► How brands are adapting to new competition
► What happened to the Model 2
► CAR analyses the industry
If you’ve never heard of Chinese brand Omoda, that won’t be the case for long. Omoda is owned by Chery, the car company that runs a joint venture with JLR in China and is also the country’s largest exporter of vehicles. The launch cars are compact SUVs – one petrol, one electric – priced from just over £25,000. Any qualms that Omoda’s quality might be lagging the competition will be eased for many by a £5000 saving over the equivalent Nissan Qashqai.
More models are planned, and in five years Omoda will be challenging Kia in terms of sales, says UK head Victor Zhang. Such is the competitive zeal of the Chinese car industry; you wouldn’t take the bet. Already this year MG – owned by China’s SAIC – outsold Skoda, Renault and Seat.
The competitive advantage held by the Chinese is largely within EVs. The drivetrain that delivers the cut in emissions demanded by legislators in the battle to halt global warming is also the one that the Chinese have bet on so successfully, scaring the hell out of established car makers. ‘We’ve never seen a competitor like this before,’ Ford CEO Jim Farley said of China earlier this year.
Even Tesla has changed strategy, abandoning its plan for the entry Model 2 for what analysts are now dubbing Model 2.5: cheaper than current cars but adapting their platform to avoid the need for a wholesale, ground-up redesign. The car will launch ‘in the first half of next year’ Tesla CEO Elon Musk said in July 2024.
Did the threat of Chinese competition kill Model 2? Almost certainly. Never the speediest, Tesla knows it can’t move fast enough to develop a new and affordable mainstream model and be sure it won’t be eclipsed at launch. China is a unique competitor because companies there aren’t playing by the same financial rulebook.
State support is rife. Just how much was revealed by the European Commission in published evidence for its decision to impose higher tariffs on Chinese EVs imported into the European Union. Among the state-directed financial benefits enjoyed by BYD, SAIC and Geely were gold-plated AAA credit ratings, giving them access to cheap loans. The Commission, however, found they didn’t have assets to cover their short-term debt obligations, making them much higher risk than the rating suggests.
Perhaps the greatest gift from the Chinese government was early and decisive orchestration of the battery market, right down to the raw materials. The European Commission noted that ‘input suppliers are not free-market opera- tors but entities which performed the assigned governmental functions.
The system guarantees that favoured battery companies including BYD secure the cheapest supply of materials. On the evidence, the EU has proposed tariffs depending on the level of state support, a more nuanced approach than the US and Canada’s flat 100 per cent tariff. The UK has yet to show its hand.
And there’s more. Cut-throat competition within China’s own market ensures home-grown car firms are fighting tooth and nail for competitive advantages in manufacturing, technology and quality. Any flabbiness in the fitness levels of European competitors needs to be pumped out pronto or a slow death awaits.