Chinese EV makers pin hopes on Europe's auto dealers

Even before the European Union targeted imports of cheap Chinese electric vehicles, China's automakers faced another big challenge: winning over consumers who don't know or necessarily trust their brands.

At the heart of their strategy is the traditional dealership model that European automakers have been exiting in favor of direct sales.

BYD, Xpeng, Great Wall Motor and others hope dealerships will quickly help them mobilize robust sales and service networks as they try to establish reputations for quality and reliability.

"European consumers have no inkling of Chinese brands," said Daniel Kirchert, the head of e-mobility consultancy Noyo and former BMW executive who co-founded the now defunct Chinese EV maker Byton. "It's a huge challenge for Chinese carmakers to make clear to Europeans that their cars are on par with Tesla, at a better price."

So far, BYD, Nio, Lynk & CO, Xpeng and China's other homegrown EV makers have barely made a dent. Their share of pure-electric and hybrid cars sold in Europe has risen to 5.6 percent over the past few years. The bulk of those deliveries have come from MG Motor, a brand more associated with its British roots than its Chinese ownership.

Whether that proportion stagnates or skyrockets will depend on their ability to convince European consumers to stray from household names such as Volkswagen, Renault and BMW that have long-standing track records on safety and performance.

Dealer power

"We believe in the power of car dealers and the service they provide," Xpeng's Germany manager Markus Schrick said. "They are our face to the customer."

The dealerships' customer relations could become even more important as political tensions escalate over the EU's decision to open an investigation into China's state support of its EV makers. If the roughly nine-month probe results in new EU tariffs on Chinese EV imports, it could quickly erode a pillar of their competitiveness.

BYD, China's biggest automaker, entered Europe via Norway in 2021, and its Atto 3 model became the top selling EV in Sweden in July. In Germany — Europe's biggest auto market — the company only has 15 dealer locations, but it's targeting 50 in the medium term.

BYD will need "considerably more to be represented nationwide," said Jan Grindemann, chief operating officer of Hedin Electric Mobility, the carmaker's German importer.

To increase brand recognition, BYD has a deal with rental company Sixt to provide 100,000 EVs through 2028 and has already opened 150 stores across Europe. But to increase its scale, the company is focusing on a distribution network with conventional car dealers. 

Great Wall, which is set to build the new electric Mini Cooper in China with BMW, has teamed up with Emil Frey, the EU's largest car dealer group, to distribute its Ora and Wey cars.

Xpeng is following a similar path to sell its P7 sedan and G9 SUV, targeting as many as 20 dealers this year and double that in 2024.

MG, the legacy British brand owned by China's SAIC Motor since 2009, sold more than 100,000 vehicles in Europe last year and says it currently has more than 800 distribution points at local car dealers across Europe and the U.K.

Europe has seen its fair share of new entrants trying to win over buyers. The successful ones, like Toyota and Hyundai, only slowly crept higher in the ranks and never posed a real threat to Volkswagen's dominance.

Tesla's success

Now, the industry's paradigm shift to EVs is creating unprecedented opportunity for newcomers. Tesla's success has shown that consumers are open to outsiders, though it's unclear whether Chinese brands will be able to match the marketing draw of Elon Musk. But with its unmatched control of the battery supply chain, China is well positioned to expand its share.

Part of the Chinese newcomers' strategy is to entice buyers with a range of commitment-light ownership options, starting with Lynk & CO's monthly subscriptions. Dealers, though, remain central.

Because of consolidation in the industry and smaller shops going out of business, the number of car dealers in Germany has fallen to 6,800 in 2020 from nearly three times that in 2000, according to the IfA institute, which monitors auto-industry trends. The number is expected to almost halve by 2030, as automakers move increasingly toward online sales.

While new potential partners from China could be a boon to struggling dealerships, there are also risks. With so many new EV entrants flooding the market, some are bound to fail, which could leave dealers sitting on unsellable inventory.  

Where Chinese upstarts will land in a few years will depend on how things go during the next 24 months, according to Bernstein analyst Daniel Roeska.

Market share could be between 5 percent to 20 percent by the end of the decade, and it's unclear whether they will be able to follow Tesla's path.

"Recreating Tesla's success will be a challenge," Roeska said. "But it's not impossible."