Home NEWS Auto giants convert Chinese rivals into clients, Auto News, ET Auto

Auto giants convert Chinese rivals into clients, Auto News, ET Auto

By Katrina Hamlin

HONG KONG: Volkswagen and Toyota, the two world’s largest automakers, are adopting a similar strategy in China. By sharing their electric vehicle technology with local rivals, they could turn up-and-coming competitors into customers. With dozens of local startups entering the market, it’s a clever way to leverage economies of scale.

Volkswagen plans to produce 22 million pure electric vehicles in the next decade, more than half of them in the People’s Republic. At the same time the group will allow other automakers to use its Modular Electric Toolkit – a framework for battery-powered models. Toyota, for its part, is sharing patents and selling technical support, as well as licensing an entire electric car design to Chinese newcomer Singulato.

Startups may opt to buy ready-made hardware and know-how to avoid investing heavily in duplicative research or factories. Letting young companies piggy-back on industry leaders’ technology could help them become credible rivals – but the strategy is more shrewd than generous.

The tactic squeezes more revenue from the new technology, which will be welcome because consumer sales are still modest; pure battery-powered vehicles accounted for only 1.6 percent of the global auto market in 2018, while hybrids made up 3.1 percent, according to Nomura.

It also helps justify their sunk investments in development and production. Creating external demand jacks up volumes and cuts costs for components, facilities, and engineers. In Toyota’s case, it has even allowed the company to recycle a design for a discontinued model.

If the idea takes off, it will transform the industry. Factories could devolve into white label OEMs, while marques become studios. Some startups are already doing things differently: Nio, China’s answer to Tesla, has contracted production to carmaker JAC; peer Xiaopeng has also outsourced manufacturing too.

The ultimate prize would be defining industry norms. By disseminating their designs as widely as possible, Volkswagen and Toyota could dominate key links in the electric supply chain – much like Foxconn does with smartphones. If enough local companies use their technology, they could set de facto national standards, in the same way Android has become the operating system of choice for Chinese phone makers. Offering a shortcut to rivals is risky, but this road looks worth exploring.

(The author is a Breakingviews columnist. The opinions expressed are her own.)

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