Introduction

Introduction

The sheer size of the Chinese automotive market has long since determined that all automakers operating in China must craft vehicles tailored specifically for Chinese consumers, leaving no room for complacency.

Since automobiles began to enter the homes of ordinary people, the Chinese automotive market has always had its unique characteristics.

Due to the significant regional differences in demand and inherent factors such as unequal economic development, compared to the global market, the automotive industry in China has followed a specific logic of Chinese-style development, whether it was initially satisfying basic transportation needs with "four wheels and a seat" or now embracing new energy industries for environmental protection and emphasizing intelligent experiences amidst the desire for more spacious vehicles.

As such, regardless of the historical significance or prominence of "China-only" vehicles in the expansion plans of major joint ventures, it is undeniable that Chinese consumers have a particularly distinctive taste.

For joint venture automakers, the shift from previously launching low-cost Chinese-version models to now emphasizing forward-looking localized research and development reflects a market-driven evolution, albeit seemingly reluctantly, that is necessary for survival.

To put it bluntly, when the Chinese automotive market no longer leaves room for growth for everyone, whether it's capitulating to market pressures or sowing seeds for future endeavors, no enterprise can afford to remain complacent. All so-called brand identities must be reshaped amidst this onslaught. Mazda EZ-6, Toyota bZ3X, and Lingxi L are but a few examples of new vehicles that have abandoned their original ways of thinking, ultimately striving to help their respective brands survive in China.

At the dawn of industry transformation, large joint ventures often assumed that once the turmoil subsided, everything would return to its natural development trajectory. However, who could have anticipated that the brutality of the market would exceed most people's expectations. The frustration of electric vehicles failing to gain traction upon market entry and negative consumer feedback forced these companies to reevaluate their transformation strategies and learn from Chinese automakers.

Since 2014, the departures of brands like Mitsubishi and Jeep, which have gradually receded from public attention, signify that market growth is no longer centered around joint ventures. Amidst the rise of Chinese automakers, joint ventures seeking to retain their foothold in China must fully embrace localization. While this may seem like a step backward in terms of branding, it is virtually the only viable strategy for them to compete with Chinese automakers in the current market landscape.

The long history of 'China-only' models

Data regarding the transition in the Chinese automotive market has long provided indications. Despite the price wars that have left many automakers exhausted, by August of this year, passenger vehicle wholesale shipments reached 2.154 million units, with joint venture brands accounting for only 460,000 units, a year-on-year decline compared to the 1.44 million independent brand vehicles shipped. This trend underscores the unstoppable shift underway.

Within certain niche segments or regional consumer markets, joint venture brands still exert considerable control. Mainstream products like the Lavida, Sylphy, and Corolla, as well as the Passat, Magotan, and Camry, remain popular among consumers despite the influx of new models. Nevertheless, in the long run, it is imperative for all joint venture automakers to adapt to Chinese consumers' needs.

For a long time, the slogan "In China, for China" has been embraced by major automakers. Rooted in this mindset, they have consistently offered products tailored to Chinese consumers' unique needs.

However, unlike current market challenges, changes made during a particular period often reflect the underlying characteristics of that time.

A decade ago, the nascent Chinese automotive market and the modest needs of consumers led many joint ventures to believe that cost-cutting was not only reasonable but also the most suitable approach for "Chinese babies." At that time, the term "China-only model" carried a hint of resignation or even derision.

As the market further differentiated and expanded, especially around 2012, joint ventures became almost obsessed with creating vehicles tailored specifically for the Chinese market. New brands like Siming, LiNian, and Zhinuo emerged from the concept of "joint venture autonomy," vying to offer affordable yet high-quality products to consumers.

However, much like the subsequent explosion of new forces in the industry, when someone underestimates the boundaries of the Chinese automotive market, these actions, not aligned with the original vision, are unlikely to yield positive results. Unreleased joint venture autonomous brands like Tianyue, Langshi, Huaqi, Shouwang, and Kaili never saw the light of day, underscoring that once consumers see through these half-hearted efforts, no one can sustain a brand solely by deceiving them.

