Attempting to gain prestige, improve competitiveness and open new sales channels abroad, Chinese automakers are investing in new design and engineering operations in Europe that could bolster their long-term prospects in the region and at home.
Chinese companies have been trying to establish a foothold in Europe for years, with Geely first debuting at the Frankfurt auto show in September 2005. To date, however, they have largely fallen short, due in part to a reputation for woeful quality following poor crash tests of the infamous Jiangling Landwind SUV and Brilliance BS4 sedan.
New engineering bases such as that of Great Wall Motors in Germany could address some of the shortcomings. Local r&d operations help manufacturers better understand market requirements, learn the complicated ins and outs of foreign homologation procedures and establish ties with new suppliers.
"These development centers could certainly contribute to driving technological advances in China," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. "They are, however, much more likely making ground preparations to launch in the European market, since they realize their products wouldn't stand a chance if they cannot be developed to meet European needs," said Bratzel, who tracks innovation in the industry with the consultancy PwC.
An r&d center or design studio is not necessarily a precursor to a market launch, nor a requirement. Some brands have quietly operated in Europe for years without trying to introduce a model in the region. Volkswagen Group's largest joint venture partner, SAIC Motor, established a small engineering operation in Europe in 2005, as did VW's newest JV partner, JAC Motors.
Yet the slowdown in China's auto market over the past few years, culminating in the recent slump, has underscored the need for automakers there to expand their reach to survive. China's domestic brands have been hurt the most, with Geely dropping to fifth place in sales -- from second -- in one year. The early adoption of stricter "C6" emissions standards in many parts of China, as well as trade tensions with the United States, prompted forecaster LMC Automotive to revise its estimates for China's light-vehicle market through 2025. The analyst firm now expects a second straight year of contraction with only a gradual recovery.
While sales abroad can potentially help offset difficulties at home, analysts warn that the prestige that comes with succeeding in Europe requires mastering brutal market conditions. Many global automakers have been forced to scale down their presence in the region, shedding brands and shutting plants -- with General Motors giving up entirely.
Metzler Bank auto analyst Juergen Pieper thinks that the long-term plan of Chinese brands is to generate 10 percent of their business in Europe. "That said, they will know from rivals such as Ford and GM just how hard it is to earn money in the European volume segment," Pieper said. "So in the end, it won't be their top priority."
As recently as last year, financially beleaguered Qoros aimed to set up an engineering center in Germany. Yet plans for a European launch appear further off than ever, despite its being the first Chinese automaker to earn EuroNCAP's top rating of five stars in a crash test.
While Chinese premium electric-vehicle brand Nio has a development center in Munich with almost 200 employees, founder William Li told Automotive News Europe that the company would be judicious in choosing the right moment to expand beyond domestic borders. "It's very easy to enter a market," Li said, "but very hard to survive and win."
Industry experts agree that a small-scale r&d center can help attract new design and engineering talent while limiting financial risks. Frankfurt in particular has proved to be a popular location, situated in the heart of Europe's automotive cluster with immediate proximity to one of the Continent's largest international airports.
Chery Automobile picked a Frankfurt suburb for the site of its r&d center, which opened late last year. The center is supposed to help Chery prepare for its European launch. Stressing the company's desire for measured, consistent growth, Chery Europe Director Jochen Tueting said the automaker is still finalizing plans for Europe. In the meantime, most of the team is concentrating on design and design feasibility work for the parent company in Wuhu, China.
"Chery Europe's approach does not entail the aim of being the first Chinese automaker to operate here with as broad a product portfolio as possible, but rather examine various possible business scenarios on the basis of profitability," Tueting said in an email.
In May, Geely opened a development center virtually next door to Chery's. The Geely r&d operation is expected to employ about 300 engineers within the next few years and help accelerate the company's efforts in electrification and ultra-low-emissions vehicles.
The choice echoes a similar move by Hyundai Europe, which founded its technical center near Frankfurt in 2003 and shortly thereafter established a joint design studio with sister brand Kia. It was there that models such as the ix35 compact crossover and its platform sibling, the Kia Sportage, were developed.
"These Chinese brands are learning from those who did it best," said Bratzel. "Hyundai and Kia were able to establish themselves in Europe in a far shorter time frame than Toyota, for example, in part because early on they built up local research and development operations."