Strategic roadmap to focus on localization, sales and service innovation, and collaborations with non-automotive players.
By Jagadeesh Chandran, Industry Principal – Mobility
Chinese electric vehicle (EV) OEMs face significant challenges. The domestic Chinese EV market is saturated, characterized by overcapacity and intense competition. As a result, Chinese EV manufacturers are increasingly looking abroad for growth opportunities.
This international expansion strategy is not without its own set of hurdles. In Europe, Chinese automakers are under scrutiny due to an anti-dumping investigation, while national security concerns have led to restrictions on Chinese investments in India. Additionally, Chinese EV OEMs must navigate immature retail networks and logistical challenges in these foreign markets. In response, they are adopting innovative retail approaches and forming strategic collaborations with non-automotive partners to overcome these obstacles.
Among the innovative and engaging retail sales strategies being adopted by Chinese EV manufacturers to attract consumers include online-to-offline models, fully online sales, and virtual reality test drives. Pure play EV companies without a legacy retail network, like NIO, are primarily adopting a direct-to-consumer (D2C) approach in Europe. Start-ups such as Aiways are partnering with non-automotive retailers for last-mile distribution. By leveraging the online/offline D2C model and collaborating with dealers via agency agreements, Chinese OEMs are aiming to control retail costs, establish a localized retail ecosystem, and minimize expenses associated with OEM-owned physical infrastructure.
To learn more, please access: Strategic Overview of Chinese EV OEMs Global Retail Approach, Strategic Analysis of the Automotive Aftermarket in China, or contact sathyanarayanak@frost.com for information on a private briefing.
Navigating Foreign Markets
Success for Chinese EV OEMs in North America hinges on overcoming stringent regulatory challenges in the US. The cost competitiveness of Chinese EVs is perceived as a threat to local manufacturing, prompting protectionist policies. However, these policies may backfire, potentially reducing the global competitiveness of North American OEMs. To circumvent newly imposed tariffs, Chinese manufacturers are likely to establish production facilities in Mexico, leveraging the United States-Mexico-Canada Agreement (USMCA) to access the US market.
The intense competition in China is driving OEMs like BYD and NIO to explore other regions, focusing on vertical integration. Europe is a key target for investment, with leading Chinese battery companies such as CATL, EVE, and Sunwoda setting up new facilities in the region. Countries like France are incentivizing local production, enabling Chinese OEMs to establish local manufacturing plants. This vertical integration will provide Chinese EV players with cost and control advantages over the local retail supply chain.
Besides major markets in the UK and Germany, Chinese EV manufacturers are also targeting Northern Europe and the Nordic countries. These regions are attractive due to their rapid infrastructure development, environmental consciousness, and high EV adoption rates. By introducing low-cost models and building their brands through traditional franchise retail approaches, Chinese EV OEMs aim to establish a strong presence as demand for new energy vehicles rises.
In Asia, Chinese EVs face low consumer preference due to limited brand recognition, trust, and infrastructure availability. To address these challenges, Chinese OEMs will initially support the region’s efforts to accelerate electric mobility adoption, focusing on battery technology. Over the long term, they will introduce affordable models and leverage market dynamics to foster consumer acceptance and adoption.
Global Retail Strategies of Key Players
In foreign markets, Chinese EV pure players are adopting subscription models due to limited cost advantages from traditional purchase models, especially in regions with EV incentives and tax benefits. In the short to medium term, more OEMs will test subscription models on a small scale to gauge consumer preferences. Tailored subscription packages based on consumer needs will be crucial, as younger generations become the primary car buyers.
BYD is employing a low-price strategy to penetrate the mass vehicle market. Polestar, in partnership with Sweden-based Volvo, is the only Chinese EV OEM brand pursuing a D2C retail strategy in the U.S.
NIO has adopted a value-based pricing strategy, offering separate battery-as-a-service options to provide cost advantages tailored to consumer needs.
Leap Motors, with a significant investment from Stellantis, aims to leverage Stellantis’s established retail network. Chery Automobiles is considering acquiring or building new assembly plants in Europe to sidestep potential EU tariffs on Chinese EV imports. Hozon Auto, Geely Auto, and Li Auto are exploring other regions for expansion following the EU anti-subsidy investigation.
Our Perspective and Future Outlook
Establishing production and assembly facilities globally will help Chinese EV OEMs overcome regulatory challenges favoring local manufacturers. It will enable cost advantages that can be passed on to consumers in the form of lower vehicle prices.
Chinese EV start-ups have the flexibility to operate multiple retail channels, unlike traditional OEMs that are tied to dealership networks. This flexibility will allow start-ups to adapt retail models based on changing consumer preferences. Moreover, the early-mover advantage in global markets will help Chinese EV OEMs to strengthen retail networks, even as they look to geographic expansion to offset intensifying competition in the domestic market.
Effective communication of value propositions and brand awareness will be critical for long-term success in new markets. Chinese EV OEMs will need to offer a mix of ownership models, omnichannel buying choices, and differentiated sales/service innovations, reinforced by localized marketing campaigns, to remain competitive in mature retail regions like Europe, where consumers are open to diverse purchase models.
Collaborations with established third-party stakeholders and leveraging existing service infrastructure will ensure uninterrupted service availability. Partnerships for localizing retail activities, digitalization, charging infrastructure, autonomous driving systems, and compliance with local regulations will enhance brand recognition and boost sales growth.
Chinese EV OEMs will need to develop localized capabilities through collaborations, establish parts factories and logistics facilities in operating regions, and enter data sharing agreements with relevant stakeholders to ensure competitive advantage and sustainable growth in key international markets.
With inputs from Amrita Shetty, Senior Manager – Communications & Content, Mobility
