The product strategy that helped German automotive OEMs dominate the Chinese market for decades is now alarmingly out of date.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
EV SALES IN CHINA
Sales of selected EV-only brands & sub-brands in China, June 2021.
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 VOICE ANALYSIS
Share of mentions associated to “connectivity” and “autonomous driving” with regards to the following brands.
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
SOCIAL MEDIA SENTIMENT ANALYSIS
Share of positive, negative and neutral sentiments associated to “connectivity” and “autonomous driving” with regards to the following brands.
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.
