Quo Vadis, Chinese OEMs in Europe? Part 2

Munich, August 2022

Quo Vadis, Chinese OEMs in Europe? Part 2

Munich, August 2022

s there a shortcut for Chinese OEMs in Europe?The second in Berylls’ short series on established and new Chinese OEMs in Europe focuses on their performance and the best market entry strategies.

Executive summary

  • With increasing electric vehicle (EV) adoption in Europe, Chinese OEMs see a fresh opportunity to re-enter Europe and even target the premium segment
  • The timing seems right because their products are more mature, while Chinese EV players have a more customer-centric mindset than previously and are open to new sales models
  • However, to succeed in Europe, Chinese OEMs will have to adapt their way of working, plan and implement rigorously, and penetrate markets rapidly
  • Lastly, Chinese OEMs must prioritize investments in building a sustainable, long-lasting brand reputation based on a highly professionalized ecosystem with great products at the core
Dr. Jan Burgard

Berylls Group CEO

Willy Wang

Managing Director China

Hongtao Wei

Associate Partner

Soleiman Mansouri

Associate Partner

Lois Yang

Lead Analyst

A window of opportunity

Boosted by government subsidies and emissions regulations, the EV market in Europe is now highly attractive, especially in western Europe. However, major multinational carmakers have not yet fully captured the rapidly expanding EV market, which means Chinese OEMs sense a great business opportunity. Since 2020, Chinese OEMs have successively launched EVs in Europe, re-entering a market where they first tried their luck more than a decade ago.

To a certain degree, there was a blank space in the electric vehicle market when Tesla first came to Europe in 2008. Faced with few competitive pressures, Tesla had the advantage of gradually being able to establish a firm foothold there. Today, although a gap in the market still exists, it is getting smaller. Traditional European players such as BMW, Mercedes-Benz and Volkswagen are introducing more and more EVs, while other specialist EV manufacturers such as the U.S. companies Lucid and Rivian are also targeting the European market.  

Chinese OEMs therefore have only a narrow time window to exploit Europe’s remaining, rapidly closing EV market space. The challenges of re-entering Europe are not so different from those they experienced in the past and whether they succeed this time principally depends on whether they can leverage their core strength, which is customer-centricity. In plain terms, it depends on whether they can really understand Europe’s kaleidoscope of national markets and customers in all their diversity. As a starting point, Chinese OEMs need to consider why their first foray into Europe ended in failure.

Why have Chinese carmakers failed in Europe in the past?

History and ideology

Compared with emerging markets in Asia, Africa and southeast Asia, most European markets are highly mature, with their own automotive cultures and tastes. Traditional OEMs such as Volkswagen, Mercedes-Benz and BMW have dominated these markets for a long time and still do so today in conventional internal combustion engine (ICE) vehicles. With certain exceptions, even well-known Asian brands such as Toyota and Honda have only limited influence in some western European markets.

The current success of Chinese-European brands like MG and Polestar suggests that “being born” in Europe brings higher acceptance by European customers. This is partly because purely Chinese brands are still young and naturally lack a heritage, both at home and abroad. In addition, recent political developments have increased the resistance of some European customers to Chinese products.

Different customer groups, different preferences

The preferences and demands of European customers are very different from their Chinese counterparts, but this is not a problem that can be solved by conducting a few simple market surveys. For instance, Chinese OEMs pay great attention to product features such as connectivity and infotainment functions to attract young Chinese customers. In Europe, the same strategy needs to be sensitive to different consumer priorities. While connectivity and infotainment influence European customers’ purchasing behavior, they are more attracted by “traditional virtues” such as build quality, material selection and driving performance. In this context, new hi-tech features are generally regarded as bonus items. In fact, Chinese OEMs actually often neglect European customers understanding. As they are quite successful in their home market, they often think that the same ingredients for success in China can be directly applied in Europe, especially when it comes to EVs. A fatal error!

Even when buying EVs, European customers favor brands with a strong reputation for high reliability and a wide network coverage for sales, aftersales and electric charging. Unfortunately, no Chinese brand has so far managed to provide the same level of product and service quality as “local” brands such as BMW and Mercedes-Benz.

Poor brand reputation
In the past, multiple poor performances in crash tests have made Chinese brands seem embarrassingly bad. Between 2005 and 2009, attempts by the Chinese Landwind and Zhonghua brands to launch in Europe were both stalled by dismal crash-test results. In 2005, the Chinese SUV Jiangling Landwind failed the German ADAC automobile club’s crash test shortly after being premiered at the Frankfurt IAA Motor Show. In similar fashion, the Zhonghua BS6 failed the Euro NCAP crash test. These PR disasters left European consumers with the stereotype that the quality of Chinese cars was highly questionable.

