In India, a 'Made-in-China' product invites a general perception of ‘being cheap, inferior in quality and short-lived’. While these accusations may stand true for the mass consumable goods, the Chinese car industry has been nothing short of revolutionary on a global scale over the past two decades. From selling cross-badged Soviet-made sedans in the post-WWII era to boasting ownership rights in the biggest marquee global brands (read Aston Martin and Volvo), the Chinese car industry has grown leaps and bounds.
The Chinese auto industry’s undeterred strength was displayed to the subcontinent at the Indian Auto Expo 2020. Multiple home-grown Chinese brands such as Great Wall Motors and Haima Automobiles showed intent as well as their cars for the Indian market. A Chinese invasion of the Indian auto industry seemed on the cards, but April 2020 saw a different kind of Chinese invasion which put the world on pause for the next couple of years to come.
Fast forward to October 2022, BYD Auto, one of the biggest Chinese automakers and the world’s fourth-largest BEV (battery electric vehicle) carmaker, introduced its first offering in India - the BYD Atto 3. While it boasts a unique interior with novelty elements not seen in the segment, the Atto 3 is still not the first Chinese product to foray into the Indian market. It is not even the first BYD in India. To be precise, the Chinese have been piercing through our market over the last decade, under the radar. Sometimes even under a different badge.
How China Became So Important
During the World War era, the average Chinese car buyer consisted of state officials or high-ranked executives. Barring these executive needs, China only produced military vehicles in its assembly lines. The passenger car industry was a minor part of vehicle production during the first three decades of China’s socialist economy. The only crop of cars available to the masses was Russian sedans with Chinese badges on them. The lack of options prompted the higher sections of the public to import cars regardless of the 250 per cent import duty levied on foreign vehicles. This massive influx of foreign cars influenced authorities to consider homogeneous production.
While Chinese carmakers didn’t possess advanced knowledge of automotive production, the Chinese officials invited established foreign companies to set up shop. Global car companies were allowed to erect manufacturing plants under one condition - a 50-50 joint venture with native Chinese carmakers was required to be formulated in order to produce cars and avoid heightened tariffs.
Brands like Volkswagen, General Motors and Toyota pounced on the opportunity of lower production costs and formed alliances with domestic carmakers. The Chinese companies were predominantly state-owned firms and educated themselves on advanced production techniques deployed by the industry leaders. A high population meant an elevated demand was there to be met. The knowledge gained allowed Chinese firms to capitalise on the existing demand and churn out high production volumes. By 2000, China was producing over two million vehicles, and nine years later, that figure rose to a whopping 13.79 million units helping it surpass the United States as the world’s largest automobile producer by volume.
The following years saw more global brands such as Mitsubishi, Citroen and Ford sign the Chinese JV agreement, which further maximised the production numbers. For context - in 2019, manufacturers produced approximately 92 million vehicles worldwide, and production from China alone accounted for almost 26 million motor vehicles or about 28 per cent of all cars and trucks produced. The United States of America is the second largest car producer by volume with a paltry 12 per cent global share.
The heightened demand by the Chinese market has scaled such heights that global carmakers are conforming to Chinese tastes. Brands like Audi from the Volkswagen umbrella and Lincoln from Ford are introducing extended wheelbase versions of the regular cars to please the Chinese’ liking for rear seat comfort. Iconic carmaker BMW indicates the Chinese owners behind the brand’s latest huge kidney grille design tweak. Though the Chinese impact isn’t restricted to the demand but sees exponential rise in the supply prospects too.
Chinese carmakers have arrived at the major leagues with authority. The EP9 - a 1360hp all-electric coupe from Chinese-origin NIO with a 0-100kmph time of 2.7seconds is one of the fastest cars in the world. Another private Chinese firm, Geely Auto, started as a refrigerator maker in 1986, graduated as a carmaker in 2002. It quickly followed it with successful ownership of Swedish carmaker Volvo in 2010, Lotus Cars in 2017 and a stake in British marquee Aston Martin. The brand also recently became the largest EV maker in the world by volume, beating Elon Musk’s Tesla. Geely’s investments and management have been credited with the turnaround of fortunes for Volvo and Lotus brands. The global carmakers now even share the same (CMA) platform among cars in the same segment.
Besides vehicle production, manufacturers were tempted with a high degree of openness and marketisation, no entry barriers and an abundance of labour to extend their manufacturing operations on Chinese land. Hence, China gradually recorded a steep rise in spare part manufacturing, with statistics reporting it to fetch 794.4 billion yuan (or $110 billion) in revenue and 109.2 billion yuan in exports alone. This allowed China to possess an arsenal of car parts that further aided local automakers in cheaper production.
Indian Auto Inc’s Dependence On China
Our Prime Minister Narendra Modi’s ‘Make in India’ campaign may have lured foreign companies to set up production facilities in India. However, the auxiliary components needed to produce the final product must still be imported from China. According to Auto Component Manufacturer’s Association of India (ACMA) data, over a quarter of imports amounting to $4.2billion came from China alone in 2019 - comprising engine and transmission parts.
China continues to be the largest source of automotive part imported into the Indian automotive industry, with shipments in the first half of the 2022 fiscal year at $2,378 million, up 72 per cent over $1,378 million in the corresponding period of last year. The neighbouring country accounts for 30 per cent of all auto component imports to the subcontinent.
