Published on April 30th, 2018 | by Steve Hanley0
Tesla Vs. Nio: Some Thoughts On Doing Business In China
April 30th, 2018 by Steve Hanley
The parable is a popular way of communicating wisdom in Asian culture. When I was a young lieutenant stationed in Saigon, a Vietnamese friend of mine explained the titanic struggle going on around us this way. “When the elephants fight, the grass gets trampled.” A story in the South China Morning Post today begins with this parable: “A powerful dragon cannot crush a snake in its old haunt.” That bit of wisdom is meant to alert the reader to the struggle awaiting Tesla as it tries to become a significant player in the Chinese market for electric cars.
Uber Loses Big In China
The article points out that Uber got its head handed to it by Didi Chuxing when it sailed blithely into China a few years ago, expecting to takeover ride-hailing in the country without a whimper of protest from the locals. China has four successful smartphone manufacturers — none of them named Apple. And Amazon, which is devouring the world of retail market everywhere else, has a paltry 1% share of the market in China. You may think Travis Kalanick, founder of Uber, is a chucklehead who doesn’t have the brains God gave a llama, but Jeff Bezos of Amazon is nobody’s fool.
The message? Whether or not the government permits foreign companies like Tesla to build factories in China, becoming a dominant force in auto sales there will be an uphill battle. Some may remember what it was like when US companies tried to pry open the Japanese auto market. They soon found themselves caught in a web of policies and regulations that favored local companies at their expense. Both Japan and China have economic policies that blur the line between government and industry, making it diffucult for outsiders to find a way to crack their markets.
Beijing Auto Show
Last week, Tesla brought three cars to the Beiing auto show — a white Model S, a blue Model X, and red Model 3. The response from the crowd was enthusiastic. “There’s nothing to worry about,” said William Li, the founder and CEO of Nio Motors. “China’s auto market is already highly competitive. All brands across the world have already come, leaving only very few that haven’t. NIO is competing not only with Tesla but also with all luxury brands. As a global start-up since day one with a US-based research team of 500, we welcome more competition to help us improve.”
On a stand nearby, Nio displayed its own high performance electric SUV, the ES8, which costs half as much as a Model X after China’s 25% import duty is applied. The ES8 comes with a driver-assistance system featuring highway pilot, traffic jam pilot, and automatic emergency braking. It also has an in-car artificial intelligence system called NOMI that can help regulate the temperature, take photos, and play music based on voice commands.
“For smart cars, it matters whether you can stay close to users, show faster response to their demand and bring them unique experience,” says Li. Smart cars depend on local data, content services, and infrastructures, said Li. “China has given birth to great internet companies such as Tencent, Alibaba and JD over the past years, all providing world-class user experiences. The success of Huawei and Xiaomi have achieved in the smartphone market is very inspiring to us to think on a long perspective.”
Nio has a team of 3,000 engineers working on developeing battery cells, electric motors, gateway control systems, and assisted driving technology in-house. It has produced 10,000 ESS electric SUVs so far and is actively preparing for exports to global markets, beginning with Europe. Sales in the US will come “eventually,” it says. “I believe autonomous driving, AI, and auto intelligentization will become crucial in reshaping user experience,” Li says. “The smart car has just given China a head start to run on a different track.”
There are several large, well-funded Chinese manufacturers eager to compete with Tesla. Becoming a dominant player in the Chinese market may be difficult, but even modest sales may be enough to make the fight worthwhile for the Silicon Valley challenger. People appreciate choices in the marketplace, but Elon and his band of merry pranksters need to be aware that Chinese customers tend to favor local companies.
What Uber, Apple, and Amazon have experienced in their attempts to crack the Chinese market should be clues that Tesla will have a tough uphill climb even if it builds its own factory in Shanghai. Which brings to mind this other bit of ancient wisdom: Be careful what you wish for. You just might get it.