How can the automotive industry prepare for Made in China 2025?

ev_china_2025_header-1

To solve its pollution problem, the Chinese government is incentivising local businesses to develop greener solutions for the country. This is part of Made in China 2025, an initiative—inspired by Germany’s industry 4.0— aimed at transforming China into an advanced manufacturing leader. Made in China 2025 targets industries including new energy vehicles, aviation, rail, next generation information technology, and agricultural machinery. However, unlike Industry 4.0, Made in China 2025 provides preferential access to capital for local companies— promoting R&D capabilities within China. One of the goals of Made in China 2025, is to stop dependence on fossil fuels by investing more in local green technologies, such as electric vehicles (EVs). According to Jean-François Bélorgey, Head of Automotive Industry for EY France, “the increasing adoption of EVs will help China reduce its huge dependence on imported oil.” A real statement of intent is the fact that BAIC Motor—China’s largest carmaker—plans to phase out production of non-electric and hybrid vehicles by 2025.

In 2016, 375,000 EVs were manufactured by Chinese original equipment manufacturers (OEMs)—surpassing the amount of EVs on the road in the US. And OEMs from around the world produced 332,000 EVs in China.

This Bloomberg chart below shows that China’s electric vehicle sales jumped up dramatically in 2015, suggesting more consumers in China are buying EVs.

Chhina's electric vehicle sales jump(Source: www.weforum.org )

A recent EV intellectual property report also reveals that although the US is surpassing China in EV patent applications, most of the EV patent applications in the US are from Chinese players. This suggests Chinese companies are driving a large part of the EV business.

Many foreign companies are reluctant to do business in China because of the misconception that the companies there will imitate their technologies. But China’s lead in the EV market brings new opportunities and lessons for foreign carmakers. Large foreign companies, such as General Motors and Daimler, are forming joint ventures with Chinese companies to take advantage of the growing EV market and its fast-paced innovations.

If foreign automotive companies want to prepare for Made in China 2025, they must understand:

  • How Chinese carmakers are moving faster than Western companies
  • How Western carmakers can take advantage of the growing market in China

1013_CTA_eBook_Cover_V_v292Download our free Electric Vehicles Intellectual Property Report 2018It is a worldwide patent analysis, investigating application trends, top applicants, underlying tech drivers, emerging companies and potential litigation risks.

DOWNLOAD EBOOK


How are Chinese EV companies moving faster than Western companies, and what can you learn from this?

Commercialise rapidly rather than having long R&D cycles

Chinese automotive companies are much better at commercialising innovations than other companies. Chinese carmakers are happy to undergo a few rounds of commercialisation before getting an idea right, whereas in the US, many companies spend longer on R&D before testing their products in the market. This enables Chinese companies to test and make alterations to their cars much faster than their foreign competitors—who spend the same amount of time as Chinese companies, focusing on R&D and validation before commercialising one technology. If Western automotive companies were to take a similar approach, they would be better equipped to understand what works in the EV market.

Affordable EVs in China 

In China, there's a range of EVs, from pricier luxury ones to cars that are more affordable. Many Chinese people are moving from rural areas to live in cities, giving rise to an emerging middle class. Many of them will be buying a car for the first time and are more open to affordable EVs from local companies. The large amount of manual processing in Chinese manufacturing processes compared with the Western approach of automation means Chinese manufacturers can capture cost benefits and offer EVs at a much lower price than their foreign competitors.

However, global companies charge a premium when giving customers new features in a car, which makes EVs expensive. In the US, consumers are accustomed to having a range of car prices to choose from (such as a luxury Mercedes or an affordable Ford), however, unlike China, the only EVs that are currently available in the US are luxury cars. One survey of American consumers revealed that 75% of respondents felt that range of prices was a major disadvantage of EVs. Reports have also addressed battery failures and technical problems with EVs, raising concerns among consumers who have high expectations.

Collaboration between Western and Chinese companies could help Western companies test technology in the more advanced and growing Chinese market. This could also help them commercialise EVs at a much lower cost and increase affordability for Western consumers. 

What opportunities are there in China for foreign carmakers?

Joint ventures (JVs) and partnerships, are unusually high in the EV industry. This is because there’s a variety of technical parts that make up an EV—from manufacturers making chassis and tyres, to companies developing software and batteries. Collaboration within the industry allows carmakers to introduce more advanced end products. According to a study by Thoma and O’Sullivan, the most important tech inside EVs is the battery, so most JVs are happening between carmakers and battery manufacturers to overcome one of the biggest challenges in the industry—costly batteries.

Joint ventures in China

China’s car rules are designed to help the local automotive industry, and foreign companies are only allowed in through joint venture partnerships—in which their stake cannot exceed 50%. However, Chinese carmakers can offer local market intelligence to foreign companies. Foreign companies such as BMW, General Motors, Ford and Volkswagen have already formed joint ventures with Chinese companies. 

For example, the image below shows 636 patents filed by the joint venture between General Motors and SAIC—a Chinese carmaker— under the name Pan Asia Automotive Technology Center.

636 patents filed by JV between GM and SAIC, aka Pan Asia Technology CenterPatents filed by joint venture between General Motors and  SAIC (Source: PatSnap platform)

One study revealed that lithium-ion battery prices per usable KW/h range between $500 and $650, which is a huge part of the cost of EVs. However, China presents a big opportunity for carmakers as it accounts for 25% of the global supply of lithium-ion batteries. Collaborating with local manufacturers through licensing or joint partnerships is a no-brainer if you want access to cheaper battery technology. 

For example, the image below shows that China has filed the highest number of patents relating to energy storage technology than any other jurisdiction. 

Energy storage patents with most filed in ChinaAnnual patent filing strategy across geographic markets for energy storage technology (Source: PatSnap platform)

Free trade zones

China also plans to have free trade zones so foreign companies can come and set up wholly owned EV companies. Tesla has already announced that it’s moving into China’s free trade zone in Shanghai. Currently, free trade zones are only available for battery and motorcycle manufacturers. Plug Power, a New York-based fuel-cell company, has signed an agreement for fuel cell EV development in China, with Zhangjiagang Furui Special Equipment and another Chinese manufacturer. Under their agreement, the companies will collaborate to build electric vehicles equipped with Plug Power’s hybrid fuel cell engine systems and hydrogen fuelling station solutions.


1013_CTA_eBook_Cover_V_v291Download our free Energy Storage in Electrically Propelled Vehicles IP report 2018This report is a worldwide patent analysis investigating patent application trends, top applicants, underlying tech drivers and emerging companies.

DOWNLOAD EBOOK