Alarming signs on the horizon – Why German OEMs must do better in China

Munich, August 2021

Alarming signs on the horizon - Why German OEMs must do better in China

Munich/Detroit, August 2021

n China, German gasoline-powered vehicle sales at full throttle – electric-vehicle sales stalling.

The product strategy that helped German automotive OEMs dominate the Chinese market for decades is now alarmingly out of date.

For decades German OEMs dominated the Chinese automotive market by following a trickle-down strategy: they introduced technology they had developed elsewhere as optional equipment first and continued selling it at high markups until competitors had caught up.

How out of step this product strategy is with the expectations of present-day Chinese car buyers, German OEMs are currently getting a first taste of – with alarming implications for the future.

The days that China fitted the description of technological laggard are long gone. As China has moved to the forefront of consumer innovation, Chinese customers have neither the patience for technologies to trickle down the line nor the willingness to pay extra for the latest features.

The EV-only sub-brands of German OEMs are outpaced by their domestic peer group

In June, Audi, BMW, Mercedes-Benz, and Volkswagen together accounted for just over 20% of all cars sold in China.

Sales of their EV-only sub-brands, e-tron, i, EQ and ID, did not fare so well, however. In fact, the four sold fewer e-trons, iX3s, EQCs and ID4s in China than they did in Germany, a market that is only an 8th the size.

Notably, while Tesla remains the most dominant EV-only brand in China, its local rivals NIO, Xpeng, Li Auto and Weltmeister remain not far behind while German EV-only sub-brands are outclassed by both.

Exhibit 1



Sales of selected EV-only brands & sub-brands in China, June 2021.

Source: Berylls, press releases, CAAM.

If lackluster sales aren’t alarming enough, the reasons why Chinese customers eschew EVs made by German OEMs certainly should be

To understand why Chinese customers eschew EVs made by German OEMs, we turned to our “Automotive Heartbeat”, a proprietary big data tool that scans customer sentiments across a broad range of Chinese social media channels to glean customer insights for each make and model.

We looked for what Chinese customers value when it comes to EVs and how the German EVs in question fare by those standards. The results, we believe, should have German OEMs worried. Very worried.

The product strategy pursued by German OEMs is drastically out of step with what Chinese customers have come to expect by the standards set by local EV-OEMs

By a wide margin “connectivity” and “autonomous driving” are the most important and talked-about features on Chinese social media in relation to EVs.

Yet Chinese customers do not associate German EVs with either.

The names of all four German OEMs are mentioned in conjunction with these two topics only in 5% of all conversations on relevant Chinese social media channels. With a 30% share, even Tesla only comes in second after NIO. The NYSE-listed, Shanghai-based company appears in conjunction with connectivity and autonomous driving in 39% of all social media conversations.

Overall, Chinese social media conversations on connectivity and autonomous driving are dominated by four local EV-OEMs, who together account for nearly 65% of all mentions.

Exhibit 2



Share of mentions associated to “connectivity” and “autonomous driving” with regards to the following brands.

Source: Berylls, Automotive Heartbeat.

This is not Chinese nationalism – local EV-OEMs are simply considered superior

It might be easy to attribute such sentiments to preferences for cars made by domestic OEMs or even nationalism. But the basic truth of the matter is: local EV-OEMs are simply considered superior.

Around 80% of negative sentiments regarding EVs manufacturer by German OEMs relate to technical issues such as outdated or unreliable technology. Specific sentiments range from complaints that “remote start, lock & unlock fail too often!” or that the “navigation system is a joke. It is not up-to-date, and many areas are not even covered!” Others bemoan that “real-time information is imprecise” or that the “remaining driving range is not shown.”

A smaller number also complains about losing connectivity altogether: “Today I couldn’t connect with my head unit – again!” can be read or “Why can I not do the update? My car always loses the connection, and I can’t update!” Consequently, many Chinese customers believe that, considering the price at which German EVs retail in China, they “will get a local car with similar specs and configuration for much cheaper.”

In short, the technology offered by NIO, Xpeng, Li Auto and Weltmeister, being cheaper, more reliable, and more innovative, is considered superior.

Exhibit 3



Share of positive, negative and neutral sentiments associated to “connectivity” and “autonomous driving” with regards to the following brands.

Source: Berylls, Automotive Heartbeat.

While Chinese customers appreciate traditional virtues such as a car’s cornering ability, these aspects don’t matter when stacked against what they consider superior value at a lower price

When asked to compare Audi’s e-tron to NIO’s ES6, Chinese customer are quick to point out that the Audi is more fun to drive and that it corners better than the NIO.

At the same time, customers note that the Audi does not have – not even as an option – the kind of interactive infotainment system that comes standard on the NIO and that the Audi doesn’t meet Chinese tastes as well as the NIO does, with the latter offering wellness passenger seats. Many consider the e-tron’s range of 341 km insufficient, while believing the e-tron’s RMB 546k price tag to be unjustified in light of what the NIO offers for RMB 200k less.

Conclusion: A wake-up call to a harsh reality

For decades German OEMs were able to corner a large share of the Chinese automotive market at price levels that were well above their local competitors’. Now local EV-only manufacturers best German OEMs on innovation, reliability, and value for money.
This situation is the result of a product strategy that still banks on trickle-down innovation in a market that has long since adopted Tesla’s model of best-in-class connectivity as standard across all segments.
It is also a damning indictment of German OEMs’ failure to leverage China as a hub for innovation and should sound a harrowing wake-up call to their CEOs to quickly overhaul their China strategy or risk being left behind.
Willy Wang

Principal & Managing Director Berylls China

Willy Wang

Willy Lu Wang (1981) joined Berylls Strategy Advisors in 2017. He started his career participating in the graduate program of Audi focusing on production planning. After stations at another strategy consultancy as well as being the strategy director for a German Tier-1 supplier, he is now responsible for the China business at Berylls.

He has a broad consulting focus working for all clients in China, whether they are JVs, WOFEs or pure local players. He is also responsible for the development of AI and Big Data products dedicated towards the Chinese market further strengthening the Berylls End-to-End strategy and product development capabilities.

Wang studied Electronics & Information Technology with focus on Systems and Software Engineering and Control Theory at Karlsruhe Institute of Technology.