declining

In 2018, for the first time in 20 years, China saw its new car sales decline by 2.8%. In 2017, 28.88 million cars were sold in China compared to only 28.08 million in 2018.

Sales in most provinces of the China declined in 2018 except Guangdong, which saw an increase of 5.3% compared to last year, which can easily be explained by the rapid development of the local economy (Guangdong has had the highest GDP for 29 years in China).

Despite this decline, China remains the world’s largest automotive market, accounting for about 30% of total global car sales in 2018. Compared to the 28 million cars sold in China in 2018, only 5.2 million cars were sold in Japan, 16.5 million in Europe and 17 million in the United States in 2018.

But then what explains this decline in car sales in China?

Alternatives to cars are increasingly successful in China

One of the main reasons for the decline in car sales in China in 2018 is that there are many relevant alternatives. Chinese car shoppers are increasingly value minded and open to the alternatives to buying new cars. Moreover, the younger generation of Chinese is increasingly sensitive to environmental issues and tend to consider more environmentally friendly options.

In recent years, car-hailing apps have been gaining popularity in China. By the end of 2018, there were more than 100 car-hailing platforms in China, and the total number of car-hailing app users has exceeded 330 million.

This is the success of car sharing apps such as Didi Chuxing or bicycle sharing apps such as Mobike, which have seen their number of users increase in recent years:

Didi Chuxing

Didi is now one of the main alternatives to owning cars in China.

The business model of this Chinese transportation network company can be compared to Uber’s model. The cost of fares is very low and the simplicity of the service, easily ordering a fare on the app, make China gradually becoming the largest ride-hailing market in the world, with a value of US$30 billion.

In 2018, Didi held more than 80% of China’s ridesharing market.

Mobike

Mobike, a fully station-less bicycle sharing company in China, also offers a great alternative to private cars in China, especially in big cities.

Bikes are often used to connect to buses and subway stations, what we can call intermodality. For example, in Shanghai, approximately 1 in 5 users take bikes to make subway and bus connections (Mobike, 2018).

Thus China has now become the leading country both in terms of ride sharing and bike sharing in 2018, and this can be bad news for car manufacturers in China.

Second-hand car market shows growth in China

The Chinese craze for used cars is also an essential reason for the decline in car sales in China in 2018.

In 2018, second-hand car sales in China rise with a growth of 11.5%. Sales are even expected to reach over 20 million in 2019.

As consumers prioritize value for money, they become more price conscious and lose confidence with spending. Online marketplaces for second-hand cars, like Renrenche (人人车), Uxin (优信) or Guazi (瓜子), are also developing fast and allow customers to find the best price quickly without having to visit multiple brick and mortar shops.

Despite this, consumers continue to buy private cars in China, whether for practical reasons or for pleasure. According to the graph below, 58% of them buy a car to travel comfortably on holidays. Driving has been a very popular way of travel (average 300km) in China. In Tier-3 and Tier-4 cities, the school bus hasn’t been very popular, so many parents also need safe and convenient transportation for their children.

New-energy vehicles in China have become very trendy

Electric cars sales are increasing

Electric or hybrid cars have been very successful in recent years in China, thanks in particular to the support of the Chinese government but also because buying an electric vehicle avoids the cost of purchasing a license plate, which is a considerable saving.

In 2018, the sales of new energy vehicles in China consistently grew reaching 1,25 million units sold.

Buyers of new energy cars in China are mostly urban and young: 40% of China’s electric car sales in 2018 came from 6 large Chinese cities which are Beijing, Shanghai, Shenzhen, Tianjin, Hangzhou, and Guangzhou because of the awareness of the pollution problems inherent to combustion vehicles and the gasoline-car restrictions that have been implemented in these cities. Most of them are also the first person in their family ever to own a car.

China’s biggest electric carmaker: BYD

BYD Company Limited was China’s top-selling electronic car manufacturer in China in 2018. Created in Shenzen in 2003, the brand launched its first electric car model, the E6, in 2011.

In 2018 BYD sold a total of 520,687 cars in China including 247,811 electric vehicles, achieving a year-on-year jump of 25%.

The best-selling BYD model in China in 2018 is the Song, 91,426 units sold, for an average price of $28,000.

BYD’s marketing strategy in China is to develop a flexible and segmented offer to reach a wider audience: BYD then decided to go on all-in on hybrid rather than pure electric with one of its model, ‘Qin.’ It is a more flexible option for consumers, who can drive it as an electric car for their daily commute and reach much farther distance without having to worry about charging.

Thanks to its various plants in China the company also has a competitive advantage to integrate all of the key components in-house. And with the help of subsidies, BYD has been able to build economies of scale, pushing down their cost per unit and allowing them to spend more on research and development.

High-connectivity: Cars in China have to be mobile-first

Connected vehicles in China have to be mobile-first

A connected car is a vehicle connected to the Internet through its communication system. It allows the driver to connect his smartphone to the car, but also the car itself to connect to the surrounding cars and infrastructure.

Since China is a mobile-centric nation with mobile commerce representing a quarter of the country’s overall retail market ($1.5 trillion in sales in 2019), it is normal to find this requirement in the 2018 car trends in China.

Thus the global connected-car market in China is expected to grow 270% by 2022 and 41 million people will make use of in-car connectivity by 2021.

According to a 2017 Kantar TNS study, 79% of Chinese respondents plan to buy a connected car in the future, compared to about 50% for Americans and Europeans.

According to Jack Ma, Alibaba’s chairman, there is no doubt that the future of cars in China is high-connectivity:

‘’Today, 80% of your smartphone’s functions are not relevant to making phone calls or conversation. I believe that in the future, a car will have 80% of its functions not related to just transportation.’’

But Chinese consumers are more and more difficult to please in terms of connectivity services; they are seeking innovative in-car services and are even ready to pay subscriptions for content.

Which is why automakers and tech giants are all racing peers to new tech horizons!

Integration of Alibaba’s Tmall Genie in BMW vehicles

The partnership between BMW and Alibaba is an excellent example: Alibaba Group’s smart assistant, Tmall Genie, will launch in select vehicles from the BMW Group in China by the end of the year.

Tmall Genie will be fully integrated into BMW vehicles, offering drivers several entertainment and shopping options in the car. Drivers will be able to use Tmall Genie to buy online, watch movies, listen to music, check the weather or make appointments appointments in BMW.

Top innovative car brands in China

Volkswagen in China has delivered its 30 millionth car to Chinese customers

For the company which connection with China started in 1978, 2018 was a real milestone. They achieve sales record with 4.21 million vehicles delivered to customers in China including 196,300 imported cars, which corresponds to a + 0.5 % evolution compared to 2017.

The best-selling Volkswagen model in China is the Lavida with 504 000 units sold in 2018, a 4-door sedan which has been sold exclusively in China since 2008. Depending on the generation, its price is between 110,000 RMB and 160,000 RMB.

Because Volkswagen was the first foreign car manufacturer in China, it can now compete directly with Chinese competitors. And the brand’s communication strategy is really to emphasize this authenticity and improves its reliable brand image.

To do that, SAIC Shanghai Volkswagen wants to show how close to Chinese consumers it is.  At the end of 2018, a campaign announcing the launch of new models then revealed a desire to align the brand’s image with China’s powerful economic growth:

The timing of the publication, that was the 40th anniversary of the policy of openness and reform, was ideal.

To attract the growing target group of young, middle-class customers, Volkswagen also decided to launch JETTA as a brand in February 2019 (it was only a Volkswagen model before). The idea is to target first-time buyers, who account for 81% of the customers in the entry segment, by offering high quality, safety, stable value, and fresh design. In 2018, the brand also announced the launch of the SOL brand in partnership with the Chinese auto manufacturer Anhui Jianghuai Automobile, whose first model is an electric SUV.

Geely in China: ‘’Making Refined Cars for Everyone’’

Geely enters the automotive industry in China in 1997 and is now among the 500 largest companies in China. In 2010 Geely group bought the Swedish carmaker Volvo.

In 2018 Geely sold 1,500,838 units in China, an increase of 20.3% from 2017 and had a 6.9% market share.

The brand has a very young customer base with 51% of customers born in the 1990sor later, it’s a new generation of young innovative consumers who have a global vision and a global mindset. Thus, Geely communicates on high connectivity and ultra-modern design to directly target this audience. They often highlight their design teams and the famous designer Peter Horbury they work with to show their modernism.

The best-selling Geely model is the Bo Yue, a compact crossover SUV with 255 695 cars sold in China in 2018.

Geely is now trying to expand internationally by developing its battery manufacturing business with CATL Geely Power Battery Co. Ltd and acquiring new foreign brands like Proton’s Norwich-based subsidiary Lotus or Daimler recently. The brand also invests heavily in new energies cars with its ambitious project Blue Geely, wanting 90% of its sales to be consist of Evs in 2020.

Landrover in China: designing ‘’China SUV of the Year’’

Jaguar Land Rover entered the Chinese automobile market in 2010 and has witnessed exponential growth each year until 2018. A total of 492,388 Jaguar Land Rover units were sold in China in 2018.

Land Rover’s strategy in China is to demonstrate a commitment to the Chinese market by offering unique designs and models that meet consumer requirements and preferences. That is why in 2012, JLR entered a joint venture with Chery Automobile Company to manufacture Range Rovers to build vehicles designed specifically for the Chinese market (Jaguar XFL and XEL are good examples). Thanks to this, Land Rover in China has won numerous awards that allow it to raise brand awareness:  recipient of the 2018 ‘China Reputation Award’ for the second time, Range Rover Velar wins ‘China SUV of the Year’ and ‘China Car Design of the Year.’

How do carmakers promote their cars in China?

Offline promotion: How to keep a substantial brick and mortar presence for car manufacturers in China

Offline promotion remains very important in the automotive industry in China today. Indeed, despite the development of the massive development of e-commerce and m-commerce in China, nearly 90% of car purchases were made at 4S stores in 2018. This means that Chinese consumers still appreciate contact with sellers and want to be able to go to offline stores to get information and buy a car.

• 4S stores in China

4S stores are today the most popular distribution channels for the vehicle brands in China. There are more than 28,000 4S stores in China. They have dominated the offline purchase channels in tier-1, tier-2, and tier-3 cities; now they are expanding to tier-4, tier-5 cities and rural areas.

Consumers choose 4S stores as they provide all in one service: ‘‘4S’’ means Sale,  Spare part, Service and Survey. So, they cover all business related to vehicles such as sales (new cars and second-hand cars), maintenance, car wash, auto finance, car rental, etc.

It is also interesting to note that the competition among 4S stores is increasing, trying to fight on price, discount activities, test-drive services and insurance.

• Exhibitions, events, and shows: the entertainment marketing strategy

There are more and more events and exhibitions in China that attract millions of people each year. For instance, Auto Shanghai, the Shanghai Motor Show which has made its mark among international shows, host every two years more than 900,000 visitors from 18 countries. The 2019 edition is currently being held (April 23-28).

Automotive shows are an excellent way to stand out from the competition and showcase its best models to demonstrate the brand’s research and development capabilities.

Despite their international scope, the domestic players are most active at these shows with more than 70% of new products produced by Chinese carmakers.

• Showrooms, storefronts and flagship stores

Car manufacturers in China are now investing more and more in showrooms in major cities to impress consumers: stores are no longer just places to buy cars but luxury spaces to live a real experience.

