While Chinese electric vehicle firms made their first overseas push in Europe, they may find more long-term potential and profits in developing nations of the Global South. Conditions are enticing for sales of Chinese vehicles in developed countries, and its markets such as Southeast Asia and Africa that could provide the engine for lasting success.
Since automobiles have traditionally been seen as a globally connected sector, China has been attracting foreign carmakers into its export strategy to absorb larger parts of electric vehicle global value chains. The country gradually relaxed joint venture requirements to make it more appealing to foreign automakers, boosting the nation’s car part exports.
But this is just a half of China’s overarching strategy to supercharge the sector. As stated by Gregor Sebastian, an analyst at Mercator Institute for China Studies, in his post last September, the country does not look to only serve as a critical supplier of new energy vehicles. It also wants to groom national champions into global champions, electric car brands that perform feats globally.
This is urging Chinese startups to mull over their effective internationalisation paths.
Internationalisation strategies for Chinese electric vehicle startups
Previous studies often suggested that innovative Chinese enterprises prefer developing countries to developed countries when opting for internationalisation destinations as they can leverage their cost advantages. This seems not to be true in the field of electric vehicles.
Chinese startups, including NIO and Xpeng, decided to export their full-fledged electric cars first to developed markets such as Europe and the U.S. This is because these firms need to consider other market factors such as reasonable infrastructure availability, notable state subsidies, and proper income level of people to make sure that their internationalisation strategy works.
“All this naturally means that Western Europe becomes an attractive market for anyone taking electric vehicles,” said Kartik Gopal, a global electric vehicle industry specialist at the International Finance Corporation (IFC), a part of the World Bank Group.
That example represents the first common internationalisation strategy: export the whole car. Sam Olsen, a Singapore-based Co-Founder of the strategic consultancy MetisAsia and a commentator on Chinese-Western relations, brought up other strategies for electric vehicle startups.
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One is to control the technology and connectivity platform. Another is to dominate the electric vehicle portions, particularly crucial sections.
“I think that it’s much more likely China will make a lot of money from electric vehicles lately, but the way they will do it in the developed world is by dominating the car parts industry,” said Olsen.
Those, however, are just a part of the big picture. When it comes to scaling up globally, there is always a need for a supporting ecosystem. The next challenge is how to finance these technologies, how to make cars more cost-effective, and how to build those electric vehicle infrastructures?
“I think fundamentally the core technology know-how has now matured, and therefore the next is about scale-up, which attracts capital,” said Gopal. “Subsidies are promoting electric vehicles, but the next hurdle is that when people want to buy, many of them want loans on these, but the financial institutions are a bit hesitant. That’s the gap.”
He further explained that banks still find it quite challenging to finance electric vehicles today because it is still unknown technology with no resale markets. This issue is not unique to China. It also happens in India, Indonesia, Thailand, and many other Asian markets, lowering the speed of firms’ market acquisition and expansion.
Technical standardisation comes as the next profound problem, especially when various vehicle types and market sectors are looking to transition to electrified transport as quickly as possible.
“The U.S., China, Europe, and Japan, all have their standards. There used to be local certifications for every market you’re playing, and it’s extremely important,” stated Simon Hou, CEO and Co-Founder of XCharge, an electric car charging pile developer based in Beijing.
“We want to adapt to every single market certification to ensure that we provide the most qualified and the best product.”
In each market, XCharge has to carefully review its specific standard and develop an R&D team dedicating a lot of time to understand standards, implement procedures, roll out testing and obtain certifications.
All in all, the two forces working hand in hand are regulatory bodies encouraging the standardisation of all the different components and market pressure that requires standards to be applied as quickly as possible.
“We have to deal with challenges around interoperability of technology for both fleets and private customers,” said Nadur of bp Ventures. “It’s imperative then for the industry actors to find the right standard that enables that affordable, clean, and reliable transition.”
“The pressure is to ensure that this energy transition essentially leaves no one behind,” she added.
Europe comes as the first stop
In the developing new energy vehicle industry, Chinese carmakers, particularly electric ones, are mostly eyeing the European market for improved brand awareness, as reported by Yicai Global.
Chinese manufacturers of electric vehicles are establishing local operations in Europe to build up respectable brands on the continent. For example, Great Wall Motors and Lynk & Co have formed European entities that handle research and development, sales, and management activities.
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SIn Shanghai, SAIC Motor has also launched four electric vehicles in Europe and started to record fruitful results. Last year, the firm sold 21,000 MG models, a threefold increase over the previous year.
As Europe has always been heavy in terms of net-zero obligations, electric vehicle buyers in those countries can benefit from high subsidies and a comparatively well-developed charging network. This enables a more open mindset when it comes to deciding to experiment with a new electric vehicle brand for daily use.
China’s automakers also have government support to master European safety ratings, allowing firms to build innovative products and deliver them quickly to the end-users.
But the most competitive edge that Chinese brands have over Volkswagen, BMW, and other European brands is, perhaps, China’s ability to provide mobile apps and a supporting digital ecosystem to service global buyers and keep them up to date with developments of their electric vehicles.
