Domestic auto startups have long shot at Toyota
Updated: 2007-11-04 10:43
There's no tax on big talk, goes a Chinese saying. Many indigenous car brands seem to have taken that aphorism to heart.
BYD Auto, a small privately owned carmaker that recently graduated from making batteries, has grandly announced that it aims to be a global auto champion by 2025 by moving more than 13 million units a year. The only problem is the Hong Kong-listed BYD sold a mere 60,000 cars last year, less than 0.7 percent of that of Toyota, which has unseated General Motors to be the world's top carmaker this year.
Two years ago, Geely, another privately owned Chinese carmaker, declared that it expects to sell 2 million vehicles annually by 2015, with two-thirds abroad. The company's 2006 sales stood at 200,000 units.
Commenting on such pompous boasts, Yale Zhang, director of Greater China Vehicle Forecasts for US auto consultancy CSM Worldwide Corp, says: "They are only trying to grab publicity."
But Zhang is quick to add that it's just "a matter of time" before one or two local companies grow into globally competitive brands, even if not as big as Toyota. "Yet it will take them 20 to 30 years," Zhang predicts.
Most Chinese car brands have been making rapid progress in recent years as a result of rising prosperity and the consequent increase in vehicle demand in the world's most populous country.
According to Zhang, Chery, the top Chinese nameplate in the passenger car sector, is the most promising candidate to become a global player. The company, based in the eastern city of Wuhu, sold more than 300,000 units last year.
A partner of Chrysler and Fiat, Chery is widely seen to have the strongest research and development capability, with the biggest lineup among Chinese carmakers. It also enjoys strong backing of the central government and local authorities.
Chery has been researching the success of Toyota, from product portfolio, manufacturing, quality control and cost-cutting to marketing, sales and overseas expansion. "We will become a Chinese Toyota," it declares.
Chery aims to boost its annual sales to 1 million units by 2010, a much more realistic goal than that of BYD or Geely. It also plans to double the number of its overseas plants to 14 and lift its sales abroad to 400,000 units from 52,000 units last year.
Other Chinese brands are also trying to follow the path of Toyota. A top executive from Geely says: "In the long term, we will have plants in all regions of the world where Toyota has."
Despite fast growth, says Jia Xinguang, an independent auto industry analyst based in Beijing, indigenous brands are no match for global giants in terms of research and development, quality, financial power and internationalization. Jia predicts the nearest that the strongest Chinese brand will go to a global nameplate in the next one or two decades is French carmaker PSA Peugeot Citroen.
Chinese automakers mainly produce cheap cars that are looked down on abroad in terms of quality. Earlier this year, the Zhonghua sedan from Brilliance China Auto, partner of German luxury carmaker BMW, only achieved a rating of one star out of five in a crash test by Germany's ADAC auto club, making headlines in German newspapers. This could well affect Brilliance's plan to sell 158,000 own-brand sedans in Europe by 2011. Similarly, a Chery model has had a poor test record in Russia.
Chinese brands are also facing an increasing number of intellectual property issues. The most recent case is that of Shuanghuan Automobile, a small carmaker in the northern city of Baoding. It was sued last month in Germany by BMW, which claimed the Chinese company's CEO model closely resembles a previous version of its X5 sports utility vehicle.
Daimler also threatened to take legal action against Shuanghuan, saying the latter's Noble is a copy of its Smart Fortwo mini car.
In 2004, Chery was accused by General Motors of patent piracy. The previous year, Geely was sued by Toyota for an alleged trademark infringement.
"Domestic carmakers should take quality and intellectual property issues more seriously. Otherwise, their brand image will be ruined, especially in the Western market," Jia says.
Breaking new ground, BYD is betting big on electrical cars to dodge the fierce competition in conventional vehicles. The company says it will put a mid-sized F6 model with a petrol engine as well as rechargeable batteries into commercial production in the second half of next year. It will also start making purely electric cars in 2009.
"Electric cars will be the trump card for us in the global arena. We expect them to account for half of our total sales by 2015," says Xia Zhibing, BYD's sales chief.
According to the company's data, F6 will have a maximum mileage of 400 kilometers and a top speed of 160 kilometers per hour if it uses batteries only.
However, Jia warns BYD's drive to go electric runs a higher risk as the quality and reliability of electric cars are yet to be established and it's not clear how the buyers will accept such cars.