In 2018 NIO invested CNY80 million (USD11.7 million) in a store in the iconic Shanghai tower and paid more than CNY100 million annual rent.

The brand also pays a yearly rent of about CNY80 million for a shop in Beijing’s Oriental Plaza mall.

Online promotion: Using KOLS and social media to boost your sales in China

In China, websites and social media are dominating the promotion channels for vehicle brands in 2018.

With a perfect online service layout, automotive E-commerce platforms have real marketing advantages. Automotive E-commerce represented by Youxin, Emao, and Taobao makes full use of the business sector (new cars, used cars and auto finance). They are user-centric, E-commerce data-based, product and service innovation-oriented, aiming at creating a  full life cycle Eco-marketing platform. It is a good source of information before buying a car in China.

Also, almost half of consumers obtain information about cars from automotive websites, since those websites usually have comprehensive knowledge about car brands and models.

On social media, young auto enthusiasts (post-90s and younger) have a stronger willingness to share content about vehicles with others. Half of the auto enthusiasts spend 5-15 minutes on every online post (website and social media) about vehicles.

Social networks have therefore become strategic for car promotion in China. This is why many brands now use KOLs (Key Opinion Leaders) to convey messages in a more subtle way. Indeed, more than 70% of vehicle consumers follow at least three KOLs, their purchasing behaviors are highly influenced by KOLs’ opinions and experience.

New retail: How the Alibaba strategy applies to the Chinese automotive market

New retail in the automotive market in China is more consumer-centric.  This is a trend that has been widely followed by car manufacturers since the success of Alibaba’s New Retail strategy launched in 2016.

By collecting consumers’ data (such as interests, price and design preferences), vehicle brands are able to provide cars, auto-configuration and services based on consumers’ requests. Thus, the consumer’s journey is shorter because the touch points are blended: for example, Wechat content is now a touch point for each step of the car buyer journey in China.

This is the strategy that Ford decided to implement in partnership with Alibaba: they launched the Super Test-Drive Center in Guangzhou to allow people to buy a car from a staff-less machine in under 10 minutes.

Customers just have to go to the Tmall app and choose the model they want to test-drive via the online catalog. To register, customers must take a picture of their face and once in the store, once the customer shows their face to facial recognition,the car chosen online arrives from the multistory structure. Then, the customer can test the car for a few days (3 days max) and order it online.

How could international carmakers improve their marketing strategy in the Chinese market?

Target a young audience

New cars buyers in China are young and connected consumers. As they gain purchasing power, they are the future of the Chinese automotive market.

Do not neglect offline communication channels

The paradox of the explosion of e-commerce in China is that buyers are still demanding physical presence or human contact. Thus, offline channels must be up to the task.

Keep a close eye on your online reputation

Control your reviews and comments and opt for an influence marketing strategy because brand reputation plays a vital role in the buying cycle of a car in China.

Rely on well-made design

Content and design provide an important first step in customer experience in China in 2019: work on a modern and sophisticated design for your website, your products, and your communication.

Leverage to e-commerce and new retail

For automakers, innovation linked to the e-commerce platforms and deepening relationships with end users will be key to benefit from the increasingly technology-enabled car market in China.

Author: Steffi Noël

Daxue Consulting offers further analysis of the automotive market in China with a forward-thinking approach to topics such as digitization, high-tech implementation, artificial intelligence, and many others. To know more about the evolution of the automotive industry in China, do not hesitate to contact our project managers at dx@daxueconsulting.com.

This article Automotive industry in China: How carmakers compete for first place is the first one to appear on Daxue Consulting - Market Research China.

A pop-up store is a short-term, temporary retail space that brands occupy. Regardless of whether the brands previously adopt a physical presence or not, it can be used for sales promotion purposes or for simply building connection with their existing and potential customers. Pop-up stores are usually designed or decorated creatively with the intention to provide a unique, engaging and memorable experience that can generate buzz in the short-term. It is apparent that pop-up stores are an effective marketing method, but what does it take to run a successful pop-up store in China?

Pop-up stores in China: An innovative new retail format to penetrate the market

Pop-up stores are often considered as a form of guerilla marketing that can help a brand to achieve strong short-term growth in sales, engagement or awareness.

Luxury brands open pop-up stores in China to connect with consumers

Brick-and-mortar stores play a very important and essential role for luxury retail brands as it is where brand story and consumer experience meet. While a long-term physical store is able to achieve so, a temporary pop-up store will be able to generate more excitement and a more unique experience for customers.

Chanel successfully launched a pop-up store in Shanghai named ‘Coco Game Centre’ two years ago. The Chanel arcade clearly went viral as people waited for over 2 hours outside only to get a peek inside. The store featured a make-up bar for customers to try on new Chanel beauty products, a series of arcade games for customers to win gifts such as lipsticks, lotions etc., and a few picture-worthy spots for customers to take pictures and upload on social media.

Chanel seeks to establish a closer connection with its customers through a pop-up store interaction. It is a fun and creative approach for the brand to create a unique, immersive and personal experience to the customers. The big Chanel logos upon the wall, and the red, pink and black colors all comes together in the pop-up store to communicate and convey the brand’s story and its core value.

With digitalization incorporated in the store, customers can scan QR codes and pay online at ease. In this way, they are not forced to make purchase, but are invited to experience the brand and make conversion in a more natural setting. Moreover, Chanel can also generate buzz around product launch and receive feedbacks on its new products. Big brands like Chanel usually has clear and defined target customers, in which utilizing a pop-up store will help attract right customers to give right feedback.

Online brands seeking an offline presence through pop-up stores in China

The best way for online brands to bridge the gap between their online and offline presence is a pop-up store. Pop-up stores are not only much more cost-effective, being 80% cheaper than a long-term physical store, but also is a great marketing tool in China to increase visibility and direct publicity.

In 2018, one of China’s biggest E-Commerce platforms, JD.com, tried their own version of pop-up retail in China —— ‘JD Fashion Space’. Its main object is to mix and match fashion, high-tech and Art Space. Consumers are invited to interact with the brand via digital dressing machines, shopping machines, games, and a designated selfie area.

Although consumers are becoming more digitalized than ever before, online brands like JD.com still seeks to create a cohesive brand experience offline to gain customer loyalty by opening pop-up shops in China. Consumers expect more different and engaging high-techs like immersive VR to become entertained in a technology-centric era. JD.com cleverly offered an interactive offline experience to their consumers’ taste, utilizing its digital strength, from VR fitting rooms to digital shopping windows.

As pop-up stores can generate short-term buzz, online brands can constantly remind customers their existence via both online and offline channel. This will be a chance for these brands to gain more potential customers offline and remind existing customers their online presence.

Other brands open pop-up stores in China to increase awareness

Other brands, regardless small or big, open pop-up retails in China to generate popularity in the short term and top-of-mind awareness in the long-term.

Last September’s pop-up buzz was all about a milk tea brand ‘Machi Machi’ because of its feature in famous Chinese singer Jay Chou’s music video “Won’t Cry.” The store in Shanghai, which will only be around for a few months, generated hundreds of people lining outside. The resale price of a cup of bubble tea was 10 times more than its original price.

The store has a photo-worthy wall for people to take photos and upload on social media. Many smaller brands like that will especially decorate its interior to make it more Instagram-worthy and hence more sharable on internet. These brands wish to create as much buzz as possible to bring popularity and boost sales in the short term, and the best platform to spread buzz is of course social media platforms.

Given that Machi Machi is planning to open an official store in Shanghai in the near future, pop-up retails in China are no doubt a fast, efficient and cheap way for small brands to test- new products and examine the decision to enter or expand the market. Just a few days ago, on June 25, an official Machi Machi store was opened in Hefei, Anhui province in China. The brand has positioned itself as a high quality and high face value beverage brand that has become a hot topic on social media platforms such as Xiaohongshu and Weibo. Regardless of what intention these brands hold, achieving awareness through a temporary pop-up store will be the key to further success.

Pop-up stores in China emerging as a major marketing tool for brands

Attribute to the success of many pop-up stores in China, increasing number of brands are seeking to generate more awareness and engagement through implementing this type of marketing tool in China. Although harder to breakthrough clutter in the recent years due to fierce competition, nevertheless pop-up stores are becoming one of the main forms of new retail in China.

According to a survey from storefront, 80% of global retail companies have opened a successful pop-up store and 58% willing to reuse the tactic. Pop-up stores are indeed a great way to fulfil excitement in those highly demanding Chinese consumers. However, if not properly executed or implemented, they will easily fall short and even generate an adverse effect then intended to. Customer expectation can skyrocket due to wrong location, failure to communicate brand value, improper execution or implementation etc. Therefore, it is important to carefully plan every step in order to open a successful pop-up retail in China.

How to set up a successful pop-up store in China

Define the goal

Defining  a clear goal for a pop-up shop in China is always the hardest. Although goals like increasing awareness, popularity, buzz etc., are essential, the decision to focus on sales promotion or just for pure marketing purposes will be the key to success. This decision is especially important to foreign than local companies because they subject to more regulations. Therefore, they need to be well-informed about China’s legal rules regardless which decision made.

Those who aim for direct sales, but do not adopt a corporate existence in China, will require partnerships, agents or distributors in order to engage in actual sales activity. On the other hand, pure marketing pop-up retails in China are much more simple to run, ruled under much less regulation.

The decision to sell the products or to market the products should depend on many aspects of company such as market share in China, presence in China, awareness in China etc.

Know your target customers

Millennials and Generation Z are becoming the most powerful consumers that all brands seek to understand. They are also a group of consumers who prefer experience over anything, which has lead the market evolving into an experiential-centric one. Therefore, opening pop-up shops in China that can engage with Chinese Millennial and Generation Z is a key to success. Brands should tailor the pop-up store to offer these customers different and personalized experiences and create an event that is both surprising and exciting to show them that they are no longer Dad’s Oldsmobile.

Find the right venue

The right pop-up store location is extremely important despite that it is often overlooked. The location can be anywhere: on a vacant street, in malls, in another store or event spaces. Regardless of where pop-up stores are located, the venue should generate enough foot traffic and buzz at the right time.

However, regulations need to be considered before picking any location. Unfortunately, due to strict rules in Shanghai and many other cities, pop-up stores are often only allowed to open in malls rather than on vacant street as no business will be granted to open in front of stores of or on side of the roads. Although street will give pop-up stores more space to occupy, shipping malls can offer a competitive edge for the brands. Shopping malls attract high foot traffic and right demographic, which makes it easy especially for smaller brands to target specific customers as they wish. Shopping malls are embracing pop-up stores as a form of new retail in China to save their lost traffic in the recent years, and more than welcome this win-win situation. Therefore, most malls offer convenience set-up process that will save many effort and time of pop-up stores owners.

Nars opened a pop-up store in Beijing in 2018 utilizing the open entrance area of Taikoohui Shopping Mall. The boutique was fairly eye-catching, easily grabbing people’s attention as they walk pass by.

Establish effective brand communication

Pop-up stores must align with and communicate core brand values. A consistent brand story should be narrated regardless of a press interview, a launch party or just a pure experiential store.

PUMA launched a pop-up experience museum in downtown Shanghai earlier this year, allowing visitors to go on a blockbuster journey of experiencing the blurring borders of reality and illusion. The theme goes with their featured new product, the “Future Rider” shoe, and allows consumers to fully experience what the brand has to offer. Added to the thrilling journey, consumers can enter PUMA’s flagship store at the iAPM mall nearby to win more products online. The purpose of the pop-up is not to drive sales, but to spread brand awareness. PUMA is inviting its customers to become a part of its brand and to be on their journey.