Can Chinese carmakers succeed where they previously failed?

The difference this time is that Chinese OEMs’ products have matured to the point where they are at least seen by European customers as generally competitive in the “traditional” sales virtues of build quality, use of high-grade materials and driving performance. Meanwhile, Chinese vehicles now also boast highly advanced new “bonus” features for European purchasers such as world-class connectivity and autonomous driving. Lastly, Chinese OEMs are used to building their products in a customer-centric way, with features such as seamless integration of mobile phone apps.

However, even with these core competencies, Chinese OEMs are not guaranteed an easy ride with rapid returns now that they are re-entering the European market. In their favor, most Chinese OEMs are action oriented and advocate „learning by doing“ and “agile” progression. But they must also adjust their mindset to complex European automotive markets that require rigorous and meticulous planning.  

Chinese OEMs should follow the example of the best European competitors and lay out a structured, holistic plan with detailed implementation processes that are based on European customer journeys. Furthermore, they should be prepared for long-term investments to gain and retain the trust of European customers in their products. This will require Chinese OEMs to establish a strong ecosystem in Europe that is adapted for short-term, medium-term and long-term strategies in all areas of their business, including pillar brands, product portfolios, pricing, distribution networks and the digital domain.

Short-term strategy: Brand building and competitive pricing

These are the critical next steps toward success in Europe. Chinese OEMs must ensure that their models are more attractively priced than mainstream European competitors to make up for their lack of brand reputation. Competitive pricing can yield some instant wins when combined with large-scale PR and communications campaigns for models that are extremely good value for money compared with similar vehicles made by competitors. Communications should focus specifically on performance marketing in line with the brand’s positioning during the individual journeys of potential customers, rather than adopting a broader “fishnet” approach through TV spots, billboard advertisements and other media channels.

Medium-term strategy: Product portfolio and network

It is very important for Chinese OEMs to choose a suitable product portfolio and an appropriate sales and aftersales network to gain entry to European markets, following thorough homework on individual market trends and tastes. In this context, it is worth noting that Chinese customers are not necessarily the same as their counterparts in Europe. To give one obvious example, while the SUV is the most popular model of vehicle in China, this is not universally true across European markets.

With regard to sales and aftersales networks, we generally see three distribution channels for China’s EV manufacturers to enter Europe. Firstly, they can cooperate with large local dealers who are interested in selling their vehicles. We believe that a large majority of dealers will be willing to work with Chinese OEMs, given the current trend toward the agent model, which is increasing the margin pressure on most dealers.  

Alternatively, Chinese OEMs can follow Tesla’s example and try to set up their own networks in Europe. This might seem the most desirable route in terms of retail steering and customer experience control. However, doubts remain about whether Chinese OEMs have the financial strength to set up a suitably extensive European network, especially if they are start-ups. Given their lack of capital, we believe it is more likely that Chinese players will adopt a combination of direct sales and franchise dealerships.

Lastly, Chinese OEMs should consider working with local mobility providers, whether they are rental, carsharing or subscription players, to get their vehicles visibly onto European streets, where they can generate word of mouth endorsements most effectively. Chinese players should focus in particular on the subscription model, where shorter contract periods and lower monthly fees can help overcome the resistance of European customers to Chinese cars.  

Long-term strategy: Creating a sustainable, positive brand reputation

A functioning ecosystem with clear structures and the right priorities are key challenges, but are still merely prerequisites for a successful market entry in Europe. Creating long-lasting brand recognition and growth for Chinese EVs will take both time and a willingness to experiment.

The leading Chinese EV manufacturer NIO is a good example. To its credit, NIO has invested a lot of effort in its ecosystem set-up in Europe, especially around user communities, user experience and other fields that are “beyond the vehicle.” Using Norway as its main testing ground, NIO aims to build an ecosystem with cars at its core that also includes digital services and lifestyle offerings, such as community building events. Yet NIO still only sold around 200 cars in Europe in 2021, despite all these innovations. Further refinement and analysis of its fledgling ecosystem will be required to establish how or even whether these services can meet the demands of European customers.  

Some observers, especially on the Chinese side, argue that such a detailed and rigorous approach is not necessary because there is one hi-tech product – the mobile phone – where Chinese manufacturers have already proved that they can make a rapid, successful market entry in Europe. A few years ago, Chinese mobile phones were almost unknown in Europe, but today the market is full of Chinese brands such as Huawei, Xiaomi and Oppo.