XCharge, a China-based innovative charging solution provider with an office in German, underlines its unique selling point as having charging products that are “well-connected with the device and well-managed on the backend; of a service platform.”
NIO, a Chinese multinational automotive company headquartered in Shanghai, also opened a few showrooms in Europe that are contemporary and well-branded to pique people’s curiosity and offer pick-up and delivery services and mobile servicing. This is different from the direct sales model of Tesla or the car dealership network in Europe.
“They [Chinese electric vehicle startups] are trying to bring over the existing sales strategies from China into the European markets,” said Sebastian. “I think they need to make sure that they use their strength, but they also need to make sure that they don’t just copy what has worked in the China market and not adapted to local consumers.”
This strategy, for the time being, needs more time to validate itself.
During the globalisation process of Chinese electric vehicle firms in developed markets, another concerning problem may be the high-quality maintenance and customer support requirements of end-users, as stated by Li Bo, Ventures Principal and General Manager of Shell Ventures Company Limited, which invested in XCharge in 2021.
“A startup typically lacks the resources and enthusiasm to address so many areas, and spreading the firm too thin might lead to unanticipated issues,” she said.
Southeast Asia to be a lucrative supply chain partner
As China and the ASEAN share geographic proximity, the two sides have naturally built long‑term bilateral trade relationships over decades, and we’re expanding rapidly as their economies flourish.
“Southeast Asia is going to be an excellent market, most likely for China’s electric vehicle manufacturers,” said Sam Olsen.
Since 2009, mainland China has become ASEAN’s largest trading partner, with the total value of trade in goods in 2020 amounting to US$516.9 billion, accounting for 24.7 per cent of the region’s foreign trade. As these trade activities ramp up, the ASEAN market is also among the top destinations for China’s outward foreign direct investment, with six ASEAN countries in the top 20 by the end of 2020, according to the Statistical Bulletin of China’s Outward Foreign Direct Investment.
This implies that China is likely to invest in electric vehicle infrastructure for this region to support its internationalisation strategy, especially when the whole car-making industry in these countries has yet to develop.
“If they [Chinese firms] know that they can sell electric vehicles in millions of units, this is a very good business investment,” Olsen added.
In February 2020, China’s Great Wall Motor took over GM’s auto facility in Rayong, Thailand, and announced last year that it was ready to launch electric vehicle models in the country. A few days ago, Chinese carmaker Wuling also launched its locally-assembled Wuling EV in Indonesia, taking advantage of the archipelago’s incentive programme to ramp up vehicle electrification.
In April this year, China’s battery giant CATL also teamed up with Indonesia’s state-owned groups to build a nearly US$6 billion battery complex. Previously, China has been known for its momentous investments in the archipelago’s nickel, copper, and other ores utilised in electric vehicle production.
Once the infrastructure is set up, the vehicle form comes as the top concern for a successful Chinese electric vehicle expansion in the region. While four-wheelers are being sold predominantly in developed markets such as Europe, in developing markets such as India, Southeast Asia, or Africa, two-wheelers, and in some cases, three-wheelers, are more prevalent.
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“Of course, challenges are infrastructure and people’s ability to buy,” said Gopal. “But you also need to create unique battery packs or different data for a motor solution and make it suitable for those markets.”
This means core technologies also need to adapt to create uniquely suited products for each market. For instance, in Europe, carmakers have to deal with cold conditions to keep the battery bombs. But in Asian markets, they need to figure out how to keep a battery cool when it is even 45 degrees outside.
Local policies also add to the mix, potentially attracting products to come into a particular market. For instance, electric vehicles imported from China enjoy zero per cent import tariffs in Thailand under a bilateral agreement between the two countries. It makes Thailand a particularly appealing market for Chinese electric vehicle exports in the region.
Some might think of SEA countries would rather build their homegrown electric vehicle champions, but experts see that this is not likely to come to fruition.
“I think we’ll find it very expensive for any Southeast Asian country that wants to build a car,” added Olsen. “There isn’t a domestic manufacturer; there’s no real domestic experience creating cars in ASEAN.”
Look at Thai electric vehicle firms as an example. Thailand’s Vera Automotive developed a battery electric vehicle called V1 but produced them in large quantity in China by Geely before exporting them back to Thailand. While the firm is Thai, production is established outside of the country, mostly due to the gigantic cost of entering automobile manufacturing.
But from another perspective, Southeast Asian countries can instead look at this sector and answer whether or not they can involve in the component manufacturing, if not the full vehicle production.
For example, Indonesia has a significant number of nickel mines that are used in lithium-ion battery production. The archipelago may want to exploit that not just to supply electric vehicle manufacturing in Indonesia, but also to export that to other markets in the region.
“It’s not the same as going to European countries where there is a lot of hostility and distrust of China,” said Olsen. “There are many people [in Southeast Asia] happy to do business with China. This going to be very successful.”
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