Be present on Social Media

In an ever increasing digitalized world, it is especially essential for brands to be present on social media, and of course will be the same for brand pop-up stores. Pop-up store in China relies heavily on short-term traffic and attention. In order for it to go viral and gain success, brands must encourage consumers to take photos in the store and share location on different social media platforms. Collaborating with KOLs and celebrity endorsers will be a powerful marketing tool to build anticipation and generate buzz before store opening. Stores can further enhance the engagement effort and accelerate social media impact by adopting hashtags that relates to the pop-up store theme.

Apart from traditional forms of Social Media like WeChat and Weibo, companies should also consider the growing importance of Xiaohongshu. Millennial and Gen Z spend their leisure time activity on this platform daily, searching up interesting places to visit.

When searching for pop-up stores in Shanghai on Xiaohongshu, a countless number of posts appear. This means that this platform has indeed became an important platform and marketing tool in China, which brands should utilize to generate buzz and increase traffic among its target customers.

Be creative and be exclusive

The most successful pop-up shops in China create unique and interactive experience for its customers. In order for a pop-up to offer a higher level of interaction and engagement, getting creative and think beyond simply selling products will be the key to differentiate from traditional retail.

YSL Beauté launched a pop-up ‘hotel’ in Shanghai early 2019 to promote its new product. The hotel was located in an Art Museum featuring three floors of themed rooms. YSL creatively incorporated its sales effort in this pop-up store. Customers are encouraged to engage with the brand through make-up station, digital interactive activities, and many photo-worthy spots. They are also invited to redeem YSL Beauté.

products using activity points earned along the way. In the hotel, they can become fully immersed in the situation and receive a unique and exclusive experience.

Pop-up stores are an effective marketing tool in China

Overall, successful pop-up retail in China will allow you to create awareness from potential customers, connect with your existing customers, learn more about their needs and hence better tailor your service accordingly. Plan your steps and utilise this marketing tool in China to make further developments on your brand.

Author: Chenyi Lyu

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Discovering Byton

The Chinese brand from Nanjing was created in 2018. The company is hold by Tencent Holdings. People from all around the world are working in the company: The CEO, C.Breitfeld was previously working on the BMW i8. D.Twohig was the chief engineer of the Alpine 110. Most of the staff were formerly working on ambitious projects of other car brands. The production is in Nanjing, R&D in Santa Clara and Design in Munich. The company structure highlight that even if the company is Chinese, there is an international environment inside the company. The purpose is to produce the best Tesla killer.

M-Byte, the smart Chinese electric cars

The company’s main product is the M-Byte electric SUV. This model will be launched in 2021 but is available for pre-order for 56,000 euros. Over 65,000 cars were already pre-ordered and around 25,000 just in Europe. It features a 50 inches screen and an informative voice helper Alexa developed with Amazon. The purpose is to create a smart device on wheels: connected, possibility of driving alone.

Description of the M-Byte

Starting with the specs of this vehicle: the 4.87 meter long electric SUV is available in two versions. The entry-level model is a version with a single engine of 272 hp and a 72 kWh battery. It offers an autonomy range of 360 km in the WLTP cycle. The second, more powerful version, with 408 hp and a 95 kWh battery, has an autonomous range of 435 to 460 km depending on the transmission mode. There are few brand stores around the world. The Chinese brand focus on online selling which reduce massively costs. They understood that new generations like millennials are used to smartphones for any use. Even buying a car online is not a problem anymore. This could be an issue with older generations, but it became common.

The state is helping new industries with purposes

China: an evolving production

Now China is more focus over quality. Matthieu Rochette Schneider, CEO Asia of 100degrés, speaks about a transition between ‘made in China’ and ‘created in China’. Brands like Byton symbolize how the Chinese economy changed these past decades. In the past the world factory because many foreign companies went there to relocate, it is now a center of creation. Huawei is another good example. Before the company was producing cheap smartphones, now it is competing with apple and is a tech leader on the 5G. Across decades, China improved its production and is no longer a cheap relocating place.

The importance of the Chinese state

B.Jacob, the vice president of Byton told that the Chinese government helped the company. It was possible to build a factory in two years because the government is backing Chinese electric cars. The country is still impacted with the guanxi “关系”, a system where relations between economic actors are tied.

Exiting the fossil fuel dependency

The country tries to reduce its fuel consumption. In 2017, China was the first oil importer. Energy dependence generates a difficult situation where the country is tied with others. It might be dangerous because oil is now a powerful diplomatic weapon. Electric transition could be a solution to become independent. Increasing the proportion of electric vehicles reduce the dependence, this could be an asset to manage an energy independence. Moreover, China is the first producer of rare earth materials. Around 70 percent of the global production is from the country far beyond the US and Australia. Trying to avoid energy dependence and using its own resources, electric power seems to be a solution for the country.

A market disputed: The Chinese electric car market

Since 2013, The Chinese government tries to regulate atmospheric pollution. New energy are encouraged, both with subventions and penalties. Those who purchase electric vehicles are rewarded with license plate privileges. Between 2013 and 2018, Chinese people bought 1.25 million electric cars. The government provided around 4.5 billion euros to promote electric vehicles. Some cities now have full electric public transports like Shenzen with more than 16,000 electric busses.

The electric vehicles competition

Many new energy vehicle brands compete in China’s automotive market. Tesla is the world leader, but not the only producer. Now Tesla is worth 77 billion US dollars and has already produced 1 million vehicles. Their main product is the model 3. The success story of Tesla started the electric hype, however other brands have carried out the trend. In fact, Byton is not the only Chinese brand to tackle this market. In 2018, BYD sold 247,811 electric cars, more than Tesla the same year. The Chinese electric cars benefit from the Chinese cars market growth.

Are electric cars really the future?

Electric vehicles do have some drawbacks. The creation of batteries injures the environment. You cannot recharge it just anywhere.. Also, public transportation might be a more proficient solution. It seems that electric cars might be relevant only on a city scale to reduce atmospheric pollution there. Still we are only at the beginning of this technology and it might improve with time.

Byton wants to become a leading electric car brand. The Chinese brand’s destiny is tied with the Chinese authorities who want energy independence. As many Chinese car brands, Byton is lacking a powerful brand image. This is compulsory to win Western markets. Even if there are some pre-order, it is difficult yet to know if the brand will be able to become the electric leader. Still, it is another example highlighting of the Chinese industry is gaining in quality.

Author: Enzio Cacciotto

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History of Volkswagen in China

On March 28^th, 1937, ‘Gesellschaft zur Vorbereitung des Deutschen Volkswagens GmbH’ was founded in Germany. Later on Sep 16^th, 1938, it got a name ‘Volkswagenwerk GmbH’. It is now one of the world’s largest international automobile companies, which produces and sells automobiles throughout the world. Today, the German company owns several world-known car brands such as Audi, Skoda, Lamborghini, Bentley, Porsche, Bugatti, Seat, and Scania.

In 1978 Volkswagen (VW) became one of the first international automobile manufacturers to enter the Chinese market. At that time, the development of the Chinese automotive industry was still in its infancy. In October 1984, Volkswagen Automotive Co., Ltd. established as the first Volkswagen Group joint venture in China. Today, the Group has 16 representative companies in the country, undertaking parts delivery and service provision for both customers and industry in addition to vehicle production and import. The Chinese market is one of the main markets of the Volkswagen Group. Operations of Volkswagen in China include the production, sales and services of whole cars, parts and components, engines and transmission systems.

China is the new center of power

The Chinese auto market is a special one in several respects – not only for its size and rapid growth. Government incentives and regulations play a role in controlling sales. For example, in 2015 the Chinese authorities temporarily cut taxes on cars in half with displacements of up to to stimulate sales for this class of vehicle.

Among the German carmakers, the Volkswagen Group has been a pioneer on the Chinese market. China is the biggest single market for the Volkswagen Group. Volkswagen in China produces and sells Volkswagen (e.g. Polo, Touran, Passat) and ŠKODA (e.g. Fabia, Superb, Kodiaq among others) brand models. Additionally, there are vehicles purposefully designed for China such as the Teramont SUV and the Phideon luxury sedan.

[Data Source: Volkswagen Group report 2018, ‘VW volume in deliveries to customers’]

Volkswagen in China: Demand for SUVs continues to grow

China’s automobile market is undergoing a period of slow growth as China’s economic growth slows down slowly recovers from the COVID-19 pandemic. However, the high growth rate of the SUV (Sport Utility Vehicle) market has attracted the attention of many automakers. From 2013 to 2017, SUV sales grew rapidly in China, with the growth rate reaching 27%. The share of SUV in the Chinese market continues to grow.

[Data Source: Statista, ‘SUVs share in China’s passenger car sales from 2014-2018’]

Teramont and Phideon reflect the major trends on the Chinese car market. The Teramont answers the growing demand for SUV-class vehicles. Around four in ten newly registered cars in China are currently SUVs, and that figure is rising. The Volkswagen brand alone will have more than ten models on the SUV market by the end of 2020. The year 2018 saw the launch of the Tharu, Tayron, Touareg and T-Roc. In 2021 Volkswagen plans to invest more than $4.4 billion to add more SUVs to its lineup.

Volkswagen in the battle for China’s green vehicles market

China has an important role as the world’s trendsetter and largest market for e-mobility. It alone accounted for 60 percent of worldwide demand for electric cars and plug-in hybrids in 2018. In 2018 around one million passenger cars with electric drives found buyers in China. That figure rose by 50 percent in 2019.

[Data Source: Business insider, ‘Electric vehicle sales in China forecast’]

The government is giving much attention to the field of electric mobility in China. By 2020 the fleet average fuel consumption is supposed to lie at five liters per 100 kilometers. To further advance e-mobility, the Chinese government introduced an electric car quota. Manufacturers that sell more than 30,000 cars a year in China must ensure that 10% of them are electric. All cars in the quota category receive credit points.

Volkswagen plans to invest in EV in China

The Volkswagen Group wants to lead the EV trend with a model campaign. By 2020 Volkswagen in China seek to bring 30 new fully electric and hybrid vehicles. By 2025 sales of electric models should reach 1.5 million units. Volkswagen China plans to invest more than US$12 billion in building and developing new-energy vehicles. It is the latest sign that competition for green cars in the world’s largest auto market will escalate. In 2019 Volkswagen claimed that it will introduce a new-energy vehicle portfolio of 40 locally produced models in China by 2025. Volkswagen in China has also teamed up with Anhui Jianghuai Automobile Group for a third joint venture. The joint venture will help the company to reach its goal of setting up a portfolio of pure battery cars.

Volkswagen – auto market leader in China

According to Volkswagen financial report 2019, the total profit of Volkswagen in the Chinese market was EUR 3.33 billion. By 2018 the Volkswagen Group built seven new plants in China. By then, the annual production capacity rose from 2.6 million to over 4 million. Volkswagen has the largest market share in the Chinese market during many years. In 2019 it was 14.6%.

[Data Source: carsalesbase.com, ‘China’s auto market 2019’, VW has the largest market share in China’s auto market]

Volkswagen in Shanghai

Volkswagen entrance into China formally began in March 1985, when it established its first facility in Shanghai (上海). Shanghai Volkswagen is a jointly-owned enterprise, with China and Germany each holding half of the initial investment. It is now the biggest modern automobile production base in China. Under the two major brands, Volkswagen and Skoda, it is covering markets of A0, A, B and SUV.  Despite its success, it also faces competition from other foreign automobile manufacturers. For example, Santana Motor, a Spanish car manufacturer, has experienced country-wide success since it entered the country nearly 30 years ago in 1984.

