Fleets urged to not treat all new Chinese carmakers as equal

New automotive entrants from China should be carefully assessed by fleets before committing to their vehicles, FleetCheck is warning.

Peter Golding, managing director at the fleet management software company, said that electric vehicle (EV) manufacturers from China were undergoing a period of rapid consolidation, and that some were likely to export simply as a survival strategy.

“The Financial Times recently reported that the number of Chinese EV makers is likely to fall from around 50 to 12 in the next decade,” he said. “That’s a big change in a growing market and it means fleets can’t really afford to treat all of the new entrants as equal.

“Exporting to markets like the US and Europe is one obvious way for these manufacturers to attempt to survive in the kind of disruptive situation that China is seeing, and it seems credible to suggest that not all of the car and van makers who come here will end up staying.

“The potential danger for fleets is that they will end up owning or operating EVs from a manufacturer that comes to the UK and then leaves, with all of the obvious difficulties that could entail.”

Fleets need to do their homework on potential suppliers before committing to add vehicles to their fleet, argues Golding. “It is clear that most of the new entrants that we have seen so far are credible,” he explained.

“BYD, for example, is the fourth biggest EV manufacturer in the world while MG is a long-established market presence in the UK in its Chinese iteration.

“Also, it is important to underline that the quality of most of the Chinese product that is arriving here appears to be competitive, at least, and well-priced.”

He stressed: “The comments I’m making are not intended to put people off these cars and vans but simply to tread carefully in light of what is likely to be a fluid situation over the next few years.”

He added that it was difficult to predict the eventual role of the new entrants in the fleet sector but that some parallels could be drawn from the arrival of Japanese manufacturers in the 1970s and, more recently, Korean car makers starting in the 1980s and 1990s.

“What we are most likely to see is an initial situation where products are designed to be competitive and well-priced above all else and then, over several years, the Chinese manufacturers with the biggest market presence will start to compete directly with the established market leaders and move their prices in line,” said Golding.

“However, this is a process that could take some time.”

The big unknown, according to Golding, is the effect of trade barriers, should the EU and other countries choose to adopt them.

“Certainly, there is a strong argument that the Chinese market has been unfairly subsidised in competition terms, and it is possible that stringent tariffs will be added that affect the speed of market penetration,” he added.

Strong RVs will be ‘crucial to success’

Strong residual values (RVs) that help create an attractive motor finance proposition will be crucial to the success of Chinese manufacturers entering the UK market, according to Vendi.

Darren Sinclair, chief commercial officer at the motor retail technology specialist, said that so far, used values and prices for these EVs had been quite competitive, but that volumes had been limited and the developing future picture was difficult to predict.

“It’s going to be really interesting to see the impact of these car makers in the EV market over the next few years,” he said. “MG have been successful with the MG4, which has a good headline PCP price, and many other manufacturers are following them.

“There has been much talk about the quality of their product, which seems reasonably good, and the pricing, which is very competitive without being cheap, but not so much about the finance offering, which will be central to their progress.”

He added that while the Chinese EVs seen in the UK so far had been keenly priced and generally attractive, these qualities would be of limited impact without the right finance offering to support them.

“Delivering competitive and easily accessible motor finance will be essential to the success of Chinese manufacturers entering the UK market and this will very much depend on finance deals that will be based on predicted RVs,” he explained.

“What we have seen so far from EV models such as the MG4 is a good RV performance and a professional attitude to remarketing but this is one model from one manufacturer with some longstanding brand equity.

“Much less familar new market entrants will be soon targeted at different points in the market but there will be a large number of them with a large number of models and little or no track record. It’s pretty much an unprecedented situation and predicting the outcome is quite difficult.”

Doing everything possible to support values – from establishing a brand reputation through to generating confidence among used car dealers and buyers – is going to be essential for these manufacturers and the motor finance companies offering their products, whether these are owned by the manufacturer or a third party, he argues.

“It’s ultimately all about creating RVs that allow an attractive headline PCP rate to be delivered, one that will overcome any doubts that the customer may have about buying from an unknown brand with no UK track record,” said Sinclair. “This is a much more significant factor than the list price.”