Manufacturing News

Great Wall, Chery target European consumers

Chinese automakers are setting sights higher in their latest attempt to establish a foothold in Europe. They have created premium brands to attract global buyers.

In addition, they are emphasizing technology, collaboration with global megasuppliers and design teams stocked with European auto executives.

The new attitude was on display at last month's Frankfurt auto show, where Great Wall Motor Co. and Chery Automobile Co. signaled their intent to sell sophisticated SUVs and crossovers in Europe.

Wey, Great Wall's new upscale brand, showed versions of the VV5 and VV7 crossovers for China, as well as the XEV electric vehicle concept.

Chery introduced the TX compact crossover, the first model from its new Exeed upscale brand that is aimed at global buyers.

On the stand at Borgward, the German brand that was revived through Chinese investment, was the BX7 crossover. That model already is on sale in China and bound for Europe this year.

Byton, a startup with Chinese financing that is building a factory in Nanjing, previewed an electric SUV that it aims to launch in 2019.

Other Chinese players include Geely's Lynk & CO, which says it will begin European sales of its 01 crossover in 2019. MG, the British nameplate owned by SAIC, plans to expand beyond the United Kingdom to the rest of Europe in 2019.

We've changed'
The message from the upstarts is: "We're different now. We've changed. We've developed," said Namrita Chow, principal analyst at IHS Markit in London.

Chinese automakers such as Great Wall, Chery and MG already have a limited presence in Europe and Russia, and sell mostly small cars and pickups.

This time, they are aiming at Europe's fast-growing SUV segments, which are predicted to account for one-third of European sales by 2020, up from 25 percent now.

Drawing on experience in their fast-paced domestic market, Great Wall and Chery possess a new-found confidence about their ability to compete with European brands in China and overseas, analysts say.

"The Chinese automakers were in a very nascent state [10 years ago],” Chow said. “They were just learning how to build cars."

Since then, they have improved their products and gained market share from foreign brands in China.

In the last decade, Chinese brands also focused on improving quality by partnering with Tier 1 suppliers such as Robert Bosch, Dana and Valeo, names that figured prominently in their presentations in Frankfurt.

In addition, they have developed efficient 1.5- to 2.0-liter turbocharged gasoline engines and hybrid drivetrains to meet the tough China VI emissions standard in 2020.

Those engines won't require much modification to be certified in Europe, said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight.

To be closer to the market, they have established European styling studios. To run those studios, they’ve hired top talent such as Byton's Benoit Jacob, who designed the BMW i8 and i3, and James Hope, who moved to Chery after working for General Motors and Ford.

To run their new brands, Chinese automakers have recruited senior executives from German premium brands.

Wey CEO Jens Steingraeber, for example, was product manager for the Audi Q3 crossover. Byton co-founder Carsten Breitfeld once worked for BMW's i sub-brand. And Borgward CEO Ulrich Walker previously led Daimler's Chinese operations.

Now that they’re coming to Europe, Chow said, the Chinese brands are determined to show they "are not inferior to any automaker in the developed markets."

More for less
Great Wall and Chery won market share in China by offering equal or better features than foreign brands at a lower price, and they are likely to stick to that strategy in Europe.

They also have studied South Korea’s Hyundai and Kia, which helped become established in Europe and North America with long warranties and strong aftersales service as they built a competitive product lineup.

Zhang pointed to the Chinese marketing position for Wey, which aims at "entry-premium" buyers with prices starting at 25,000 euros (191,000 yuan).

"Here in China, they charge half or two-thirds the price of the foreign products but they offer more features in their cars," Zhang said.

Analysts said Great Wall and Lynk & CO, which share platforms with Geely partner Volvo, have the best chance in Europe.

"Lynk is targeting young professionals by combining promising innovation across electric vehicle powertrains, connectivity and mobile service features," said Peter Hage, founding partner at Districom Group, an automotive consultancy.

Chow said Lynk & CO's edge is its connection to Volvo, which was purchased by Zhejiang Geely Holding in 2010. "They are probably in the best place simply because they have kept the development of Lynk & CO very structured and still linked to Volvo," Chow said.

Except for Borgward, Chinese brands did not show models that can be launched in Europe today, analysts noted. "We didn’t see products that are ready for the market," Chow said.

Chery says its Exeed models will be coming to Europe "within a few years," while Great Wall has not given a timetable.

Once they commit to Europe, there will still be considerable hurdles.

"Europe is a highly competitive market with different customer expectations in terms of vehicle design, quality and performance," Hage said. "Building brand awareness and acceptance for a Chinese brand will be a tough undertaking."

Another hurdle will be building sales and aftersales networks. “It's probably the biggest challenge other than product or brand image,” Zhang said. “Even in China it's not easy for a lot of weaker brands. No investor wants to be their dealer because they know they will lose money.”

Mindful of that, Byton says it will take production orders, as Tesla did for the Model 3, and sell directly to consumers through retail partners. Lynk is proposing a similar sales model.

Lorenz Glaab, head of marketing at Chery, said a decision on how to sell the Exeed brand was still being made, “but it is fair to say that we will be somewhere in the middle between a modern ‘disruptive’ approach and a more established one.”

European automakers, too, will be watching closely and ready to strike back.

“The existing brands aren’t going to just sit and watch them come in and take their market share,” IHS’s Chow said. If Great Wall or Chery can gain ground in Europe, it will pay dividends back home in brand recognition.

About 28 million vehicles were sold in China last year, roughly twice as many as in Europe, and the growth potential is considerably greater there and elsewhere. “Their main focus continues to be the domestic market and emerging markets such as Iran,” Chow said.

Europe is seen as a proving ground for technology and product viability, and as a crucial stepping stone for building an international brand and distribution network.

“We are the No. 1 exporter in China and have been so for many years,” Chery’s Glaab said. “It is part of our long-term strategy to take our brand truly global and to cater to very sophisticated and demanding customers.”

Seen in that light, success in Europe may not be measured in market share, but simply in staying power, analysts said. “If they can compete directly with the European carmakers in their hometowns, that alone is a success for them,” Zhang said. “They want to see if they can meet the European level.”

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