Over the past decade, "internationalization" has been a hot topic of concern for Chinese car companies. Faced with a stagnant or even slightly shrinking domestic market, Chinese car companies, especially the industry giants, almost all see overseas expansion as the only way to long-term growth. At the same time, the Chinese government has high hopes for the internationalization of domestic automakers, hoping that they can follow the example of neighboring automakers such as Japan and South Korea to gain a place in the international market, or at least narrow the gap with Japanese and South Korean automakers in the international market.

Chinese car companies have now gained a solid market share in the domestic market, and are strong in cost control, electric vehicles, vehicle networking and other areas, especially the leading companies; On the other hand, China's auto exports still lag far behind other major auto producers, and the average selling price of exported cars is much lower than that of related countries. Many executives in the Chinese auto industry have also expressed their dissatisfaction with this "imbalance" on different occasions.

In view of this, a brief discussion of the international car market seems timely. In this article, we will explore the potential growth opportunities for Chinese car companies and offer some humble ideas for overseas business development.

China lacks a stable destination for car exports

China's car exports have shown some signs of stabilising over the past few years (see chart 1). Exports in 2019 are well above the level of the last trough (2015/2016). But 2019 is not a high point worth "bragging about", if we go back to the earlier data, we will find that the scale of exports in 2019 is even less than 2012. Compared with the achievements of Chinese car companies in the domestic market during the same period, this figure is really a little pale in comparison.

In 2012, China's car exports exceeded the 1 million mark for the first time, with most of them going to Algeria, Iraq, Russia, Iran and Venezuela. In 2018, the number of cars exported to these markets will either decrease significantly (Algeria and Russia) or be very small (Iraq and Venezuela).

There are a number of reasons behind the sharp decline, some of which are related to the domestic situation in importing countries, such as the unrest in Venezuela, the domestic economic development of Algeria (the country's light vehicle sales fell from 530,000 in 2012 to 130,000 in 2018); Some of this is related to the performance of the company itself, such as Lifan Automobile, which once rose to the top of China's auto exporters, but was limited by its weak technical strength and brand appeal, its models were difficult to meet the needs of Chinese consumers, and the company was unfortunate (near) bankruptcy, and its export business was naturally difficult to sustain.

While China's auto exports to these markets declined sharply, increased imports of Chinese cars from Iran, Mexico, Chile and the United States offset the negative growth of the former and helped China's auto exports exceed the million mark for the second time in 2018. But unfortunately, in 2019, the situation has changed dramatically again: exports to Iran have almost disappeared, and exports to the United States have plummeted by more than 40 percent.

Among the main factors affecting China's automobile exports, the seriousness of the lack of several export destination countries with stable demand cannot be ignored. Opening up overseas markets undoubtedly requires a lot of time and money investment, car companies need to carry out expensive marketing promotion in the local, investment in the construction of new plants, product adaptation and improvement. A roller-coaster sales swing would be the death blow to this activity, leaving car companies either hesitant to make the necessary investments; Or the efforts invested in overseas markets in the past few years have been wiped out.

This is why China's auto exports are far from those of other large auto producers, both in absolute terms and as a percentage of domestic production (see P2).

What are the potential opportunities in overseas markets

There are several key factors that must be taken into account when assessing the potential of overseas markets: first, regulatory constraints; The second is the competitive situation with the local leading military vehicle enterprises; The third is whether Chinese car companies can play their own unique competitiveness in the local market. Based on these considerations, we can divide the international market into several sub-regions and evaluate each region according to three factors: (1) Risk; Second, the competitiveness of local car companies; Third, the development potential of the electric vehicle market (see P3). The assessment shows that Chinese car companies have potential opportunities in the fuel vehicle market in developing countries (excluding India), as well as in the electric vehicle market in Europe, mainly for the following reasons:

For Chinese car companies, North America and India present several risks:

Japanese and South Korean automakers are too strong for Chinese automakers to penetrate the local market;

There is growing acceptance of electric vehicles in Western Europe, and the charging infrastructure is improving. For some Chinese manufacturers with strong competitiveness in the field of electric vehicles, the European electric vehicle market is an indispensable part of their international journey;

Developing markets such as Eastern Europe and CIS countries, South America, ASEAN, the Middle East and Africa are also optional destinations for Chinese car companies. These regions currently lack strong local car companies and have less uncontrollable risks.