Volkswagen in Changchun

With the success of Shanghai Volkswagen, the company turned its eyes to northern China and founded FAW-Volkswagen in Changchun (长春) in the Jilin(吉林) Province. By 2019, the company had more than 100,000 employees working there. After the establishment of its facility in Changchun (长春), the company created another two branches in China: one in Chengdu (成都) and one in Foshan (佛山). The Changchun plant of Volkswagen FAW Engine is an important powertrain production base for the Volkswagen Group. The annual production capacity is 300,000 units of the EA 888 engine.

Volkswagen in Tianjin

To keep up with demand for both SUVs and electric cars, Volkswagen in China opened three new factories in 2018: in Qingdao, Foshan and Tianjin. Tianjin plant produces electric vehicles based on the MQB platform. The factory in Tianjin also make high numbers of new models from FAW-Volkswagen, especially SUVs. Volkswagen Tianjin Plant will produce SUV models for both the Volkswagen brand and the Audi brand. The facility’s daily production capacity will be 1,200 units, with an annual production capacity of 300,000 units.

As a green factory, the new Tianjin plant will introduce a number of state-of-the-art sustainability measures. It includes world-leading volatile organic compounds (VOC) emissions control technologies and solar photovoltaic technologies. The facility will also focus on reusing water, with a reuse rate of 98%. By recycling and utilizing the waste water, the Tianjin plant will save up to 300,000 tons of water annually.

The location of the new plant near the Volkswagen Platform Tianjin Branch and Volkswagen Automatic Transmission Plant Tianjin will reduce delivery times, resulting in lower supply costs and CO2 emissions in the supply chain. 

[Source: Volkswagen Group, ‘Volkswagen group in China’]

Competition in the Chinese auto market

Tesla and Volkswagen: EV price competition

Manufacturers such as Tesla and Volkswagen are ramping up operations in China to nab a piece of growing EV market. Volkswagen is readying two Chinese factories to build electric cars in 2020. The Chinese plants will have a production capacity of 600,000 vehicles. This will enable Volkswagen to leapfrog Tesla and make China the key battleground.

Tesla in China is still trying to reach its goal of making more than 500,000 cars a year by building a factory in Shanghai. VW relies on an established workforce in two of its plants in Anting and Foshun to build zero-emission cars.

Tesla’s cars have a sophisticated software algorithm to control how much electricity goes to the electric motor, air conditioning, seat heaters. Volkswagen China  uses price and massive economies of scale to gain a competitive advantage.Volkswagen’s lower price comes from the car maker’s ability to place large orders.

[Data Source: Cleantechnica, ‘China Electric Vehicle Sales April 2019’, VW EV car sales surpass Tesla’s EV car sales in China’]

Battle between GM and VW

General Motors run of strong sales in China recorded its highest September sales result ever. In 2017, GM’s sales jumped 6.3% year over year as key rivals lost some ground. General Motors’ strongest non-Chinese competitor in the market is Volkswagen Group.  Despite posting a similarly strong with deliveries rising 7.5%, VW’s volume was just around 315,000 vehicles in 2017. The driving force for GM’s gains was SUV sales. From 2018 Volkswagen in China continues to outperform General Motors, as GM posted another double-digit decline in volume. 

[Data Source: Volkswagen Group, General Motors reports, ‘VW and GM annual sales 2017-2019’]

COVID-19 impact on Volkswagen in China

The COVID-19 outbreak has exposed several challenges for the automotive sector in China. 80 percent of automotive and related companies report that coronavirus will have a direct impact on their 2020 revenues. 78 percent of companies do not have enough staff to run a full production line. In February 2020 China’s car sales plunged by 18 percent. Automotive plants in China remained closed until mid-March 2020. 

[Data Source: Bloomberg, ‘Change in China’s auto sales’, Sales drop in the Chinese auto market due to COVID-19 impact’]

Volkswagen in the Chinese market saw dropped car sales by 23% in the January to March 2020 period. The decline in sales in April 2020 was between 15% and 20% from a year earlier, while the drop in March, at the height of the pandemic, had been 40%.

Volkswagen factory in Changsha resumed operations in March, putting all but one of VW Group’s 33 car and component plants in China back in business. Volkswagen claimed showroom traffic in the end of March had rebounded to year-earlier levels. However, in 2020, Volkswagen in the Chinese market expects a decline of 3-15%.

Author: Valeriia Mikhailova

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About Lexus

Lexus is the luxury vehicle division of Japanese automaker Toyota Motor Corporation. First introduced in 1989 in the United States, Lexus is now sold globally and has become Japan’s largest-selling make of premium cars. The Lexus marque is marketed in over 70 countries and territories worldwide, and ranks among the ten largest Japanese global brands in market value. Lexus is headquartered in Nagoya, Japan. Operational centers are located in Brussels, Belgium, and Torrance, California, United States. Since officially entering the Chinese market in 2004, Lexis has been in China for over 15 years and the demand for Lexus China is strong during the period.

Since its inception, Lexus has advertised its products to luxury consumers using specific marketing strategies with a consistent motif of luxury. Industry observers have attributed Lexus’ early marketing successes to higher levels of perceived quality and lower prices than competitors, which have enabled the marque to attract customers upgrading from mass-market cars. Lexus’ marketing efforts have also extended to sporting and charity event sponsorships.

Lexus in the Chinese car market

The Chinese car market is shrinking while the revenue of luxury auto brands continues increasing

The Chinese car market the world’s largest car market, saw consecutive drop after decades of growth in 2018 and 2019 because of a cooling economic and trade war pressures. According to data released by the China Passenger Car Association, the number of passenger vehicles sold in China dropped to 20.7 million in 2019, decreasing for 7.4% from 2018. That exceeded the 3% drop in 2018. However, the sales and revenue of luxury car market in China showed a stable upward trend in recent years. In the period from Jan. to Nov 2019, the market share of luxury car brands in China reached around 10.8%, increased steadily from 6.1% in 2015. The sales of luxury cars amounted to 200.24 thousand in the September of 2019, with a 18.6% year-by-year rise.

[Data source: huaon.com, Luxury car market in China growth]

Lexus China saw strong sales in recent years

Despite the downward pressure in the Chinese car market, Lexus reported 148,976 sales in China from January to November 2018, up 24% year over year. In 2019, Lexus China maintained double digit sales growth of 25% and delivered 200,521 vehicles in China. 2019 was the third year that Lexus has a sales growth of more than 20% and was the year in which Lexus sole its millionth vehicle in China. Lexus was the fifth-largest luxury car brand in China in 2019, following BMW, Mercedes-Benz, Audi and Cadillac. Lexus accounted for approximately 5% of the Chinese luxury car market and wished to occupy 10% of the market by the end of 2020.

The market strategy of Lexus in China

Create a strong brand image

Breaking away from Toyota’s brand system, Lexus has committed to establishing its unique brand values ​​and propositions in order to be recognized as a luxury lifestyle brand. The core brand value of Lexus, the luxury vehicle division of Toyota corporation, is comfort, luxury and pursuit of perfection, which contradicts that of Toyota. So, Lexus creates its own brand culture as well as the matching marketing strategy.

For brand identity, while Mercedes Benz always tries to convey that it is a matter of pride and prestige to own a Mercedes and BMW emphasizes “the pure driving pleasure”, Lexus lays emphasis on its “3S” spirit (SEIKAKU +SHINSETSU=SHINRAI) when marketing. It is wise for Lexus to emphasize “customers first” since it satisfies customers’ increasing demand for high-quality service in the background of consumption upgrades. The core marketing philosophy helps Lexus build a positive brand image among Chinese customers.

Word-of-mouth marketing

In the new era of consumption, brands must try their best to create word of mouth among their fan groups. Lexus attaches great importance to the user experience, and perform word-of-mouth marketing based on user experience. For example, Lexus China invited well-known designers to create five-star 4S stores as well as generally praised exhibition hall, and it launched a Mysterious Visitor Plan in order to increase customer satisfaction. Also, to ensure the customer loyalty, Lexus focus on building fans communities. Since 2006, Lexus in China has implemented a maintenance plan, launching a series of campaigns such as golf tournaments, concerts, tree planting, and environmental protection days. Through the building of communities, Lexus is able to established emotional resonance with its customers and thus deepen the connection between the brand and the customers in China.

New marketing

[Source: Lexus China weibo account, “Lexus’s film – ‘Life Movie’”]

Lexus China has launched its new marketing strategy and held a series of diversified and creative campaigns including crossover marketing (IP marketing) and microfilm marketing. Lexus officially launched the Lexus UX into China’s market on January 23 and held the conference for this brand-new model teamed up eight other brands: ThinkPad, Kindle, New Balance, Godiva, Monster, Visa, 3M and Coca Cola. Jointly designed poster as well as the brand windows of all brands displayed at the press conference aimed to convey the common concept “Attention to details”. In this case, Lexus’s brand image of obsessing over details is more well-known among Chinese consumers. Also, Lexus successfully attract the young and sophisticated urban consumer with this crossover marketing campaign since all these brands are targeting the same consumer group.  

Another example is the launch of Lexus’s film to promote RX line of luxury SUVs in October, 2019. The short film, one of Lexus “Life Movie” series films, explores intergenerational conflict and the power of music with the thesis of musical nostalgia. Yu Qian, a popular Chinese crosstalk performer, and Huang Bo, a famous Chinese actor, played two main characters. The nostalgia-driven film successfully appealed to Lexus’s target consumers, relatively older, affluent people by evoking a feeling of sentimentality. The film got more than 3 million views on Weibo, and received numerous positive feedbacks, which showed the success of the new market strategy of Lexus in China. 

Under the spread of coronavirus: Impact on auto manufacturing in China caused a crisis for Lexus

Toyota opposed producing its premium Lexus cars in China for years because of concerns over quality and profitability. However, this may lead to great troubles of Lexus under the spread of coronavirus.

On the one hand, as the first country to break out of the epidemic, China has made achievements in the fight with the virus, and reopened Wuhan after a 76-day lockdown, which means all the country is able to resume work. At the same time, Japan declared a Coronavirus Crisis on April 7 and is still struggling to contain the outbreak. Since all the Lexus cars in the Chinese market are built in Japan, the production of Lexus might be affected due to the possible shutdowns. On the other hand, the competitors of Lexus in China, like Mercedes and BMW, reopened their Chinese factories and resumed production in February. In this case, the gap between Lexus and its competitors may widen due to the shortage of production capacity.

From a demand-side perspective, the negative impact of COVID-19 on the Chinese economy may last for a long time and there will be a fall in demand for luxury cars. In addition, the price-fixing on Lexus cars last year harmed Chinese customers’ rights and caused complaints among consumers, causing a decline in the reputation of Lexus cars. So, a decreased demand for Lexus cars in the Chinese market this year is expected.

Overall, under the spread of coronavirus globally, Lexus in China is facing crisis. However, if Lexus can come up with good solutions to ensure its production and continue taking advantage of marketing, it may succeed in the luxury car market in China again.