“We don’t import because we like to, but because we have no choice,” said RC Bhargava, Chairman of Maruti Suzuki India, the country’s largest carmaker. The Covid-19 pandemic further exposed China’s predominance in auto supply chains. The Indian and global auto industry struggled to meet the heightened demand as China went into lockdown, entailing high waiting periods for new cars in India. Indian manufacturers acknowledged the over-dependence on China and made plans to produce more auto components locally. Though, the impending shift to electric vehicles will only extend this reliance on the neighbouring country as China already boasts a robust infrastructure for batteries and EV component production. While EVs reel behind the stigma of high initial cost, India has to source EV parts from China until it figures out a production strategy for EV component production.
While on the subject of impending electrification, India had its first taste of mass-utilised electric vehicles courtesy of China. And if you thought Chinese carmakers recently set foot in the subcontinent via the BYD Atto 3 launch this month, you’d be heavily mistaken. BYD, short for
Build Your Dreams, has been in business in India since 2007. It set up an electronics battery manufacturing plant for mobile phone makers in Chennai. 2013 onwards, BYD shook hands with local partner Olectra Greenwich to produce ‘Make-in-India’ K9s, the country’s first electric bus, and have them plying on the roads of Delhi. Until now, the brand has sold more than 800 buses across 11 Indian cities.
The Chinese helped electrify not just the commercial vehicles in the cities but even in smaller Tier-II and Tier-III towns. Kanv Garg, Director for Renewables and Electric Mobility at EY, said, “Until a few years ago, we had not even heard about electric rickshaws. The kits came from China, and the market grew organically even without government support. Customers only care about high quality and minimum cost and with the Indian companies being in inertia as far as EVs are concerned; the Chinese have a huge potential.”
While the penetration commenced via commercial vehicles, the foray into the passenger vehicle segment came at the back of British heritage. Morris Garages, or MG Motors, a British-origin carmaker, made its way to the Indian shores in 2019 with the launch of the Hector SUV. While Hector wore the Union Jack badges and the brand introduced itself as a British marquee, only a few knew about the Shanghai-based state-owned automaker SAIC Motor ownership. The Hector SUV itself is essentially a tuned-and-rebadged Baojun 530 produced by SAIC Motors for Indian conditions. Even the flagship MG Gloster premium SUV is a rebadged derivative of the Maxus D90 SUV produced by the same Chinese parent firm.
The Chinese Are Here
The Indian Auto Expo 2020 served as the ideal platform for the Chinese to showcase its production might. The biggest private and state-owned carmakers, such as Great Wall Motors and Haima, exhibited a host of cars to gauge the market reaction. Great Wall Motors brought its subsidiary sub-brands like SUV-specialist Haval and electric-centric Ora. The Chinese private maker even proposed a $1 billion investment plan at the Expo but dropped the plan and its entry to India two years later. Representatives from the Chinese maker claimed the brand failed to obtain foreign direct investment approval from the government to buy a former GM plant in India.
The pandemic and the following dispute at the Indo-China border have prompted Chinese makers to proceed cautiously. Haima Automobile decided to delay its arrival in India even after exhibiting an EV at the 2020 Expo. The Chinese maker would introduce a base EV in the country in collaboration with Bird Group, one of the distributors of BMW and MINI cars in India, but has pushed its arrival plans until the product is economically feasible and the market sentiment for the brand turns positive.
Building upon the success gained in the commercial vehicle sector, Chinese carmaker BYD extended its presence in India with an unveiling in the lucrative passenger vehicle segment. BYD unveiled the Atto 3 EV SUV in India this month with a launch scheduled for November and plans to sell 15,000 units by next year. The Atto 3 SUV arrives in India via the CKD route, with deliveries set to begin by January 2023. The electric offering features the latest ADAS systems along with 7 airbags, a 5-star safety rating and enough novelty features inside the cabin to lure a typical Indian EV buyer. It even boasts a 521km range with multiple charging options, six free maintenance services, and a whopping six-year warranty on the car. The only competitors to this Chinese offering are another Chinese product, the MG ZS EV and a counterpart from South Korea, the Hyundai Kona EV.
The Atto 3 isn’t India’s first vehicle in the PV segment from BYD. 2021 saw the privately-owned Chinese firm introduce the e6 electric MPV, an India-first, restricted to the country’s commercial sector. This INR 34 lakh EV saw approximately 500 orders from corporate and fleet clients, propelling them to open bookings for the private sector in September 2022. The brand has declared its intentions to capture up to 40 per cent of the Indian EV market and launched an aggressive expansion plan with dealerships set to open across multiple cities soon. Local manufacturing will be happening soon too.
Chinese companies like BYD recognise the forthcoming lucrative EV market in India and aim to build themselves upon that potential demand for the long term. Warren Buffet-backed Chinese electric carmaker BYD (Build Your Dreams) Ketsu Zhang, Executive Director of BYD India, in a statement, said, “BYD has two plants in India covering more than 140,000 square metres with 3,000 employees and a cumulative investment of over $200 million in the country. We are fully committed to India’s goal of achieving net-zero emissions by 2070 and will promote sustainability and zero emissions by introducing pure electric vehicles and the latest technologies.”
“Today, the Indian consumer does not care about the country of origin of a vehicle,” says Rajeev Chaba, President and Managing Director of MG Motor India. “They believe in value for money and are happy as long as their needs are fulfilled. Besides, the automobile industry is a global one, with parts being sourced from many places, and therefore a company isn’t specific to one region alone. Besides, having Chinese resources offer the best proposition.” Would you agree with him about not caring about the vehicle's origin as long as the needs are fulfilled? If the sales numbers of the existing Chinese offering, the MG Hector, is a prelude to the forthcoming.