Buying local brands can be an easy way into developing countries. The partnership between Geely and a domestic Malaysian automaker (see P5) is a case in point: After Geely acquired the automaker in 2017, it helped the Malaysian automaker make significant progress in a short period of time, reversing its declining market share by promoting dealer network construction, improving vehicle quality, and introducing new SUV models from a certain country.

The European electric car market is another potential opportunity for Chinese carmakers. Thanks to the continuous improvement of the electric vehicle ecosystem and regulatory support, the European market has become more and more accepting of electric vehicles, and has gradually become the world's highest penetration rate of electric vehicles (see P6)

Chinese car companies, especially the leading military car companies, have some unique advantages in the field of electric vehicles. The research results of the McKinsey China EV Teardown Project (see Figure 7) show that the "range price ratio" of Chinese car companies is much better than that of international car companies (Chinese car companies are 21 km / 10,000 yuan, and international car companies are 11 km / 10,000 yuan). In addition to range, electric cars in China often have futuristic interiors and rich connectivity features that are rare in similarly priced European models. Aware of these advantages, some leading Chinese military car companies have begun to test the water of electric vehicle business in Europe. For example, car companies such as SAIC, BYD, Xiaopeng and NIO have entered the European electric vehicle market. In terms of absolute sales size, this is only a starting point, but it marks the beginning of Chinese car companies to enter the developed region, the significance of far more than short-term sales figures. However, it must be pointed out that in view of the fact that all the world's leading vehicle companies are currently investing heavily in electric vehicles, the pace of Chinese car companies' electric vehicle business "going out" must accelerate, after two or three years, this window is likely to pass.

The reference and thinking brought by the world's leading car companies of Hyundai Motor

Hyundai started as a small car company, little known outside South Korea. But today, it is the leading brand in almost every major car market. There is no doubt that Hyundai can provide a lot of valuable experience for Chinese car companies. By combing through its development history in the United States (see Figure 8), it is not difficult to find that the reason why Hyundai Motor can win a great victory is that it is based on the overall situation and has carried out all-round improvement in quality, technology, design and second-hand car salvage value.

In addition to improving the quality and performance of the cars, the car company's eye-catching advertising and generous sponsorship of popular sports events have also helped it successfully build a sporty brand image.

How should Chinese car companies expand steadily overseas

Before opening international business on a large scale, Chinese automobile enterprises may wish to refer to the following experience:

As long as the long-term goal of car companies is to form scale effects, then overseas expansion is a necessary way.

Mergers and acquisitions are a potential shortcut to grab a larger share of the international market in the short term; But finding the right target and closing the deal is no easy task; The "discerning eyes" and decisiveness of the acquirer are needed.

Always take the customer as the center, bring the best products and services to customers. Chinese car companies may want to look at Hyundai's expansion in the United States and try to offer highly attractive and cost-competitive products.

Branding is a top priority. Some international markets often mistakenly regard "Made in China" as a symbol of "poor quality." In order to solve this problem, in addition to providing high-quality products, tailor-made marketing campaigns are also necessary.

Move on to electric cars. Chinese car companies have some potential in electric vehicles overseas, especially in countries with regulatory and infrastructure support. However, given that global car companies are investing heavily in the sector, the Chinese must move quickly.

The advantages of Chinese car companies in network technology are very dependent on local Internet companies such as BAT. This advantage will undoubtedly shrink sharply in overseas markets, which should be noted in particular. At the same time, data security and the protection of personal information should also become one of the attention points of overseas market expansion.