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Since its founding in 2003, Tesla’s vision was to manufacture mass-market electric vehicles (EVs) that offered a compelling customer value proposition. This includes a long range vehicle that possesses recharging flexibility, one that is energy efficient, low cost, and high performing without compromising design or functionality. This article details the unique strategy of Tesla in China.

Tesla’s automotive segment comprises of the design, production and sale of fully-electric vehicles. Tesla targets the premium sedan and SUV markets through its Model S and Model X, and the mainstream vehicle market through its recently introduced Model 3. The energy generation and storage segment comprises of the design, production and sale of solar energy generation systems and energy storage solutions to industrial and commercial consumers. In essence, the company benefits from core competencies in powertrain engineering, vehicle engineering, innovative manufacturing and energy storage.

A global leader in new energy vehicles

Ever since going public in 2010, Tesla has been leading the charge towards alternative power in the passenger vehicle industry. Currently, Tesla is seen as an innovative, exciting and powerful player in the global automobile industry. The company’s market valuation topped 100 billion U.S. dollars in the first month of 2020.

Globally, Tesla’s vehicle deliveries reached between 367,000 and 368,000 units in 2019. Tesla’s Model 3 has become the world’s best-selling plug-in electric vehicle model. In the fourth quarter of 2019, deliveries of Model 3 vehicles accounted for over 80 percent of the sales volume by product, duping the Model S and Model X products, which were originally aimed at customers in the high-end sphere of the market. With the release of the Model 3, Tesla is now targeting broader customer segments. Tesla is expected to add the Roadster, the Model Y, and the widely anticipated Cybertruck to its currently existing model lineup. However, for Tesla in China, its growth strategy is mostly driven by the anticipated high demand for the Model 3.

[Source: Tesla website, the Tesla Model 3]

Tesla’s China Entry

What is unique about Tesla’s China Market strategy?

In designing a successful China market entry, market entrants need to rethink and redesign their products in order to take full advantage of the possibilities of new technologies. That is what Tesla did with the EV. Tesla exploited new technological advancements and developed new complementary assets around that knowledge. On the demand side, they established strong market leadership and both created and satisfied an appetite from investors and customers for their products that perform well in terms of range, responsiveness, and user interface.

Tesla’s three China market objectives

Tesla had three objectives when entering the Chinese market. Firstly, to expand its share in the world’s largest electric vehicle market. Secondly, to stay independent of China’s requirement for foreign automakers to forge joint ventures with Chinese manufacturers. And thirdly, to protect its intellectual property built into its growing lineup of EVs.

For Tesla, the act of investing into China was a major turning point for the company. Tesla made history by becoming the first foreign car factory approved to operate fully independently while still retaining 100 percent ownership in China. Given that China has recently amended its Foreign Investment Law, Tesla no longer needs to face concerns regarding “forced technology
(IP) transfers” of its patents. This arrangement is something that auto-makers such as Mercedes-Benz, BMW, Ford, Toyota and other international carmakers have been requesting for years. 

[Source: Statista, Influencing factors to prefer an electric car in China in 2019]

Tesla’s Fit in China

Why China?

China is an important market for the automotive industry, particularly for electric vehicles. China is Tesla’s second-biggest market, and selling high volumes of EVs in China is a large part of the automaker’s business plan. For Tesla, the advantages of coming to China are widely apparent and fit well with its business model.

For example, China’s vast consumer market, strong central financial system, mature industrial production chain, and lithium-ion33 battery production capacity make it an ideal place to localize production. Furthermore, China’s dominant position in the world market for several rare-earth metals and advancement in manufacturing electronics, both of which are prerequisite for the production of the three core components of EVs – batteries, electric motors, and electric controls, also make it an attractive destination for Tesla.

Tesla is expected to grow significantly in China in 2020 and beyond due to having local production capabilities after completing its Gigafactory in Shanghai in late 2019. This is beneficial to the company for two reasons. Firstly, because production in China spares Tesla from import tariffs on finished vehicles, and secondly, its locally made cars qualify for government subsidies. Because China is an important supplier of automotive parts for the global industry as well as a hotbed for electric mobility and smart grids, it has been the perfect place for Tesla.

How the Shanghai Gigafactory Plays into Tesla’s Supply Chain Strategy

Tesla’s Shanghai Gigafactory is a competition “game changer” in the electric vehicle market as it puts pressure on traditional groups to offer high-quality battery-powered models to Chinese consumers. Tesla said the Gigafactory in China was approximately 65 percent cheaper to build than its Model 3 production systems in the U.S., and that the facility was capable of producing full vehicles from body to paint to general assembly.

China is by far the largest market for mid-sized premium sedans. Thus, with the Model 3 being priced on par with gasoline powered mid-sized sedans (even before gas savings and other benefits), Tesla believes China can become the biggest market for the Model 3. As a result, Tesla indicated its intention of ramping up production and tapping into the lucrative Chinese market with its Model 3 sedans and Model Y cars.

The most important reason behind the construction of the Gigafactory was to increase production volume to the maximum in order to let prices fall and enjoy economies of scale. However, in order for this to work sales must increase significantly to justify such a strategy.

Why Tesla’s strategy succeeded where others failed

In the past, other players in the industry tried similar strategies that ended up failing. Tesla’s goal is to develop a new car in less time than their other competitors. To do so, they need a faster and more agile supplier base than anyone else. Therefore, Tesla has done something different from its competitors: it is building its own market.

This large facility, which will be sufficient for the production of half a million Tesla vehicles annually, will be completely powered by renewable sources. This will prove rewarding on eliminating energy consumption costs. The rationale behind the plant is to reduce the price of batteries for automotive and domestic consumption purposes. Considering all these factors, Tesla can be considered as one of the most important and well-rounded players in the Chinese automotive industry as far as alternative sources to traditional fossil fuels and sustainable mobility are concerned.

Assessing the current position of Tesla in China

Why did China fully support Tesla’s entry into the Chinese EV market?

Tesla’s China entry signified the Chinese government’s efforts to attract an influential foreign company, to improve its image of market openness, raise up potential domestic Chinese players, and to stimulate the interest of the global capital market. With the ultimate goal of driving China’s EV industry to new heights, China hopes that Tesla will become an industry leader that can promote the localization of EV design and manufacturing within China’s industrial and supply chain.

China’s manufacturing prowess can help Tesla overcome the “production hell” it suffers back in the States. Therefore, the Chinese government’s EV ambitions give Tesla a tailwind that it lacks in America.

What is China’s stance on Tesla and vision on its significance for the Chinese domestic EV industry?

China sees Tesla as the “Apple of the automotive industry.” By allowing Tesla into its market, the Chinese government is effectively trying to recreate the effect Apple had on the Chinese tech industry. Apple not only expanded China’s industrial chain, but also created technology spillover effects that brought Chinese tech companies such as Huawei and Xiaomi to a whole new level, helping them become more competitive. In essence, China supported Tesla’s market entry with the ultimate aim of creating industry spillovers.

He Xiaopeng, founder of XPeng Motors, stated that Tesla’s presence in China would be a positive force for the development of the domestic electric vehicle market. In this instance, China is hoping Tesla’s entry will trigger similar reactions and help accelerate the country’s transition to electric vehicles. Chinese manufacturers are currently focused on two areas: auto parts and smart electronics, but they have yet to reach the core of Tesla’s industrial chain, both in scale and technology.

What Makes Tesla’s China Business Different?

Understanding Tesla’s Supply and Value Chains

Tesla’s business model is different from those of most traditional automobile manufacturing companies because it owns the entire supply chain from manufacturing to distribution. This strategy is driven by the ultimate goal of lowering manufacturing costs and the costs of goods sold, thereby assuring the business’ sustainability. The Model X and Model 3, which unlike its previous models, target the mass market for electric vehicles. Tesla’s supply chain management strategy focuses on a long-term growth strategy involving production, inventory management, and distribution.

Because Tesla builds entirely new types of cars and possesses a completely redesigned manufacturing process, it has taken nearly complete control over the industrial value chain. Thus, for the Chinese automotive industry, Tesla has proven itself as a true disrupter in the field. This disruption has primarily taken shape in the following areas in particular: batteries, charging infrastructures, Tesla’s production, sales and distribution model. The flow chart below shows the integration of Tesla’s supply chain.

[Source: SAGE Journals, Tesla’s highly integrated business model]

2. Tesla’s Complex Management of Battery Packs

It is widely acknowledged that the key to the sustainable development of electric vehicles in the future lies in battery technologies and charging systems. The main factor negatively affecting sales of electric cars is their short endurance mileage. Which as a result, has deterred many consumers who fear running out of power on the road. The battery, which is the crux of electric vehicle technology, is the first important problem encountered in electric vehicle innovation.

To provide a solution to this problem, Tesla’s value chain capture includes the production of battery packs. Tesla attempted to solve these issues from the outset using a core technology of combining ordinary batteries into a powerful, stable and large-capacity battery pack. Instead of developing a dedicated large battery, Tesla used a large number of mass-produced lithium batteries developed for laptops that have a well-developed supply system, are low in price, and are of consistent quality.

This proved successful as Tesla vehicles hold the number one place in long range driving. Below is a chart displaying the integration of the battery cell and packing into the EV’s production cycle.

[Source: SAGE Journals, organization structure of batteries into Tesla’s business model]

3. Tesla’s Efficient Energy Ecosystem

Tesla also realized the importance of being able to supply its own energy systems. This is where the principle of self-service became key to solving the problem of charging and supplying power. To address the above problem, Tesla is in the process of developing a new energy supply ecosystem of superstations that produce their own energy and charging stations to be distributed across China.

4. Retail and Distribution

The Tesla business model captures all aspects of retail and distribution. Which means it owns all its dealers and sales outlets as well as internally handles vehicle repair and maintenance.

Whereas on the other hand, traditional OEMs rely on a pronged selling network with one-brand and multi-brand dealers. Tesla, going against this deeply rooted system decided to market its vehicles through the Internet. Utilizing the so-called direct sales system method. Tesla’s direct sales model is a significant departure from the typical franchised dealership model. In this way, the company not only controls customer experience, but also owns the channel touch-points and data, which can lead to potential advantages for new product development.

By making customer experience a key quality, Tesla may contribute to making the car a vehicle for enhanced personal mobility. The “ultimate driving machine” may become the artificial intelligence-enhanced, high-touch living and working design. Tesla may end up as a case of entrepreneurial disruption without ever challenging the incumbents directly on their scale business of mass manufacturing, opening up the way for other entrants.

5. Sales and Pricing

Online only sales are ill-suited for most dealers, but have been done successfully by Tesla. Resulting from this sales model is the beneficial aspect of fixed pricing. What this means is that the retail price of the vehicle is the same at no matter what point you buy it from in the Tesla network. When reaching the point of being able to price an EV at fixed numbers you can entertain the idea of online sales. This separates Tesla from the market because, for other OEMs, they’d need to at least get to a point where consumers feel like they’re getting value from the brand. This pricing and distribution strategy gives them that Apple quality and feel.

6. Customer Segment

Tesla’ customer segment is vastly different to other carmakers. Most car-makers enter the multi-purpose economy or specific-purpose market. The ownership cost for EV is high.

Because Tesla continues to offer an SUV version luxury multi-purpose car, followed by a more economical multi-purpose car, it corresponds to the strategic goal of creating an affordable mass market EV. The customer segments of battery and recharging systems need to match the customer segment of vehicle.

The transnational homogeneity of these market segments means Tesla faces low pressures for local responsiveness and can offer a standardized product with minimum differentiation across markets. Tesla’s market segmentation is revealing of its high-end disruption innovation model.

