Editor's note: This article was awarded the 2019 Jesse H. Neal award for Best Industry Coverage, along with two other stories focused on China's emergence as the world's central automotive power. Read the other stories in the series:
China in control as industry enters new era
But China is a well of other ideas big and small. The integrated tissue box holder in the center console of the Volvo XC40 crossover? That was conceived to appeal to Chinese drivers, who like to have their tissue box constantly within easy reach, not sliding around on the floor or stuffed in a door pocket. Now the rest of the world gets it, too.
"We are listening more and more to the Chinese customers," Volvo CEO Hakan Samuelsson said. "The power of the Chinese consumers has definitely increased."
China will increasingly command outlay of r&d and production resources, often at the expense of other markets. Consider the Acura CDX and Honda Avancier, two popular crossovers designed for and sold only in China by Honda Motor Co. Engineering such vehicles saps resources that could have been channeled into building a better Accord or Pilot.
Jeep, the quintessential American brand, sometimes gets lost in translation here.
"We overestimated the value of the American DNA of Jeep onto the Chinese market," Fiat Chrysler Automobiles CEO Sergio Marchionne said in an April conference call. "We need to retune that DNA to make sure that it becomes absolutely relevant to the Chinese market."
Jeep's solution: The Grand Commander, a China-built three-row SUV made for China. "That mindset will create unique solutions that emerge in China," Russo said.
China is forcing the industry to follow a California-style carbon trade program that kicks in next year.
It requires automakers to earn 10 carbon credits for every 100 vehicles they produce annually in 2019. The required carbon credits for the same level of output will rise to 12 in 2020.
Under the program, a plug-in hybrid qualifies for two carbon credits. EVs are allotted to two to five carbon credits depending on their ranges — the longer the range, the more carbon credits an EV can earn.
Backing the push with generous subsidies and other gimmicks to spur EV sales — such as special allowances for limited license plate registrations in big cities — China is dictating a de facto global standard. Global carmakers that were once EV skeptics are now racing to roll out waves of the cars. And not only in China, but in other markets as well to build scale.
"Without the regulatory framework, China's influence wouldn't be as obvious," said IHS Markit's Chao. "It forces overseas automakers to either start or accelerate EV development."
Volkswagen brand alone says it expects to beat an internal target of selling 1 million EVs worldwide in 2025, thanks largely to robust demand in China.
VW Group as a whole wants to sell 3 million EVs a year by then.
Even EV foot-dragger Toyota, long wedded to its conventional hybrid technology, sees the writing on the wall. Toyota now plans 10 new EVs worldwide by 2020, with the first landing in China next year on the car company's road to selling nearly 1 million EVs a year in 2030.
At home, Beijing's rules have triggered a gold rush of EV startups.
Hopefuls such as Nio, Byton, Singulato Motors, Xiaopeng Motors (commonly known as Xpeng) and Weltmeister (also known as WM Motor) are mostly unknown overseas. But each wants to be the next Tesla. And old-guard Chinese automakers are upping their games, too.
What was the world's top-selling electric car last year? Not the Tesla Model S or Nissan Leaf.
It was the BAIC EC180, a utilitarian hatchback runabout available only in China. State-owned Beijing Automotive Industry Holding Co. sold 72,191 of them, according to industry analytics firm Focus2Move.com. The EC180 helped make BAIC the world's No. 3 EV seller in the first quarter of 2018. The company fell just behind Renault-Nissan-Mitsubishi and Tesla but booked much faster growth. Its sales more than doubled to 26,409 vehicles, according to JATO.
The government in China is opaque and authoritarian, a risky combination for anyone wanting to do business there. The high-powered mandarins in Beijing hold the keys to everything from joint ventures to tariffs. And this also dictates how international players navigate the field.
Other top pressure points have long been China's 50 percent ownership cap for foreign carmakers in local joint ventures and the country's 25 percent duty on imported cars
"Does that sound like free or fair trade," Trump complained about the policies in an April Twitter missive. "No, it sounds like STUPID TRADE — going on for years!"
In the interim, China has announced it will start rolling back these roadblocks.
Beijing will drop the joint venture requirement this year for enterprises making new-energy vehicles. It will then be phased out for commercial vehicles in 2020 and for passenger vehicles in 2022.
Meanwhile, China has cut the 25 percent tariff on imported cars to 15 percent, sending foreign brands into a scramble to slash sticker prices.
Even these recent decisions show how China is channeling change.
Douglas A. Bolduc and Yang Jian contributed to this report.
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