Auto Shanghai is the most important automobile show in a long time. The IAA is revived in Munich, the Geneva Motor Show has recently been canceled several times. In China on the other hand, the industry is bouncing around like it was in the best of times. Local brands in particular are presenting themselves more confidently than ever. Rightly so, says Christian Malorny, head of the car consultancy Kearney. His advice after the visit to Shanghai: After decades of dominance, the German car manufacturers should face their new role as hunters.
manager magazin: Mr. Malorny, in a guest article you recently asked us German car manufacturers would have to become more Chinese. Is our leading industry being left behind?
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Photo: Hannes Jung / A.T. Kearney
Christian Malorny has been a partner, managing director and head of global automotive practice at management consultancy Kearney since 2018. The engineer, who has a doctorate, previously worked at McKinsey for around two decades.
Christian Malorny: Not left behind yet. But outdated. I’ve been warning for some time about the strength that Chinese automakers are developing. A few years ago I was standing in the office of the then head of the VW works council, Bernd Osterloh, and asked him: “How long do you think your loss-making plants in China will be? Germany paid?”
How did he react?
He kicked me out. My question was probably exaggerated. But even today, German manufacturers get large parts of their profits in China. Still, one has to say.
You are in Shanghai at the most important automobile show for a long time. How threatening is the scenario for German manufacturers there?
First of all, the sheer mass of Chinese vehicles is striking. 650 models from 60 Chinese brands – almost all with electric drive. And none of the vehicles is a failure. Technology, design, everything is consistent and not as expressive as we know it from Korea. I am particularly impressed by the accuracy of fit and the processing quality of the assemblies.
And the cars of the German manufacturers?
They are hardly noticeable here. There are no new design ideas. The German brands do not manage to transport their DNA and thus differentiate themselves from the Chinese competition.
Not even with your technique? They have always scored with this in China.
Politicians have strongly promoted electromobility in China, which has strengthened manufacturers over the past five years. But the key to success here is something else, and the Germans have known that for years. Chinese customers are very IT-savvy. The local brands have taken advantage of this. They understand the internet ecosystem here and know what their buyers want.
And the foreign brands?
Watched and tried to keep up. Not more.
So the Chinese brands are passing?
They’ve already passed in China, and it won’t be long globally. While in Germany an electric vehicle costs an average of 49,500 euros and we are having a discussion about the increased costs of mobility, shows BYD a vehicle for 12,000 euros. They are preparing to sell as many cars as they do in the not too distant future Volkswagen or Toyota. In China, BYD has already ousted Volkswagen from first place in the first quarter of 2023.
“Xpeng boss He Xiaopeng promises a development time of only nine months for a new model. The German manufacturers need at least three years.”
BYD is just a Chinese brand. What about the other 59?
They don’t sleep either. Zhu Jiangmin, the head of Leapmotor, predicts that an SUV with a range of 400 kilometers will cost 8,000 euros in ten years. A real declaration of war.
Where do these cost advantages come from? When it comes to labor costs, the Germans would have to keep up if they produce locally.
On the one hand, the young Chinese manufacturers have extremely agile organizational structures and processes. Xpeng boss He Xiaopeng promises a development time of just nine months for a new model. The German manufacturers need at least three years. This continues in the assembly. Nio builds his ET7 sedan in 12 hours. Nobody in Germany can do that.
The benchmark for speed and flexibility in production has so far been Tesla.
Tesla has not been ahead in China since 2019. Chinese premium brands have overtaken them in terms of technology and costs. Nio boss William Li estimates the cost advantage over Tesla at 20 percent. Simply because of local access to the raw materials for the battery. This is one of the reasons Tesla is lowering its prices so radically. Otherwise the sales figures would collapse.
“In Shanghai, visitors queued up to take a selfie with Nio boss William Li. Where do we have that?”
How about the image? Isn’t a BMW cooler than a Nio?
Young Chinese are increasingly buying local products. A Chinese middle-class family used to buy a VW Tiguan, but today it is an electric BYD. Influencers for local brands are flooding social media, most notably TikTok
. That shapes. And it’s just cool. Chinese automakers will establish premium and luxury brands. Nio is already a pioneer in these customer segments. William Li is a real pop star here.
They exaggerate.
In Shanghai, visitors lined up to take a selfie with Li. Where is this with us?
Nobody wanted a selfie with Volkswagen boss Oliver Blume?
In any case, things were much clearer at the VW stand. But Volkswagen rears up. With the ID.7 they presented a chic sedan
, which fits the design trend in China. It remains to be seen whether she will be successful. One can only wish it on VW.
And the other German brands?
All German manufacturers have announced e-models almost every month for the next two years. In Shanghai they want to demonstrate self-confidence. But the challenges are more demanding than ever.
What do you mean?
German car brands are considered world champions when it comes to combustion engines. Transferring this image to the modern electric age will be difficult. This history can also inhibit, heritage doesn’t seem to be worth much anymore. It may be easier for new, young brands to show how cool and hip things can be.
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So if the business model of the German manufacturers no longer works: what has to happen?
Volkswagen, BMW and Mercedes are no longer allowed to develop their cars in Germany for the global market. “From China for China” now applies, and everyone knows that. Specifications, functionalities, design, tests and technical approvals – everything has to be done on site. Only those who are “culturally embedded” can offer successful vehicles here. If the Germans don’t move the entire value chain to China, they will never achieve “China speed”. They are not in front, they have to catch up.
Is that possible with the current staff?
Changes would be good. No German automobile manufacturer has a Chinese board member; the German top managers fly to China when there is a fire. But they will not get the problems under control with singular on-site board meetings and task forces. The corporations have to rethink responsibility, organization and processes.