Automakers Deepen Ties With Chinese Rivals as Trade War Heats Up
By **rielle Coppola 3 June 2024
Thanks for reading Hyperdrive , Bloomberg’s newsletter on the future of the auto world.
Forging Deeper Ties With China
The US and Europe are throwing up roadblocks to keep Chinese cars out of their home markets. But at the corporate level, they’re growing ever closer.
President Joe Biden’s quadrupling of tariffs on Chinese EV imports reinforced what many brands have already accepted — China-made cars aren’t welcome in the US, at least for the foreseeable future. If the European Union follows suit when it announces the results of its probe into Chinese EV subsidies — expected imminently — that could be an even more damaging blow to the Asian nation’s export-led growth plans.
But even amid spiralling anxiety over China’s auto exports and the massive state support behind them, incumbent automakers know that tariffs are a short-term band-aid at best. As my colleagues have noted before, the spate of deals between Chinese upstarts and their foreign competitors underscore just how valuable the former's technological and manufacturing edge has become in the age of connected, electrified vehicles. The tech, engineering, and design prowess on display at the recent Beijing auto show reinforced that to the rest of the world.
You can credit innovation, subsidies, or long-term economic planning: the reality is many Chinese automakers — startups and private sector players more than state-owned giants — have the same kind of clean-sheet advantage that Tesla does when it comes to electric cars and software, and incumbents need to learn from them to catch up. What foreign automakers can offer in return is cash and access to markets abroad.
This model was on display when Stellantis’ Chief Executive Officer Carlos Tavares travelled to China last month to formalize his joint venture with Zhejiang Leapmotor Technology, currently a minnow in China’s crowded EV market.
Leapmotor sold about 144,000 cars — BEVs and plug-in hybrids — in China last year, a pittance compared with giants like BYD and Zhejiang Geely Holding Group, and lost 4.2 billion yuan ($580 million). But it boasts what many Chinese auto executives say is key to their aggressively low costs: vertical integration.
Leap was started in 2015 by Zhu Jiangming, founder of Dahua Technology, a security camera manufacturer that’s one of the biggest video surveillance companies in the world — an achievement that landed it on the US government’s entity list for its ties to alleged human rights violations in China’s Xinjiang region.
Like many Chinese entrepreneurs, Zhu answered the government’s call to build a domestic EV industry, tapped venture capital to help fund his mission, and took Leap public in Hong Kong in 2022.
It turns out the expertise needed to create facial recognition technology is also useful for connected cars. Leap makes its own driver-assistance software, battery packs, motors, and controllers. Its C10 compact SUV, which starts at around $17,800 in China, can slow down, accelerate, or change lanes in city traffic automatically. To get the full ‘smartphone on wheels’ experience, you can even start the car with a password.
Leap will leverage Stellantis’ dealer network to target Europe’s mass market with at least six new models by 2027, including the electric C10 and T03 city car, which looks like a utilitarian cousin of the Fiat 500e and costs about half as much.
The Chinese upstart expects to use Stellantis’ global factories to produce in the long-term, sidestepping any potential trade barriers with localization, though the US market is off the table for now.
Tavares and his team get points for creativity and pragmatism in coming up with a novel way to fend off low-cost Chinese competition. But whether or not adding this bargain technology to Stellantis’ stable of brands can help shore up declining market share remains to be seen.
“When you have 40 or more brands trying to arrive in Europe, it’s hard for all of them to find their position because they are all new to the consumers, and the consumers don’t remember them all,” said Felipe Munoz, global analyst at Jato Dynamics.
For Stellantis, management’s focus on cost-cutting and profitability has left its own product feeling old and uncompetitive, Munoz said, so access to Leap’s EV and software tech is a step forward. For now, the joint venture is limited to splitting the profits from Leap’s exports, but there’s room for deeper collaboration down the road.
“We have to execute and make money first,” Tavares said. “I’m sure they would love to sell us their tech.”
Stellantis’ joint venture with Leapmotor isn’t a one-off.
Tavares pivoted to an export deal after years of struggling to make headway in China. Volkswagen, which has been haemorrhaging share in the world’s biggest car market, is looking to start up Xpeng for help with software to impress China’s tech-forward drivers. Toyota, which suffered sharp sales declines in China this spring, announced an R&D joint venture with BYD back in 2019 and, more recently, a partnership with technology giant Tencent.
They’re unlikely to be the last. With companies jostling to survive the cutthroat EV revolution, a continued escalation of tensions between the West and China is unlikely to stop the flow of people, money, and tech across borders.
IXR Price at posting:
1.2¢ Sentiment: Buy Disclosure: Held
