The Chinese juggernaut is beginning to roll in India

While China has its work cut out with the slowdown, its homegrown automotive brands are wasting little time in scouting for opportunities overseas.

SAIC Motor Corp was the first big ticket entry and has, at least till now, hit the bull’s-eye with its Hector SUV sporting the MG brand. Changan Automobile and Great Wall Motors are next in line with FAW due to follow. BYD has already drawn up aggressive plans for its electrification roadmap in India while, in the two-wheeler space, it is CFMoto that has recently thrown its hat into the ring.

Clearly, the state of affairs back home in China’s car market is among the most compelling reasons for these companies to explore new geographies. And what better hunting ground than India which is on its way to becoming the third largest car producer in the world even while it is coping with the present economic downturn.

There is some food for thought in Changan’s semi-annual report for this year where it refers to the fact that “the sales volume of the Chinese auto market fell for the first time in 28 years” in 2018. This, according to the company, is clear indication that the Chinese auto market has “gradually entered a period of deep adjustment after years of rapid growth” even as the market base continues to expand.

“Zero growth and negative growth will become the new normal,” notes Changan in its report. As it points out, in the first half of 2019, the Chinese auto market continues to be under pressure with “great changes” in industrial policies and “fierce competition” in the industry.

Additionally, there are other factors to be contended with like negative growth, price war and so on which has led to the industry entering “a more brutal knockout”.

Great Wall Motors also concurs with Changan on the state of the Chinese auto market in its own interim report for the year. The SUV maker has noted that after more than a decade of growth, the global automobile industry is now slowing down.

“In addition, the domestic and international economic environments remained under pressure in the first half of the year, while uncertainties such as Sino-US trade frictions continued to affect consumer confidence,” states the company. As a result, the overall sales volume of the automobile industry in China “is expected to have fluctuation adjustment”.

Great Wall Motors believes that other factors will also determine the state of growth in the Chinese market. These include the “accelerated schedule for the implementation of Phase VI Motor Vehicle Emission Standards by the State”, the reduction in subsidies for new energy vehicles, implementation of the dual credit policy for carmakers’ average fuel consumption and new energy vehicles.

As a result of the new emission standards in certain regions and cutback in subsidies, most enterprises “chose to step up their promotional efforts to reduce inventory” thus slowing the decline of the automobile industry even while demand in the passenger vehicle market recovered.

All these dynamics will lead to “further adjustment” in the automobile industry, continues Great Wall Motors. “Restrictions on vehicle purchase are gradually eased in various areas, which is expected to have positive impact on the recovery of automobile sales volume,” it adds.

A significant aspect of the Great Wall Motors interim report lies in its observation of the first half of 2019 where “overseas economic fluctuations, Sino-US trade frictions and other factors” had, to certain extent, affected Chinese automobile companies’ export sales volume in overseas markets. The tally of 4.88 lakh vehicles represents a year-on-year (y-o-y) decline of 4.7 per cent.

Great Wall Motors has reiterated that it will continue to step up its overseas market promotional efforts. Through R&D collaboration in Japan, India, Germany, the United States, Austria and South Korea, the group will “continue to strengthen its global R&D network” and enhance its capability. This outlook is an indication of things to come in India where technology will be the USP for a lot of these Chinese automakers.

Changan Automobile, meanwhile, reports that between January and June 2019, production and sales of the Chinese auto market continued to fall. Cumulative production and sales reached 12.13 million units and 12.32 million units respectively, declining by 13.7 per cent and 12.4 per cent y-o-y respectively. Nearly 10.12 million passenger cars were sold where car sales fell by 12.9 per cent and SUVs by 13.4 per cent.

Interestingly, production and sales of pure electric passenger vehicles reached 4.4 lakh units, a y-o-y increase of 69.8 per cent, maintaining a high-speed growth momentum. “Industry concentration is further improved”, says the report.

Great Wall Motors echoes these sentiments. “Compared with the traditional automobile market, the new energy vehicle market sustained the fastest growth rate, reaching 49.6 per cent y-o-y in the first half of 2019, but the overall size of the market was still small.”

The big challenge for these companies is to make a mark in India while leveraging on their strengths in areas like technology, connectivity and electrification. What they also bring to the table is a rapid product development cycle which means that the Indian customer will be spoilt for choice.

Just look at the case of SAIC which worked feverishly around the clock to launch its Hector in India within 18 months of acquiring the GM plant in Gujarat. Further, it was wise enough to have its front-end badging represented by MG, the British Brand, that it acquired some years ago.

Obviously, SAIC was quite aware of the risks involved in offering a Chinese-badged brand to buyers here. While this has not been an issue in the electronics space where the likes of Vivo, Oppo, Xiaomi and Haier have made a strong connect, the same cannot be assured for hardcore engineering products in segments like automotive.

Chinese brands have generally been associated with the ‘cheap’ tag and this is a route that SAIC would have preferred to avoid at least in the initial stages of its India innings. The company would have also done considerable market research during its earlier entry when it partnered GM in a 50:50 joint venture here for cars and pickups.

Today, the MG Hector has made quite a splash in the market and the challenge is for SAIC to sustain the momentum with more products. It has already launched an electric SUV which signals its intent to be a serious player in this space.

Both Great Wall Motors and Changan Automobile will have studied the way SAIC has gone about planning its Indian journey. For now, their plans here are pretty much confirmed though the choice of locations for their operations is still awaited.

Reports have been doing the rounds that Great Wall Motors could end up buying the other GM plant in Pune which is now being used to make cars for export markets. If this were to happen, it will mark the complete exit of GM from India where its plants now have Chinese companies continuing the show in a far more aggressive manner.

As for Changan, it would be looking at Andhra Pradesh and Gujarat for its car project. Speculation was rife at one point in time that it would acquire Ford’s facility in Gujarat but this will not happen now considering that the American carmaker has entered into a joint venture with Mahindra & Mahindra to restart its Indian operations.

With BYD and FAW now stepping on the gas too, the following decade will see the Chinese pulling out all the stops to make an impact here. Thus far, it has been the Japanese and Koreans calling the shots with Kia being the most recent to make a big bang entry with its Seltos. China’s auto companies will be hoping to replicate this story in an arena where the likes of Suzuki and Hyundai have called the shots for years.

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