Unpacking China's Electric Autonomous Vehicle Supply Chain with an Eye on Expansion

Unpacking China’s Electric Autonomous Vehicle Supply Chain with an Eye on Expansion

Although the automotive supply chain has been extremely global for decades, the budding electric-autonomous vehicle supply chains around the world are surprisingly hyper regional with most startup and traditional OEMs focusing on localized supply in their home markets; China is no exception.

Waymo’s recent partnership with the Renault-Nissan-Mitsubishi Alliance is one of the first truly global salvos anticipated to kick-start more cross-continent pollination of new business models and technologies.

As with any new technology starting out, electric-autonomous vehicles are a tiny fraction of the broader mobility market at present. Future programs are forecasting low volumes – the most ambitious OEMs targeting a maximum of 50K production vehicles annually.

Most mobility companies in China are in phase one of their growth, completing targeted on-road deployments in specific cities – e.g., tech hubs like Shanghai. Phase two, where a few select market leaders are striving toward today, is characterized by dominating their home country, like Baidu. Phase three will include global expansion which would align naturally along language/culture/trading block lines to start – think ASEAN expansion. Phase four, that we’re all racing toward, will include global expansion where the winners will be determined by those companies who successfully blend proven automotive industry best practices with bleeding-edge entrepreneurial creativity. But this is easier said than done.

Below are six strategies for navigating China’s electric autonomous vehicle supply chain to aid your global expansion ambitions.

1. Align with Local Partners to Accelerate Success

A total of 1.1M New Energy Vehicles (NEVs), plug-in electric and hybrid vehicles were sold in China in 2018, representing over 50% of all NEVs sold globally.

The US by contrast sold just 350K. The net result is that China will continue to play a larger and larger role in shaping future global vehicle technologies, requirements and services. The sheer opportunity scale of the world’s largest automobile market will influence the way in which OEMs and suppliers develop and deploy our collective mobility future.

“In order to reduce risk, identify, meet with and be open to potential partners that can either help you scale, educate your target market, and/or market/distribute your offering(s), and/or provide technology that you don’t possess and can’t develop internally (AI, mapping, sensors, software, etc.) cheaply or quickly,” says  Tu T. Le, Managing Director of China electric and automotive management consulting firm Sino Auto Insights.

Traditional joint ventures are certainly one partnership approach; however, the space is so dynamic and opportunity so large that there’s generally more flexibility from China-based OEMs and suppliers to partner in new and different ways to accelerate innovation.

2. Let History Be Your Guide to Avoiding Potholes

Although the underlying systems applications – e.g., integrated lidars, radars and cameras – are new, leverage-proven automotive best practices to develop and launch new technologies. Study what Tesla did from the founding of the company until now. Learn from their mistakes. Carve out your own place in the market and don’t try to be a ‘better’ Tesla. We’re beyond that now.

“We all know mistakes cost money, but in the mobility space, it costs a lot of money so eliminating/minimizing mistakes and growing pains will separate the eventual winners from the losers,” adds Le.

The institutional knowledge of suppliers with operations in both the US and China can prove priceless in homologating your services to the China market. Tap entrepreneurial minded automotive supply partners that have a presence in both countries and bilingual teams who can operate seamlessly and quickly in both regions around the clock to ease your transition.

3. View Supply Chain as a Tool to Maximize Rider Service Experience

There’s no shortcut for deeply understanding your riders and market. This critical information should inform your vehicle supply chain strategy and should be a bespoke game plan tailored to the rider, service, vehicle and environment. This is a step change int the mindset of traditional automotive supply chain professionals, as they are used to thinking about supply chains in terms of support solely for physical products and plants. Supply chain professionals must now view their role as supporting the service experience for the end rider – a mix of hardware and services.

“Put in the sweat to study your target market, identify and address their needs, including anticipating ‘future unmet’ needs since that’s where the monetizing opportunities will be abundant and this will be how you differentiate your product/service and transform your findings into features included in that product or service,” adds Le.

A supply chain team needs to have a seat at the table alongside marketing, sales, design and engineering in order to effectively create these new supply chain structures that’ll enable success. Leaders’ ability to listen first so that they can effectively incorporate a unique Chinese voice of the customer into their underlying supply chains will contribute to their ultimate successes or failures.

4. Map the Local China Supply Base Before Getting Started

Wait a day and a new battery pack supplier enters the market, especially in China. This can seem daunting but mapping the supply base of established and upstart critical systems suppliers can help ease your anxiety while affording your team future strategic options.

“Study the market carefully before deciding to enter it. Understand not only the relevant suppliers, laws, taxes and policies but differences in consumer tastes, business and cultural idiosyncrasies/norms,” adds Le.

Trade agreement uncertainties require you to have a solid understanding of the local China supply base. As a best practice, it’s best to have both preferred and backup supply partners in the US and China to minimize supply risk. Mapping the local China supply base by commodity will help you identify what you can source in China or import, all of which should be flexible.

5. Focus on Scale, Then Reduce Cost

Ok, yes. Cost is important. Now that we’ve got that out of the way, depending on your financial runway, deployments could trump cost. Robo taxis and electric scooters are two such markets where it might make business sense to drive market share first.

If scale is your goal, then your underlying supply chain must be built fundamentally different than a traditional automotive company. Your people, processes and technology must resemble a high-growth consumer electronics supply chain that prioritizes speed to market instead of optimizing every penny. 

“Scale the business as fast as possible so that costs can be quickly reduced,” stresses Le.

In the beginning, for both established and upstart OEMs, it’s important to refrain from doing too much. Your goal should be to rapidly and flawlessly launch your services into the market.

6. Don’t Act Like an Automotive Company

Don’t act like a car company. Hire the “right” people who are a fit for your organizational culture. Don’t just hire “car” people. As a matter of fact, don’t put too many “car” people in charge of decision making. The early market leaders in electric-autonomous vehicles are hiring a blend of industry and entrepreneurial talent.

“Embrace moving towards being a technology/software development company by moving faster, taking more risks, and being more decisive. Set up functions, teams, policies, procedures, and hiring needs to support this,” adds Le.

Apple is a great benchmark; their core focus is design and engineering. They outsource their supply chain and manufacturing to Foxconn to enable their organization to double down on their differentiators while saving money. A growing number of leading OEMs and suppliers are partnering with managed services firms to complement smaller focused teams by fully outsourcing day-to-day functional operations from marketing and procurement to supplier quality and logistics, for example.

Where is the Broader China Mobility Market Headed?

Over the next couple of years, the China automotive market, along with the US, is expected to shrink with China’s NEV market still growing overall, but not as quickly as originally forecast due to the trade war, market uncertainty and pricing; e.g., there’s still a need to offer a license plate rebate in order to prop up sales, and a lack of charging stations present bottlenecks for mass adoption.

Long term market growth projections look promising as China’s transition to electric vehicles is expected to outpace the US. The Chinese government looks at electric autonomous vehicles as a strategic sector requiring cities to develop transition plans for electrification. According to The Guardian, over 30 Chinese cities have established plans to transition to 100% electric bus fleets by 2020.

Opportunities are abounding for mobility companies eyeing expansion into China, but new supply chain strategies will be needed to maximize your results.

-William