7. Cost and Value

The competitive nature of the car industry has placed high pressures on cost reduction, which has pushed Tesla to increase its products’ customer perceived value. By creating value-added services, through a global network of stores, service centers and Superchargers, the company supports customers in their purchasing decisions and reduces the switching costs of buying EVs. On the other hand, developing unique core competencies in powertrain engineering and energy storage has enabled Tesla to price its product at a premium. Finally, over-the-air software updates allow Tesla to limit its products’ obsolescence, strengthening their value-for-money.

In sum, Tesla can be labeled as a value-driven business. The goal of the company was to always offer best-in-class technology embedded in its products, and therefore customers are willing to pay more to buy the goods this firm presents to the market.

Takeaways from the strategy of Tesla in China

The vertical integration approach helped Tesla learn quickly and maintain control of all the key design details. Tesla went further, vertically integrating its retail sales channel and building its own network of charging stations. Such a level of vertical integration in the auto industry last appeared in Ford’s pioneering days. In essence, Elon Musk’s China strategy is to increase car production and to expand Tesla’s charging infrastructure to accommodate increasing the number of Tesla cars on the road. By producing the energy that power its cars, Tesla sources itself in the automotive industrial energy and value chain.

Explaining Tesla’s Success in China

Timing and vision played a significant role in Tesla’s success. Tesla was one of only a handful of pure EV car makers globally in the mid-2000s and probably the first to develop a robust EV powertrain and battery pack. The company was a first mover in betting that lithium-ion battery costs would continue to decrease for many years to come. Tesla’s hard charging nature, led by CEO Elon Musk and its unique branding approach enabled it to distinguish itself from other car-makers and attract loyal customers. Furthermore, Tesla’s business and operational model seek to address the key problems Chinese vehicle buyers have with EVs.

[Source: Statista, Influencing factors deterring purchases of electric cars in China]

This graph shoes the effectiveness of Tesla’s brand imaging in gaining popularity among Chinese buyers. The factoring of brand awareness will be a major driver of Tesla’s growth in the Chinese market and will set the pace for future success.

Tesla’s Competitors in the Chinese EV Market

Tesla faces steep competition in China from a mix of both foreign and Chinese automakers that are already manufacturing and selling electric cars. For now foreign car companies continue to see gold in China and are boosting local production of their own electric vehicles. However, Tesla does have one big advantage in China. And that is the Chinese government has helped Tesla tremendously by giving them a special dispensation so that they can be an independent foreign auto manufacturer without needing a local partner.

Chinese automakers have benefited from some $60 billion worth of subsidies and incentives since 2012, designed to make new energy vehicles affordable for Chinese drivers. This has included research-and-development funding, tax exemptions and financing for battery-charging stations. Meanwhile, non-Chinese automakers, including BMW, Mercedes, Audi and Toyota, have already established a beachhead in Asia, with manufacturing and sales there conducted through a variety of partnerships and agreements with local entities.

Domestic competition in China’s EV indudstry

Electric vehicle makers that are already up and running in China include: NIO, which went public in September 2018, Warren Buffett-backed BYD, SAIC Motor, a partner of Volkswagen and GM, Geely Automotive Group, BAIC Group, and its subsidiary Beijing Electric Vehicle Co. Besides these, a group of electric vehicle start-ups are on the rise in China which includes Byton and WM Motor Tech.

Even though Tesla is dominating electric vehicle sales in the United States, the company is trailing domestic competition in the massive and lucrative Chinese market. Clean Technica, in its its latest analysis of plug-in electric vehicle sales in China, found that the BAIC EU-Series was the top-selling model between January and August 2019. The electric sedan sold 65,593 units, ahead of two other Chinese models – the BYD Yuan (57,413) and the SAIC Baojun E-Series EV (31,900). The Tesla Model 3 was far behind, selling 14,439 units in the first eight months of 2019. However, the market has seen change in 2020.

Tesla’s Strategic Approach to China in Comparison to NIO

Many high-profile EV start-ups in China like NIO are attempting an ambitious shortcut to duplicate the Tesla approach by jumping into design and marketing without first building ordinary capabilities. The logic with this strategy is that leapfrogging past ordinary capabilities is possible if operations can be outsourced. However, this approach puts stress on the asset orchestration and other capabilities of management.

For example, this has put increased stress on NIO because it does not manufacture its own cars. It contracts state-owned JAC Motors to make their vehicles. In turn, JAC charges fees for every car. Thus, due to its partnership with JAC, NIO generates lower margins than its peers like Tesla that manufacture their own cars. Moreover, while the company initially planned to construct its own manufacturing facility in Shanghai like Tesla’s Gigafactory, it finally dropped the plan due to financing issues. This is a representation of how Tesla’s government financing from China significantly improved its market results.

Therefore, as NIO relies on JAC, there is not much room to streamline manufacturing costs. On top of that, NIO does not have a dealership network and instead sells its vehicles through apps and a network of NIO houses, located in some of the most expensive areas of China’s largest cities. Lastly, huge vehicle recalls are affecting the reliability and reputation of NIO, in addition to taking a toll on expenses and margins.

Thus, to address the issues encountered by NIO along with the feedback from Chinese EV consumers, Tesla has provided a product that has access to charging stations, a strong battery, and advanced technological functions for improved customer experience.

The future of Tesla in China

The profitability of each multinational automaker’s China strategy depends on reading (‘sensing’) the EV market correctly. Decisions automakers in China must make include; which market segment(s) to target and whether to create China-specific designs to better accommodate the sometimes inferior Chinese batteries they are required to use.

Strong sensing and sense-making capabilities allow firms to perceive where the industry is heading, enabling management to identify critical capabilities and bottleneck assets that need to be acquired or enhanced. This is where Tesla proved ahead of the market.

Author: Jeffrey Craig

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China makes up 20% of Volvo’s global sales. Volvo’s retail sales are the highest in Europe (50%), followed by China, and the US (15%). The best-selling car line is XC-models (56%), which include SUVs cars, followed by V-models (29%), which include medium-sized and large cars, and S-models (15%), which are sedans. In 2018, Volvo broke the 600k mark with 642,000 cars sold, including 130,593 units sold in China. 25% of Volvo cars were produced in China where Volvo established three car factories and an engine plant. Volvo China achieved double-digit growth, with a retail sales growth of 14.1% in 2018 despite market headwinds. The growth is mainly driven by locally produced S90, XC60, and XC90.

How do Chinese consumers perceive Volvo cars?

Chinese consumers have diverse perceptions of Volvo. Some believe Volvo is a premium car brand, but less “premium” than Mercedes-Benz, BMW, and Audi, the same level as Infiniti, Lexus, and Cadillac. Volvo’s unique selling point is safety, sustainability, and its strong functional value. Some say that Volvo in China does not offer as many lines as other car brands. Overall, Chinese consumers perceive Volvo cars as being cost-effective. However, when you search “Volvo in China” on Zhihu, you will come across a lot of questions asking why Volvo is only a mediocre player in the Chinese market, considering that it has a strong presence in Europe. 

Geely’s Acquisition of Volvo

Volvo, an established player in the global luxury car market, has long enjoyed its status as the safest car brand. It has over 43,000 employees all over the world and has established sales and services networks in over 100 countries and districts. Currently, it classifies its vehicles into six car types: small SUVs, Large SUVs, Executive Cars, Large Cars, Medium Cars, and Sports Cars, with Executive Cars and Small SUVs being the core segments, both in terms of revenue share in Volvo’s portfolio and market leader position in the respective segment.

Volvo’s sales started declining in China

In the year 2005, Volvo made a profit of about 300 million dollars, but then later underwent three consecutive years in a deficit. In 2008 alone, due to the global economic crisis, its sales fell by more than 20% and it lost 1.5 billion dollars.

[Source: zgh.com “Geely’s brand portfolio, including Lynk & Co and Polestar that are co-owned by Geely and Volvo”]

Geely is one of the top ten companies in the Chinese automobile industry. Ever since it entered the sedan field in 1997, it has seen success in the Chinese market. It was listed in the Fortune Global 500 as the only private automotive enterprise from China in 2012 and is called the fastest developing and the best-developed automobile company in the 50-year history of China’s car industry.

Geely acquired Volvo in 2010. The reasons why Volvo chose Geely are as follows: First, Volvo’s sales have been dropping over recent years. Second, choosing Geely allows Volvo to gain easy access to China’s rapidly growing car market. Third, Geely had been researching Volvo for eight years and was already discussing the acquisition for three years before it actually took place.

Differentiation creates synergy 

The acquisition is considered a win-win for both sides by most market analysts for several reasons. Volvo has always focused on luxury cars while at the same time Geely focused on low cost lower or medium grade cars. Through this acquisition, Geely broadens its product offering and customer base. Besides, it acquires a company that targets different consumers and can avoid cannibalizing any of its existing sales. Secondly, Geely has a deep understanding of China’s automobile market. Combining this with Volvo’s reputation and technology, Volvo can take a step in achieving its plan for a global market. Also, by entering China, Volvo effectively lowers its production cost, since China has an advantage in labor costs.

China’s Automobile Manufacturing industry at a glance 

The Automobile Manufacturing industry includes complete automobiles and automobile engines. Suppliers of China’s auto manufacturing industry includes paint manufacturing, plastic parts manufacturing, automobile body, and trailer. The demand side includes auto & parts wholesaling, car dealers, and car rentals. The major player in the industry are Shanghai Automotive Industry Corporation, Dongfeng Motor Co., Ltd., and Beijing Automotive Group Co., Ltd., which accounts for 34.8% of the industry market share. The primary activities in the automobile manufacturing industry are manufacturing of complete automobiles (passenger vehicles and commercial vehicles), non-complete automobiles (commercial passenger vehicles and freight vehicles), passenger vehicles (basic, MPVs, SUVs, cross-over, non-complete), commercial vehicles and automobile engines. Out of the products and services segmentation, basic vehicles and SUVs are leading the industry, which takes up over 76.6% of the industry products and services.   

The industry is highly shaped by government policies

The automobile manufacturing industry in China has experienced ups and downs over the past ten years. Due to favorable government policies, the industry revenue increased significantly from 2008 to 2010, with a growth rate of about 30%. .  However, from 2011 to 2012, the revenue growth dropped due to the cancellation of purchase tax reduction on vehicles with less than 1.6-liter engines. From 2013 to 2014, the automobile manufacturing industry in China slightly bounced back, revenue increased by 19.6% and 11.5% respectively, amounting to $594.5 billion in 2014. 

Slower economic growth impacts vehicle demand

With the growth in China’s economy slowing in 2015, the sales of automobiles fell in the first nine months. The government then cut the purchase tax on vehicles with engines smaller than 1.6-liters by half. The sales, thereby, slowly went up to $647.6 billion, up 8.9% from 2014. In 2016, industry revenue reached $742.6 billion. However, with the exit of preferential policy, the sales growth of automobiles slowed down spontaneously in 2017. In 2018, the industry experienced its first decline in auto sales in over 20 years, mainly due to the slowdown of the economy and a corresponding decline in demand.   

The factors contributing to the growth of the industry include rising domestic demand across urban and rural areas, growing exports, rising household income levels, competitive pricing in the industry, and most importantly, favorable government policies which further drove industry revenue growth.  