As we enter 2024, we witness joint venture brands continually ceding ground while reluctantly clinging to their positions. Who can say that those joint ventures that have navigated tumultuous times will continue to turn a blind eye to external developments and plod along with their electric vehicle transitions?

To put it bluntly, as Mazda turns to Changan for guidance and abandons its stubborn pursuit of an electric roadmap, Volkswagen, Toyota, Honda, and others have also turned to their Chinese joint venture partners to create vehicles tailored to Chinese consumers. The arrogance once associated with these companies must now be abandoned.

"Chinese consumers demand products tailored specifically for them by automakers." Indeed, this theme has been a constant throughout the development of the automotive market. Guided by this principle, every joint venture, eager to solidify its position in the global market, must inevitably set a timeline for a complete transition to localization in China, regardless of how unconventional such a move may seem today.

Underestimating joint ventures is unnecessary

It would be inaccurate to suggest that joint ventures are incapable of producing high-quality electric vehicles. The root cause of their current predicament lies in the inherent contradictions within their manufacturing philosophies, as evidenced by SAIC Volkswagen's decision to postpone the ID.7S project.

Today's consumers increasingly prioritize vehicles that offer a comfortable ride rather than a driving experience, posing a significant challenge for joint ventures. The only viable solution for them is to fully leverage Chinese resources to develop electric vehicles that truly resonate with Chinese consumers and inspire them to open their wallets.

What impression do Chinese consumers have of joint venture electric vehicles over the past two years? Some might summarize it as "no-name brands," but I argue that these vehicles, created using outdated thinking, are simply misplaced in the market. When the Chinese automotive market is flooded with intelligent, emotionally charged independent electric vehicles, who wouldn't want a conventional car with an electric motor under the hood?

Indeed, since the beginning of 2023, regardless of any excuses made for joint ventures, most of them have become the target of public criticism and exemplars of failed transformation.

Should they stay or should they go? There's no need to speculate. All but a handful of joint ventures, such as Stellantis' Chinese subsidiaries under Carlos Tavares' leadership, have publicly stated their commitment to the Chinese market. Some, like Volkswagen, have even gone so far as to directly invest in Chinese startups, adopting a strategy akin to "borrowing a womb to give birth."

Let's be honest about the level of electric vehicles produced by Chinese automakers. Whether judged by market feedback or abstract actions like the EU's imposition of exorbitant tariffs on Chinese electric vehicles entering the European market, it is clear that there is a significant gap between these vehicles and their joint venture counterparts.

After years of market cultivation and as Chinese consumers' self-awareness evolves, there is no reason for committed joint ventures to continue acting unilaterally.

From Toyota's partnerships with BYD, GAC, and Huawei to cater to Chinese consumers, to Honda's launch of a new electric vehicle brand, Ye, specifically for the Chinese market, and similar moves by other joint ventures, it can be said that they have finally awakened.

As an observer, it is evident that the decision to localize production is far less costly than creating China-only models in the past. However, the underlying logic behind these two strategies is vastly different. In other words, as market differentiation intensifies in 2024, joint ventures are far from indifferent, contrary to public perception.

Before National Day, Mazda EZ-6 and Dongfeng Honda Lingxi L fired the first shots in their revitalization efforts. While they may not stand out in the vast new energy vehicle market, they have nonetheless raised the banner of counterattack for all joint venture brands.

Looking back at the past few months, it is undeniable that independent brands have achieved a market penetration rate exceeding 50% on several occasions. Powerful new forces like NIO, Wenjie, and Xiaomi are fiercely competing to establish their dominance across various market segments.

Admittedly, the Chinese automotive market is vast, and while joint ventures may have been slow to awaken, they now have the opportunity to leverage their supply chain advantages and fully embrace localization. This entails abandoning the need to accommodate global market evolution and, instead, boldly advancing alongside the rapid iteration of the Chinese automotive market.

When consumers are presented with vehicles offering similar quality, pricing, and driving experiences, the choice of who will win their vote may usher in a new era.