Car subscriptions and electric SUVs – this is how Chinese manufacturers will conquer Europe

Mr. Schlosser, in the early 2000s there were attempts to bring China cars into the EU, but all of these cars failed. In the next few years, Chinese manufacturers will try again to conquer Europe. Is it going to be another flop?

The Chinese manufacturers have become very strong. The megatrends in the industry are reshuffling the cards. If we look at the 25 global automakers with the highest market capitalization, nine of them are now Chinese and almost half, namely four, are all-electric vehicle manufacturers. There are also other established Chinese manufacturers such as Great Wall Motors and numerous others who offer both combustion and electric vehicles.

And of course there is a strategy behind it. These companies have received massive support in their home market since 2011. Many start-ups have emerged in this environment. You have built up convincing products and competencies, in many cases with Western know-how and management. And now the cooled home market in China is causing these brands to push into the European market in order to participate in the growth in Europe.

Europe is usually considered uninteresting for purely Chinese brands because it is a saturated market. With little or no growth. The Chinese must therefore expect high market entry costs with limited prospects. Only with electric vehicles does it look completely different.

Right, in Europe we are currently seeing that the market for electric vehicles is growing rapidly. This is politically wanted and encouraged. And that’s where the Chinese companies come in. If you look at the products with which the Chinese manufacturers are pushing their way onto the European market, you can see that the Chinese have understood very well that they will not catch up with the traditional manufacturers when it comes to combustion engines.

You probably don’t need that any more. If you look at the political situation, the combustion engine in the EU is an obsolete model for cars. It makes little sense to build up a market for such contaminated sites.

The models that will be coming from China in the next four to five years will run exclusively on batteries or at least with plug-in drives. The vast majority are purely electric vehicles. And that changes the landscape. Even if the Chinese are still behind when it comes to combustion engines, this is not the case with electric vehicles.

The days when Chinese vehicles failed the European crash test are long gone. You certainly cannot rely on an established brand tradition. So what matters is the perceived quality and, above all, the features these vehicles offer. The whole topic of digital networking plays a decisive role and the Chinese are extremely strong there.

You can buy German vehicles in dozens of equipment variants and customize them almost endlessly. This then also means that the “extras” are almost more expensive than the basic vehicle. This is not the case in China.

In the future, the entire range will be lifestyle-oriented and very simplified in Europe as well. Then there are no longer hundreds of equipment variants. The vehicles will be preconfigured, some in very special “editions”, always with very good equipment. But this simplification and the associated price-performance ratio are very relevant for the target group. The topic “Value for Money” plays a central role.

The Chinese manufacturers have thought very carefully about the vehicles with which they will enter the market. By 2025, mainly smaller to compact electric SUVs and so-called crossover vehicles will come. That is the fastest growing segment. The price range in which these vehicles start is between 30,000 and 35,000 euros. So a very attractive price. These are vehicles with a high product substance, a very appealing, modern design and very innovative features that meet the zeitgeist. The offer meets customers in Europe who are ready to try something new.

So nobody should hope that this time it will turn out the same as the first attempt, when the vehicles had no chance due to qualitative deficiencies. But even if these are attractive prices, at first it will be difficult to convince a German customer that he should pay 35,000 euros for a car from “Great Wall Motors”. You therefore assume that the Chinese are not only looking for innovative products in a growth segment, but are also relying on a sales model that is currently very much on the rise: the car subscription. What should one imagine by that?

In our understanding, car subscriptions lie between a short or long-term rental and a classic leasing contract, which typically has a term of between two and three years. Unlike a long-term rental, with a subscription you can choose your vehicle and not just a vehicle class, i.e. you choose a certain brand and you can usually choose the vehicle and, to a certain extent, the equipment. In addition, there is a high degree of flexibility in terms of terms, and subscriptions usually have a flexible notice period. And subscription means that all costs – mostly except for fuel or electricity – are included in the rate.

There is also another feature that is uncommon for leasing or renting: You can combine the subscription with sharing options; you then make your vehicle available to other users.

Such subscription models have been around for a long time in various countries, but this is relatively new in Germany. How much will the model spread?

For Europe we have made a projection for the market for these mobility services and there we see a share of flexible user models between 20 and 25 percent for 2025 and the following years. We’re at a single digit today. So this is a very fast growing market segment.

And why is this model so attractive to crack the “car fortress Europe”?

Car subscriptions are so interesting for Chinese manufacturers because they appeal to younger and newer target groups. And things like innovation, flexibility, mobility, community are very popular with these customers. Many of these younger customers actually no longer want to buy a car or commit themselves to a leasing contract for several years. These new brands, which are still largely unknown in Europe, offer their customers a “Low Risk Option” to try out a new product. With a subscription, I can try out a car from a less well-known manufacturer without any restrictions. The threshold to testing something new is therefore significantly lower. If I don’t like the vehicle, I’ll look for another one. For a newcomer to the market, this is a very attractive model for winning over customers.

Here, too, the Chinese manufacturers do not burden themselves with the models of the past, but rather focus on the future. The reversal of the sharing model is exciting: I have my own permanent car and still take part in sharing.

If they go on vacation and do not use the car, subscribers can give their vehicle to other users from the community for a fee and thus partially finance their subscription fees. The Chinese manufacturers will bring new sales models with them to Europe. You can build anything on the green field. They don’t actually need the cumbersome dealer networks of established competitors. Tesla showed the way.

In addition to the subscription models, we will also experience highly digitized direct sales. The European and German manufacturers are also working on this topic, but they have to help transform their established dealer networks. And progress slower. The Chinese do not carry any established structures with them and can freshly enter the market with new, innovative concepts, so in addition to the product side, we see a high innovation potential on the sales side. The direct contact with the customer also means that the manufacturer has direct access to all customer data and can connect with other innovative business models. And when it comes to service: electric vehicles need less service anyway. The whole “after sales market” for electric vehicles is much smaller.

Green fields and digital structures mean that the manufacturer retains a higher share of the value chain. Then you can still earn good money with competitive prices. The Chinese manufacturers will choose a few countries to start with. Which will it be?

They are looking for countries where they can find optimal conditions for their electric vehicles. State funding plays a role here, but also the question of whether a very good public charging infrastructure is already in place. Countries and regions in which electric vehicles have actually already achieved a certain normality are ideal. So, for example Norway or the Netherlands.

In other countries, such as Germany, the charging infrastructure is lagging behind. The promotion boosts sales of the e-models a lot, but there are bottlenecks when it comes to charging.

The still too few charging stations that we have today are often occupied, so if you drive into a city center today, then it is really lucky if you find a free charging station. This will also be a very critical factor for the further development of electric vehicles. But that doesn’t just apply to Chinese cars. It will be possible to say in three to five years what proportion the Chinese manufacturers will achieve. I think that there will be a significant increase in competition in Europe.

A clear recovery means that the established manufacturers are coming under pressure, especially with their electrical plans. The leadership in Beijing has proclaimed the two-cycle model. In the somewhat flowery picture, this means on the one hand the domestic market and on the other hand foreign trade. These cycles are independent, but they also influence each other. With the expansion to Europe and also in both Americas, the western manufacturers are attacked for the first time in their home markets.

If the Chinese manage to gain a foothold here, there will be feedback effects and they will further strengthen their position and image in their home market. The leading western manufacturers sell about a third of their total sales in China and further strengthened Chinese manufacturers will also pose a threat to the western manufacturers in what is currently their largest market. When it comes to electric vehicles, the Chinese manufacturers are already leaders in China and they will further strengthen this dominance that they already have in their home market through a success in Europe.