The dynamics of the automobile manufacturing industry in China 

Declining demand for imports and growing exports volumes

The import volume of automobiles decreases while the export volume is increasing significantly in China’s automobile market. In 2017, Chinese vehicle exports increased by 50.3% from 2016, exporting over 1 million units. The reasons are two-fold. China’ exported automobiles have price competitiveness as manufacturing cost is considerably lower because of the abundance of low-cost labor force. The development of emerging foreign markets including Africa, South America, and the Middle East, also boost the export volumes. China has strong ties with countries in these areas, which creates opportunities for trading, marketing and investment for domestic manufacturers. Apart from that, governmental institutions encouraged domestic auto manufacturers and exporters to establish brand names in foreign markets.  

Strong support for new energy automobiles

The industry has also been aided by the government’s strong support for new energy automobiles in China. The Chinese government grants significant subsidies to both manufacturers of electric cars and consumers who purchase them. The government is also investing in electric vehicle charging points across the country. Moreover, the local governments have also added their subsidies as well as electric car-friendly policies in many cities in China. These preferential policies and a favorable environment might lead to a shift in consumers’ purchase preference from conventional cars to electric cars and stimulate industry growth over the next few years. However, slower growth rates are expected as the industry matures and automobile ownership levels near saturation.  

What are the major players doing? 

The number of enterprises in the industry has decreased and is expected to continue decreasing due to merges and acquisitions activities. Large organizations acquired smaller ones while expanding their operations across the country by increasing establishment numbers. Organizations with a disadvantage in technology and low capital are expected to exit the competition.  

[Source: Autohome (汽车之家) app. “Volvo’s On Sale product lines on autohome.com, mainly sedan and SUV lines”]

There are various answers to this question. Some said Volvo does not have the advantage of “country of origin (COO)” compared to brands from German. Due to the low awareness of Sweden among Chinese customers, the secondary associations of COO does not prevail in Volvo’s case. The market is still dominated by German brands. Some feel that Volvo’s reputation in China devalued after Geely’s acquisition. Since Chinese automobiles are not commonly associated with “premium” and “luxury”, hence, the Geely-owned brand is undergoing a reputation crisis.      

Volvo’s response to price competition in China’s automobile market 

The market shows an increasing price competition and softened demand for cars. Volvo in China is responding to the scenarios in a fairly aggressive way. According to an industry insider, the S90 T4 model, the master product of Volvo in China, has been marked down for several times in just one year and three months, from the original price of CNY406,800 to CNY295,000, a total price drop of CNY111,800, CNY70,000 in just 6 months. This was just a starting point for Volvo’s price drop in China. The S90 T5 model, an upgraded model of S90 T4, only sold for CNY280,000 with gifts, a price drop of CNY130,000, which signaled a huge self-depreciation as a premium car. A similar situation happened to XC60, Volvo’s signature SUVs, the price drop was enormous. XC60, the best performer in the European market, reaching sales of nearly 100,000 units, only sold 46,800 units in China. 

[Source: Pixabay “Volvo’s signature SUV model XC60”]

“Volvo’s price drop in China takes a toll on the brand’s long-term development” 

The industry insider further demonstrated the consequence of Volvo’s price drop. Although Volvo sold over 600,000 cars in 2018, including 130,593 cars in China, such performance was not comparable horizontally. Volvo ended up ranking the seventh in the premium and luxury cars market in China, following after Cadillac, Lexus, JLR (Jaguar Land Rover), being the last of the “second-tier” brands. 

Negative consequences of price drops

There are negative consequences of Volvo’s constant price drops. Many of Volvo’s dealers in China are losing profit and some chose to stand up for protecting their rights, not to mention offering comprehensive in-store and after-purchase services to customers. The younger consumers do not favor Volvo cars as they are afraid of a loss of investments. After constant price drops, Volvo in China cleans up its benign ecosystem of superior dealers and customer segments. The brand used to appeal to high-class elites who resonate with and are loyal to the brand, but now Volvo appeals to customers who are seeking low prices above all, comparing prices between different dealers for the lowest price, who are less likely to show brand loyalty. When the brand meaning and brand judgment deteriorate, it is difficult to achieve brand resonance. 

A new target consumer

The industry insider demonstrated that the fact that the price drops quickly in a year makes loyal customers aloof. Needless to say, customer loyalty is of importance to a brand. The customer groups that Volvo is now appealing to buy Volvo cars for the price and are not familiar with the essence of the brand, hence, they might feel unsatisfied with the automotive interior design, the handling, and are less likely to spread positive word-of-mouth. When the brand enjoyed the short-term sales growth brought by low prices, it has to bear the long-term depreciation of its target customers. Moreover, in March 2020, Volvo recalled over 120,000 cars in the global scale over automatic emergency braking (AEB) issue, which might taint its reputation as the safest car brand.     

The consequences of ‘price wars’

China’s automobile market is changing, so are automobile brands. With overall improved quality among most manufacturers and fierce competition, price became an additional method of differentiation between similar products in the market. However, the consequences of the “price war” among automobile manufacturers are profound. The entire supply chain has to adapt to the overarching pricing strategy, which will inevitably give rise to a series of changes from the organizational level to the end customers. Hence, it requires organizations to be capable of change management and be agile to tackle the changes in the market. In Volvo’s case, apart from enjoying the short-term benefits of price drops, Volvo in China is in time of contemplating its long-term development in this dynamic market, especially considering that Volvo and Geely are reportedly planning a merger in the following years. In short, how to address promptly the changes in the post-price drop era will be an issue for Volvo in China in the coming years.       

Author: Wenxing Li

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Luxury car market in China: Ferrari breaks all its records

[Source: Ferrari China website, ‘Ferrari in China’]

Global sales boosted by nearly 13.1 percent, to a record 10,131 units in 2019, the company said, with sales revenue climbing nearly 10 percent to $3.76 billion. Asia played a significant role in that year-on-year growth and this is the first time it has exceeded the 10,000 vehicle-sales-mark. The prestigious Italian brand has had a record year in terms of sales in 2019 and expects to continue galloping in 2020. Sales of Ferrari in China grew by 20.3% in 2019 to 328 vehicles in the first semester in the Greater China region (China, Hong Kong and Taiwan) against 183 cars last year at the same period. These results make the company’s third-largest market after Europe – Middle East –Africa and the U.S). Sales rose sharply in the China-Hong Kong-Taiwan region due to the decision to accelerate deliveries ahead of the anticipated enforcement of new CO2 emission standards.. According to last figures, Ferrari has 17 car dealerships in mainland China and one in Hong Kong. This action not only can meet the demand in Chinese market, but also it maintains the positive sales trend of Ferrari in China.. The price of a Ferrari in China is higher than in Europe due to a series of extra expenses, such as Import tariff, bunker surcharge of high-duty cars, sales territory tax.

The profile of Chinese luxury car consumers is changing

According to the Financial Times, the automotive market in China is the fourth-biggest luxury car market globally behind the US, Japan and Germany. However, the trend could be evolved and China could be on the podium. Industry giants are looking for new innovations to meet the changing needs of luxury car consumers. The luxury automotive industry in China is facing trends market which requires adaptations.

For several years now, the profile of consumers has tended to evolve from one country to another., The average age of a luxury car consumer in China is around 20 years old, compared to 50 years old in Japan. This phenomenon can be explained by the emergence of lucrative activities among young entrepreneurs and the sudden rise of the number of multimillionaires, which is expected to rise from 18 to 30 million by 2030. These young consumers are looking for the latest connected products and cars that pollute less such as electric cars. For brands such as Ferrari, which use all available resources to improve the driving experience of their cars, this is a challenge.

Ferrari China puts the turbo on its marketing strategy

The prancing-horse-company has adopted a diversification strategy to handle the competitive pressure. In September 2015, the Italian constructor has launched a children’s clothing collection on the Chinese soil called “the Ferrari Junior Collection” in September 2015. The collection also offers a wide variety of toys and accessories such as bicycles, ride-on-cars and remote control cars. Following the successful launch of stores in Hong Kong, more stores will be opened in selected major cities across Asia including Shanghai, Beijing, Hangzhou, Nanjing, Taipei, Macau moving forward to a new chapter in Ferrari Store Junior’s development around the world.

Ferrari pop-up store

In 2019, the Italian manufacturer has launched its experiential pop-up store in Shanghai for the inauguration of its new sports car, called the “F8 Tributo”. This initiative marks the Italian company’s determination to establish itself as a benchmark player and reflects its commitment to conquer the Middle Kingdom. 

[Source: Ferrari’s website, Ferrari Pop-up shop in China]

This article Ferrari in China is the first one to appear on Daxue Consulting - Market Research China.

For over a decade, China has been the largest vehicle market in the world. Although 2018 marks the first year of declining vehicle sales (not including second-hand vehicles), China is still the largest vehicle market in the world. The high sales in the vehicle market also boost the development of the car insurance and the extended warranty market in China.

The growing second-hand car market in China

Second-hand car sales are a large part of the future auto insurance market. The second-hand car market in China shows the significant growth. In 2018,  the sales of second-hand cars in China grew by 10.3%, despite the new car sales decreasing.  

[Data source: China Association of Automobile Manufacturers ‘New vehicle sales in China’]

[Daxue consulting ‘Graph of second-hand vehicle sales in China’]

2018 sedan sales in China were 8,222,000 units, and YOY growth of +11.56%. MPV (multi-purpose vehicle) had 781,900 sales and YOY growth of +8.09%. Crossover vehicles had recorded sales of  310,950 units of vehicles and YOY growth of -12.20%

[Source: Daxue consulting, ‘Second-hand car sales in China’]

Second-hand vehicle purchasing channels

The main purchase channels of second-hand vehicles include offline and online. Offline channels which still dominate the second-hand vehicle market  in China; however, online platforms have gradually been accepted by consumers. 4s stores only have around 12% market share, since their relatively high price and they cannot meet the personalized requirements of customers. Also, 18-35 years olds are the main consumers of online second-hand car platforms (B2B, B2C, and C2C)

[Data source: 2018 used car market analysis report, baijiahao ‘Second-hand car purchase by age’]

China’s license plate policy

The license plate policy in China was implied by both vehicle owners and Second-hand vehicle buyers. According to the Regulations on the Registration of Motor Vehicles (机动车登记规定) in China, all vehicle license plates (except truck and small van) should follow vehicle owners and license plates are not allowed to sell to other people. However, license plates can be transferred to car owners’ immediate family members After car owners sell their cars, their license plates will be recycled by local government or original car owners apply to remain license plates for a while, depending on local province laws. 

On the other hand, for second-hand vehicle buyers, they must apply for new license plates after they purchased second-hand vehicles. If second-hand vehicle buyers purchased second-hand cars in different cities, they will have temporary license plates (usually allow to drive in 60 days) after purchasing and they need to apply official ones after they return their cities

Policies regarding car warranty in China

A car warranty offsets the cost of repairing or replacing certain parts of vehicles. It comes in handy if consumers are not prepared to pay the costs of vehicle repairs. In China, vehicle manufacturers/brands provide warranty services at least in three years or driving less than 60,000 km. Warranty services in China often only include vehicles’ core parts such as Engine System, Gearbox, and driving system. However, wearing parts (car parts other than core parts) usually have a shorter warrenty period, these include; Air filter, Air conditioning filter, Oil filter, fuel filter, clutch plate, spark plug, brake lining, tier, bulb, battery, Fuse, Remote battery and wiper blade.

