Price Wars, Foreign Counterstrike: What’s Ahead At The Beijing Auto Fair

Beijing will be center of attention in the global auto industry later this month with the opening of China’s most important exhibition this year, Auto China. The stakes are big for domestic brands such as BYD but also for foreign entrants looking to tap into the world’s largest auto market; sales in first quarter increased by more than 10% from a year earlier. Long-time world leaders, however, face intensifying competition from cutthroat, tech-savvy domestic rivals, particularly for EVs. Among international firms looking to the future, Volkswagen last week announced plans to invest $3.7 billion in the country.

What are some of the likely trends at Auto China? To learn more, I talked on Thursday to Tu Le, founder of Sino Auto Insights, a consultancy that follows China’s auto industry. Le is a long-time China veteran who relocated to the Detroit area during the pandemic and will be back in China for the show, which opens on April 25. Edited excerpts follow.

Flannery: What are your expectations for the show?

Le: I’m looking for a decent-to-strong showing from the foreign automakers, who have now had a bit of time to reconcile their product portfolios for the China market. There are a number of foreign automakers that will be unveiling new vehicles. That wasn't the case in Shanghai last year.

I’m curious to see their level of emphasis on China and what the reception for their products is. GM is going to be launching some new products. Ford is going to be showing off its locally built Ford Bronco. It's an ICE, but an exciting product for them. They haven't had exciting products in the China market for quite some time.

Flannery: Ford has struggled in China.

Le: They're struggling mightily in the China market. They've reconciled their strategy for now, and are likely going to wait until they have viable products which they feel confident can compete on the clean energy side.

The Bronco is going to be a niche product, but a niche product in China, could be high runner in almost any other country. I think they're hopeful their brand can stay in the China consciousness while they reconsider their clean energy product plans for the China market.

Flannery: Foreign brands as a group seem to have been on their back foot amid fast competition. What can they do to make an impact?

Le: The most important thing for them is to firmly commit to the China market, if they’re going to stop the bleeding in 2024 and 2025 to find a floor that matches their operations with their current market niche.

That also means reconciling their current relationships with joint venture partners. A lot of these joint venture partners — SAIC, FAW, GAC – have launched their own electric vehicle brands. They need to try to reinforce those relationships to make sure that the SOEs and the JV partners know that they're firmly committed to the China market.

I'm also looking out for other foreign automakers to formal announce partnerships or investments with other Chinese brands, specifically for the China market, and explain how will they be crystallizing their current strategies.

Flannery: How about Xiaomi?

Le: The Xiaomi SU7 just launched a couple of weeks ago. It's gotten great press globally. That puts the domestic competition on notice. There's been a price war over the last 12 to 15 months, so I’m curious to see the types of announcements that will come out at the Beijing Auto Show.

I still think that the price war will continue with BYD leading the way. They're still playing offense. I want to see if Xiaomi is able to keep up the positive energy from its vehicle launch a couple weeks out, and then I want to see how their competitors will react.

Flannery: What do you think of the SU7?

Le: Physically, it's similar to other vehicles from a look standpoint, but the secret sauce for Xiaomi — if they can pull it off – will be incorporating the vehicle into the Xiaomi life that their Xiaomi consumer products customers enjoy with a lot of their consumer products, whether that's on the professional or lifestyle side. That's what I'm really excited to see. That's not likely going to be articulated over the next couple of weeks at the Beijing Auto Show, but long term they are the first true technology company has thrown its hat in the ring with their own branded EV.

Flannery: How do you compare Xiaomi to Huawei? It has phones and vehicles, too.

Le: Huawei has mostly gone the partner route up until this point with Chinese domestic brands. They've done the “Intel inside” strategy where there is an automaker that builds a vehicle, but the guts and the brains are mostly going to be from Huawei IP. Xiaomi has taken the Apple approach, where the vehicle or the physical product as well as the software is coming from them. That creates the potential for a better user experience. They’re not trying to Frankenstein a bunch of potentially disparate hardware and software together that could create a lot of bugs and conflicts.

Flannery: How about Li Auto? Its shares have had a relatively good run in the past year.

Le: Li Auto initially had a lot of excitement for its first battery electric vehicle. But over the last few weeks, it's gotten some controversy on Chinese social media because of a tweet or a post that went viral that said it kind of looks like a coffin. But they're also going to be launching the L6, which is their most affordable product to date, and would translate into one of their highest selling products if successful. I think all of the current domestic players are taking a step back and looking their original forecasts for 2024, and pouring a little bit of cold water on them because they don’t see an immediate end to the price war.

Flannery: How about Tesla and BYD? What's your expectation for them at this show?

Le: I’m not expecting much from Tesla at the show this year. Maybe a Cybertruck?

I think it will be all eyes on BYD this year. They were a bit of a surprise in Shanghai last year, but this year everyone knows about them. You and I have known BYD for a long time, but a lot of Western media have just started picking up on them. It could become an even more significant global brand for China in the next few years.

Flannery: Where will Li Shufu and his large portfolio of brands fit in?

Le: Geely has a lot of potential if it can clearly communicate its brand strategy across all these terrific brands they own. Having Lotus, Zeekr and some of their other brands — Polestar, Volvo, their hands are full with investments, marketing and sales of the current set of new vehicles that each is launching. They need to figure out if the current set of brands that they have is optimal for the company.

See related posts:

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China Auto Boom Continued In First Quarter

Volkswagen To Invest $2.7 Billion In China, Add EVs

China Auto Glass Billionaire Beats Flashier EV Upstarts On Profit

@rflannerychina