Which Chinese Automaker Will Be First to Plant its Flag on U.S. Soil?

The Chinese are coming, and there are many possibilities on how it could happen.

One route is acquisitions, such as Geely’s successful purchase of Volvo. It’s easier than grinding it out to win share for a new nameplate.

There could be a Chinese wave if an automaker develops a game changer such as an affordable electric vehicle with groundbreaking connectivity and features helping it become the iPhone of the auto industry, a must-have that sweeps away all competition in its path.

The first Chinese brand sold in the U.S. could be the large, state-owned GAC (Guangzhou Automobile Group) or the small privately owned Zotye. Or it could come from Silicon Valley where electric upstarts like Nio and Byton have money, tech, and promising vehicles in development.

Further complicating the advent: Powerful government forces in both China and the U.S. are at work. The continued huge push in China to become the automotive and tech leader of the world and export vehicles to Europe and North America is being met head on by a U.S. government threatening a trade war just as a deal seemed imminent.

Battle for supremacy between U.S. and China

The reality is the two superpowers are likely to find themselves on parallel tracks, vying for supremacy, said Michael Dunne, an automotive analyst who has spent a career studying China, having lived in both counties in that pursuit. He now is CEO of ZoZo Go, a consulting firm in California that helps businesses who want to do business with China. The idea of partnering with the West has given way to a new relationship where differences are embraced and they are competitors.

“What if China starts to set the tech standards in the future instead of the U.S.?” Dunne said during a visit to his native Detroit to speak to the Automotive Press Association. He warned that the Detroit-based automakers may not fare well in a future where Chinese companies are masters of their own tech and no longer need to partner with mainstream brands to be successful.

Cadillac and Lincoln will continue to do well in China, but Ford and Chevrolet must compete with ever-stronger and more sophisticated domestic mainstream offerings. They should heed the warning signs of Suzuki, the small automaker that was first into China but has thrown in the towel and left the world’s largest car market, Dunne said.

China needs to export

Not only is it hard to compete in the more competitive China market, but overcapacity has the Chinese government pushing domestic automakers to export to Europe and North America. China’s slowing economy means it’s building about 29 million vehicles a year even though it has the capacity to build 43 million a year. Chinese companies get government incentives to grow their companies and add plants, and now there is a mandate to export to continue growth.

GAC is recruiting dealers to sell in the U.S., but the timing has become more uncertain with the threat of tariffs. Dunne says there are a lot of high-level “U.S. go, or no go” discussions right now. That opens the door for Zotye to launch first.

The much-smaller Zotye gained a North American foothold in November 2018 under a distributorship deal with HAAH Automotive Holdings in Lake Forest, California.

Zotye plans to sell three SUVs

Zotye showed the T600 compact SUV at the recent Shanghai auto show and plans to offer it in the U.S. in late 2020 or early 2021. It has a 1.6-liter turbocharged I-4 gas engine and a six-speed automatic transmission.

The T600 will be followed by the next-generation T700 midsize SUV a year later and then a full-size, three-row SUV a year after that, likely called the T900, said Duke Hale, CEO of HAAH as well as Zotye USA. They would have gasoline engines, but electric vehicles could be added in the future. In China Zotye has four sedans, one of which is electric, and five SUVs. Zotye is also building a joint venture plant with Ford to make electric EVs for the China market.

Hale—who is a veteran of Isuzu, Lotus, Volvo, Mazda, and Jaguar Land Rover—knows the value of being a first mover if done right. He’s taking some pages from the Hyundai playbook to help get its footing in North America. Zotye vehicles will be well equipped but priced 20 percent below the competition so they are priced below a used car.

No price haggling

Like the Saturn model, there will be one price, so no haggling. There will be two higher-end trim levels and five colors to choose from. To assuage quality fears, the brand will also follow the Hyundai model of offering the most comprehensive coverage in the industry, Hale vows. And he is spitballing other ideas such as four free tires at the three-year mark.

Hale said Zotye could withstand 10-15 percent tariffs but hopes that is not the case. Either way, “it won’t stop us from coming to market.” Zotye has excess capacity: It builds about 400,000 vehicles annually in China but has capacity to assemble 1 million.

The dealership commitment is minimal, with no showrooms needed initially. Zotyes can be sold alongside another brand or in a temporary structure. Hale says he has 22 dealers with 60 sales points so far in 15 states with the expectation of about 120 dealers with 300 sales outlets by the end of 2020.

Dunne says Chinese companies entering the U.S. need to be low-price, like Zotye, requiring minimal investment, or high-end premium vehicles like Nio’s proposed $65,000 7-passenger SUV that takes on Tesla. Nothing in between, says Dunne. Success will rely on a volume strategy or premium brand positioning.

Joint ventures in China will continue

As for automakers setting up shop in China, to date they had to do so in a joint venture with a Chinese company, and the foreign companies could not exceed 50 percent ownership. That has changed with the recent decision to let Tesla build in China in an operation 100 percent owned by Tesla. And by 2022 all automakers will be allowed to own their operations.

Dunne doesn’t see the existing joint ventures ending, but he sees the maturing Chinese companies using the JVs to generate profits they can funnel into their domestic brands. As they bring more tech in-house, they need outsiders less but won’t abandon profitable partnerships. Western partners won’t pull out either because they need to retain ties to Chinese companies with government money and some input into policy and regulations.

China is already the largest market for electric vehicles, with 1.2 million vehicles sold last year compared with about 360,000 in the U.S., largely because of Tesla. China’s government is investing $100 billion to ensure it retains electric vehicle leadership and has mandated that 10 percent of sales be electric vehicles.

To avoid a surplus of EVs flooding the U.S., “I expect that President Trump will keep tariffs on electric cars as high as he possibly can,” Dunne said.

And Dunne says the President’s tweets about tariffs being imposed on Friday should be taken seriously. Trump is deliberately scaring and confusing Chinese trade negotiators. He is proving successful at getting their attention, throwing them off their game, and this could get him better terms in a final trade deal.

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