However, there are three significant differences between mobile phones and cars. Firstly, unlike cars, mobile phones can be changed frequently at a relatively low price. Secondly, the success of Chinese phones in Europe is based on the budget segment and is concentrated in a few countries. Consider the example of Xiaomi. In the second quarter of 2021, Xiaomi shipped 12.7 million units to Europe, making it the region’s single largest mobile phone supplier, ahead of Samsung (12 million) and Apple (9.6 million). Yet Xiaomi’s success is driven mainly by sales in Russia and the rest of the Commonwealth of Independent States (CIS), whose huge mobile phone market is dominated by budget buyers. This fact largely explains why the average price of a Xiaomi phone in Europe was around $164, compared with $250 for a Samsung phone and $808 for an Apple one. 

Thirdly, 50 percent of mobile phones in Europe are sold through network operators such as Vodafone and Telefónica, which also like to tweak the pricing of hardware devices with special offers and promotions. In summary, one should not assume from the success of Chinese mobile phone players in Europe that it is easily replicable in the auto sector.

There are no short cuts to a successful market entry

The bottom line is that it will be a painstaking and long journey for Chinese OEMs to make their European market entry a success at the second attempt, focusing on EVs. There are no shortcuts.

Yet we believe that they have everything at their disposal this time to avoid a repeat of their earlier failure. Today’s leading Chinese carmakers have a competitive product portfolio, a state-of-the-art technology stack, a customer-centric mindset and deep investor pockets. But as a Chinese proverb rightfully states, “you can’t clap with one hand” (一个巴掌拍不响). It will require a joint effort to make the re-entry of Chinese OEMs into Europe sustainable and profitable, because their success will depend on teaming up with the right local partners. 

Stay tuned for the next article in this series, where we explain:

  • Why Chinese OEMs still need strong partners to achieve lasting success in European markets
  • How these partnerships are faring so far for both sides
  • What needs to be done to make these collaborations more fruitful
Dr. Jan Burgard

Dr. Jan Burgard (1973) is CEO of Berylls Group, an international group of companies providing professional services to the automotive industry.

His responsibilities include accelerating the transformation of luxury and premium OEMs, with a particular focus on digitalization, big data, connectivity and artificial intelligence. Dr. Jan Burgard is also responsible for the implementation of digital products at Berylls and is a proven expert for the Chinese market.

Dr. Jan Burgard started his career at the investment bank MAN GROUP in New York. He developed a passion for the automotive industry during stopovers at an American consultancy and as manager at a German premium manufacturer. In October 2011, he became a founding partner of Berylls Strategy Advisors. The top management consultancy was the origin of today’s Group and continues to be the professional nucleus of the Group.

After studying business administration and economics, he earned his doctorate with a thesis on virtual product development in the automotive industry.

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.

Hongtao Wei

Hongtao Wei (1988), Associate Partner, joined Berylls Strategy Advisors in 2015, an international strategy consultancy specializing in the automotive industry, where he focuses on all issues related to the Chinese automotive market. In addition to Western manufacturers in China, his clients also include Chinese OEMs, investors, provincial governments, and state-owned enterprises.

He has profound expert knowledge in the areas of sales and aftersales. His other areas of expertise include digitalization, connectivity, and turnaround management.

He studied Sinology, Economics and Statistics at the Ludwig-Maximilians-Universität in Munich.

Soleiman Mansouri

Soleiman joined the Berylls Group in March 2022. He has set his focus on customer-centrist solutions, gaining experience in Product- and Corporate Strategy, Consulting with the focus on the OEM business. His Automotive career started with digitalization of the Aftersales of an US OEM in Europe and took him to China to the leading German OEM group, heading the Product and Portfolio department. He gained intensive consulting experience with one of the top management consulting firms and as a freelance consultant. Before joining Berylls, he was the Director Go-to-Market of one of the top Chinese OEMs supporting their entrance into the EU market. Soleiman is a graduated M.A./MBA in International Business from the University of Hamburg and ECUST/Shanghai.

Soleiman joined the Berylls Group in March 2022 and is part of the Asia-team, responsible for supporting all players in a successful market entrance. Also, provides profound expertise of customer-centric Product Marketing and Portfolio Strategy approaches to our clients.

Soleiman is expert in customer-centric Product-/Portfolio Strategy, Go-To-Market, Corporate Strategy and Entrepreneurship.