Industry digest: Why the Chinese playbook is much more fundamental than low-cost EVs

This post was originally published on Autocar

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Traditional thinking no longer holds water in the new commercial landscape

Recent conversations with some of the new Chinese arrivals in the market have left me in no doubt about the commercial revolution that is underway in the automotive industry. 

I’m not just talking about being able to deliver technically advanced vehicles at cheaper prices but about sweeping aside established business orthodoxy.

The time-honoured commercial strategy of traditional OEMs based on product, pricing and planning has effectively been taken out of the Chinese model because the sheer pace at which they want to bring products to market does not give them enough time.

In many cases, their approach is that product planning as we know it is an unnecessary speed-limiter. Instead, they will take a product to market and if it fails, they will just turn a corner. If it fails again, they’ll turn another corner. 

It is essentially a start-up mentality in a mature market. While the established OEMs plan to within an inch of their lives, the Chinese approach is to launch a wide portfolio of products in the market and react according to the response. The successful products remain, the others are cast aside.

In many ways, it is a complete reversal of accepted commercial practice. One senior Chinese leader told me that his OEM had a sales target of 100,000 units of certain models. When I questioned him about the market insight that showed how they could sell that volume of vehicles, his reply was that no such insight was necessary and the plan was built around the target. The number comes first, rather than the other way round. 

Traditional business practice and custom in any sector, not just automotive, would suggest this to be reckless for a company. But the business models for new entrants have been distorted by the massive subsidies that have been pumped into the Chinese OEMs by the Chinese government, skewing the playing field and giving manufacturers the security to set aggressive targets without fear of failure. 

For an executive search specialist like me, the implications of this new way of thinking are huge. If that is how these Chinese newcomers operate, then the overall structure of how the companies are put together and the skills that are required are going to look very different.

The kind of roles on offer will be all about moving in the market quickly in a working culture that demands high levels of productivity at a low cost. It won’t be for the faint-hearted. 

Business schools will certainly have to take a fresh look at their curriculums because traditional thinking will no longer hold water in the new commercial landscape.

I imagine that the established OEMs will also be taking a long, hard look at their own business models and internal processes to counter the Chinese approach. If they aren’t, they certainly should be. 

The financial markets, too, must be looking anxiously at what it all means to them. There are only so many units the Chinese OEMs can realistically put into the market without discounting and therefore impacting residual values, so where does that leave the leasing companies?

Of course, there remain a lot of uncertainties about how everything will play out, and how quickly. 

What impact will the EU’s tariffs on Chinese EV imports have on their market share in Europe, and what does President Trump have up his sleeve to protect the US industry? The talk during his election campaign was 60% levies. 

It will be interesting, too, to see how the Chinese flex their business models to negotiate the labour laws and working cultures across different geographies as they expand their global footprint. 

But the trajectory towards Chinese domination of the industry is irreversible, and their radical business models will require a whole new set of skills.

Time to shape up or ship out.

Lynda Ennis is the founder of global automotive and mobility executive search company Ennis & Co.