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“Corner Overtaking” strategy about to fail?

After Volkswagen and JAC’s joint venture received approval from the National Development and Reform Commission (NDRC) in May, a picture showing two chairs, a table and table signs for Tesla and Shanghai government depicting the two were ready to sign a deal for a local manufacturing facility went viral online on June 22. Though relevant parties quickly denied the news, analysts believe it would be only a matter of time before we see locally produced Teslas.

Besides Tesla, Volkswagen, BMW, Mercedes-Benz, GM and other brands are all laying out their plans for the booming Chinese market. Foreign brands are coming into the NEV industry, be them catfishes or wolfs.

China’s NEV industry has grown from nothing into the world’s biggest in just a few years. China surpassed the U.S. as the largest NEV market in 2015 with 670,000 units produced and sold. Data from China Association of Automobile Manufacturers (CAAM) shows that home brands have taken almost 100 percent of the NEV passenger vehicle market. In the first five months of this year, BAIC topped the sales list by selling roughly 20,000 EVs.

The mix of the NEV market is roughly A00-class EV models for 55 percent, A0-class 15 percent, A-class 35 percent and B-class less than 1 percent in total sales. BAIC’s hot seller is its EC180 model with a retail price of as low as ¥49,800 ($7,238) after subsidies.

The market has hardly grown into its current size in the last few years. Low customer acceptance and lack of convenient charging facilities make NEV promotion at the beginning stage quite hard. Just to cite charging facility as an example: the number is a mere 21,200 in 2013, but is expected to reach 300,000 this year due to years of joint efforts by OEMs and governments at different levels.

Analysts believe NEVs made by foreign brands would massively hit the Chinese market in 2019 and 2020. They would ripe what the home brands have sowed.

Recent new policies have also heaped heavy pressures on OEMs, especially home brands.

The CAFC + NEV “dual credit” draft policy is one. The Catalogue for the Guidance of Foreign Investment Industries (Amended for 2017) allowing a foreign carmaker to have more than two vehicle JVs if the third one is to exclusively make battery electric vehicles, is another (e.g. JAC-Volkswagen).

Some worry the NEV market opening up would follow the old road and lead to a foreign brand dominated market. The “market for technology” strategy has not really worked to Chinese favor in the traditional gasoline vehicle industry.

Industry insiders say home brands can’t compete with foreign brands right now and it’s still too early to lose control on NEV JVs. If the market would become fully open, home brands need still more support to maintain their hold on the market. 

The NEV and the auto markets in general will continue to open. It’s better for OEMs to elevate their technologies, build brands and depend less on supportive policies.

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