In China, based on the “guarantee and maintenance booklet” (保修保养手册, which is in every new car), there are 3 conditions that consumers can’t have warranty services from vehicle manufacturers when they purchased new cars. Consumers don’t follow the requirement of brands when they maintain their cars. If consumers didn’t go to 4s stores or maintenance stations designated by car brands to repair their cars, then they won’t have a warranty service. Also, consumers retrofitted their cars privately after they purchased cars. Almost all car manufacturers in China refuse to provide warranty services to those cars that have been retrofitted. Furthermore, Damage to the car results from misuse. If the damage of vehicles is from man-made reasons or traffic accidents, car owners only can get payment from commercial motor insurance.

Overview of the extended warranty market in China

Extended warranty in China is a service that continues to protect consumers’ vehicles after factory warranty ends, it provides similar coverage beyond those time or mileage limits. The extended warranty market in China covers mainstream vehicle types: Sedan, SUV, MPV, Crossover vehicles, etc. Extended warranty in China is usually divided into 2 types which are, EW for the whole vehicle and EW for any single vehicle part, the Chinese EW suppliers provide EW services by different car parts, mainly include engine system, vehicle gearbox, driven system, exhaust system, cooling system, steering system, electronic control fuel injection system, braking system, air conditioner, electric system, and vehicle body. The time period of EW services are from 1 year (minimum we found from PICC) to 8 years (maximum we found from Vango). In 2017, the market size of second-hand vehicles EW in China 3 billion RMB The market penetration of second-hand vehicle EW in China was less than 10%. The market penetration of second-hand vehicle EW in China was less than 10% 

Car insurance focuses on car damages and  injuries of drivers and passengers from external reasons, such as traffic accidents, theft, flood, fire, etc. Insurance companies pay the fee for car repairing or medical treatment from car accidents after consumers purchased their products. While Car extended warranty is for automobile fault from no-external reasons or quality problems, such as engine failure. The EW providers give free services of replacing/fixing car parts that no longer working after consumers purchased their EW products.    

Advertisement analysis of extended warranty in China

Advertisements usually highlight the terms of EW offers (years and km), they also give price to show how cheap they are. 

[Source: Daxue consulting ‘Changan Auto Ad for extended warranty in China’]

[Source: Daxue consulting ‘BMW and SAIC Ad for extended warranty in China]

Consumer perceptions of extended warranty in China

A small sentiment analysis study on Zhihu shows the questions and concerns of Chinese consumers. Zhihu is a Q&A platform that reaches higher-, well-educated Chinese netizens. On Zhihu, the most common opinions about the extended warranty market in China consist of the following: Some EW products have many limits, for instance, consumers must go to places (such as 4s stores) designated by EW suppliers for vehicle maintenance. Consumers believe those limits bring bad consumption experience.

Consumers think EW products are not suitable for some situations, such as they plan to switch cars in 2-3 years, some car parts are not easy to damage, etc. Some of the questions posted on Zhihu include; Why EW is not very popular in China, and How to pick suitable EW for vehicles. On Zhihu, the most common opinions about extended warranty consist of the following: It is important to pay attention to the terms in EW contract, especially the disclaimers and EW is more recommended for luxury cars and original EW for whole car could be the best choice for car owners.

On Zhihu, the most common opinions about extended warranty consist of the following: “information asymmetry” makes consumer think EW is tricky and not worth to buy; Not worthy, more like a stunt, A few of Chinese car owners know EW, Not useful for mainstream car brands, Could be useful for some niche car brands and “Wool comes from the sheep’s back”, sometimes it could be more worthy to fix the car by yourself than buy EW.

Extended warranty companies in China

Extended warranty companies in China comprise of both domestic companies and international players. Local Players include Ping An, PICC, Zhongqigouhui, Autocare, Lizhen and Vango. While International Players include, , Allianze, Mapfre Group, and AMC. However, China’s auto insurance market is dominated by large domestic brands. Due to the scarce insurance licenses and fierce competition, small and medium-sized companies are difficult to grow through the traditional business model.

[Source: Daxue consulting ‘EW top companies’]

Business models of extended warranty companies in China

Zhongqiguohui – 中汽国汇

Zhongqiguohui’s Business Model is based on Partnership in both Up-stream and Down-stream. Under Up-stream cooperation, Zhongqiguohui partner with Insurance companies such as PICC and Ping An, which provide insurance coverage back-up for them. While under Down-stream cooperation, Zhongqiguohui partners with 4s stores around the nation, which can help with product promotion and provide direct maintenance and payment. The Core business of the company includes; Customized EW services, Road rescue, Risk control consulting. However, the comparative advantages the company is; In-time reaction, intelligent detection system, wide cover of cooperation with 4s stores with value proposition in user experience. EW Package Provided is 8 years / 200,000 kilometres (including original warranty), with the Service option that includes Basic service which covers 2 basic systems (Engine system, Gearbox system). Selective service which cover 6 core systems (Engine system, Gearbox system, Transmission system, Brake System, Fuel system, Electrical system) and Premium service which cover all 12 systems (Engine system, Steering system, Suspension system, Brake system, Gearbox system, Transfer case, Axle and drive system, fuel supply system, Cooling system, electronic system, air conditioner system, Subsidiary system).

Zhongqiguohui’s WeChat account

Offer online purchase service for EW various payment methods, which begins with Fill out the vehicle information and get the valuation. Then, Submit the order and complete the payment (support various methods includes Wechat, AliPay, UnionPay, Apple Pay, etc.). Lastly, Upload the picture of ID card, driving license, odometer and the car.

[Source: Zhongqigouhui Wechat ‘Zhongqigouhui Wechat Interface’]

PICC – 中国人民保险

PICC’s Business Model is based on Partnership with Strategic cooperation in car brands which provide EW to all new cars under Brand and used cars with official authorization, and Strategic cooperation with 4s store and repair shop which provide product promotion, direct maintenance, and cover insurance payment. The Core business of the company is EW services and Road rescue. Also, the comparative advantages of the company are on High cost-effective, flexible transferred warranty, wide network around the nation, with Value proposition on User experience. EW Package Provided is 1-3 years (on the top of the original warranty), with the Service options that include, Comprehensive approach which provides a guarantee for engine, gearbox system, control unit in engine transmission, fuel system, intake/exhaust system. Original warranty in which the whole car excluded consumable items listed by regulation

PICC’s WeChat account

The WeChat account of PICC is developed to Promote user satisfaction by offering online support and in-time reaction and convenient access to buy insurance. In PICC’s WeChat store, there are three types of insurances are provided: travel, accident, and family insurance

In the “Bestsellers” section, Car insurance is ranked second. If the list is organized by popularity, it might show that more people in China are tending to buy car insurance online.

More services provided than WeChat, The APP covers more services but still includes online store, Property and car insurance are listed as a separate section in APP, in the car insurance section, the EW service is listed and The purchase process looks quite similar with that of finance products.

Allianz – 安联保险

Allianz’sBusiness Model is based on Partnership with JD as joint venture: which has a combine insurance and risk management with digital technology and e-commerce ecosystem. Strategic cooperation with financial institutions: that offer favourable terms for the credit card clients of UnionPay, Visa, Bank of China and SPD Bank. The company channels its product through Offline store, official site, self-operated Online store, Tmall, and JD store. The Core business of the company includes, Life and health insurance, Property and liability insurance, Asset management, Travel insurance and assistance (outbound tourism-focused), with the strong Value proposition in technology-oriented insurance company, with data as base and driven by technology and customer satisfaction.

Mapfre assistance – 路华救援

Mapfre’s wholly-owned subsidiaries in China and MAPFRE aspires to lead in all markets where it operates, harnessing a proprietary and differentiated management model founded on profitable growth, with clear and purposeful client orientation that encompasses both individuals and businesses, featuring a multichannel focus and unrivalled vocation for service. They Partner with Down-stream cooperation to develop close relationships with global automakers like Renault and dealerships to promote brand value worldwide. The company channel itself through Official site, offline store, and email. The Core business of the company includes Road rescue, EW service, Travel rescue, and other value-added services. EW Package Provided is 1-3 years (on top of original warranty), with Service coverage that includes, Free repair service using original parts, Flexible service for different models, different brands, and different driving regions Value-added service includes nationwide road rescue, scooter, dealer information inquiry. However, Mapfre’s s WeChat account doesn’t include an online store and online services and the WeChat account of Mapfre doesn’t include any digital services but only normal articles. The article about EW offers was published in 2015 and got 2590 reads in total.

Ping An – 中国平安

Ping An–only provides EW service and their Business Model is based on Partnership through Strategic cooperation with The Warranty Group, Ping An introduced EW service jointly with The Warranty Group, but no information about this cooperation can be found. The Core business is EW services and road rescue, with the Value proposition in User experience. The company’s Touchpoint include Offline store, official site, hotline, WeChat, mini-program, Weibo, app, email. EW Package Provided is year/20,000 kilometres or 2 years/40,000 kilometres (on top of original warranty), with Service option in the Basic package which provides a guarantee for Engine assembly, Transmission case assembly, Precursor assembly, and Rear axle assembly. Platinum package which provides a guarantee for the whole car (compliance with China’s manufacturing standards) exclude parts didn’t provide by the original supplier.

Ping’An’s WeChat Account

Ping’An WeChat account for car insurance in online service + store and market communication Provide basic and daily service for car owners. No car insurance products provide in Ping An’s Wechat store, although this account provide service for car owners. Also, Ping An’s mini-program for car insurance Provides car insurance purchase service and is generally has similar to the function of the WeChat account, but includes car insurance online purchase. It includes “maintenance” in the service list but nothing provides internal, it seems some promotion will be done later, Extra benefits are offered on this platform and No service about EW is provided in this mini-app.

[Source: PingAn ‘minibus App’]

Based on the rank on iPhone in China and According to the data provided by App Annie based on Appstore, it has stable performance in the lifestyle sector, ranking the top 10th generally. Much better performance than PICC’s app, which might be related to the social function and marketing strategy.

[Source: APP Annie ‘Ping’An Performance’]

In China,  EW offers can be transferred along with the ownership of the car. However, it could be various in different service providers. Generally, seonc-hand car owners can buy the EW as long as meet some specific requirements of service providers. Your rights and obligations in this service contract can be transferred directly from you to the new buyer within 15 days by paying a transfer fee of 280 RMB. This service contract cannot be transferred to any entity engaged in the car selling of the renting industry. However, the following requirement need t\o be satisfied; At least 1 month before the end of the original warranty, More than 2,000 kilometres remains (in the guaranteed distance offered by the original), and Non-operating vehicle with authorization from China mainland brands. 

Pain points and incentives of the extended warranty market in China

The first pain points of extended warranty market in China comprise is the lack of publicity. Many Chinese consumers/car owners are unfamiliar with extended warranty or believe it is just another insurance. Secondly, EW products and services are not yet perfect. For consumers, they have limited options for EW products (time and km). Some EW suppliers can’t provide good service experience. In order to attract more clients, many car brands started to offer longer original warranty services. It makes the EW supplier hard to have more consumers.

Incentives include the fast-growing of second-hand vehicle sales in China. The developed internet and social network make EW suppliers can advertise their products and engage consumers more effectively. Policy support. The Chinese government further opened the market to international companies.

Additionally, China’s car market is transitioning to green energy and electric vehicles. Extended warranty products in China should take this transition into consideration to gain market share.

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This article The Extended Warranty market in China is the first one to appear on Daxue Consulting - Market Research China.