Carmakers need to be tech-savvy to get an edge in China’s EV market

Cutting prices no longer gets you very far in China’s electric car market. BYD’s sticker price of $11,000 for its lower-end electric vehicle models is hard to beat. But there are other ways for international carmakers to get a foot in the door of this hypercompetitive market.

In China, especially among younger consumers, in-car software is becoming the key differentiator of next-generation vehicles — sometimes even beating out more traditional factors such as build quality. Seamless connections between cars and smartphones, artificial intelligence-enabled online connectivity, assisted driving systems and in-car entertainment functions are important factors when choosing which EV to buy. Local EV maker Nio, for example, has even made its own smartphone to offer better mobile connectivity with its models.

These smart features have been one of the few ways to avoid getting caught up in the brutal price war in the Chinese market. These smarter EVs find buyers at the $30,000 to $60,000 price range.

Foreign carmakers that cannot compete on price now need to get up to speed on these highly localised functions for their EVs to stay competitive. But teaming up with local smartphone manufacturers such as Huawei and Xiaomi is a less attractive option as those companies start rolling out their own EV models.

Toyota has found a decent workaround. The Japanese automaker has eschewed its usual conservative management style to partner with Chinese gaming and social media giant Tencent — whose social networking service is used by more than 1bn people — to offer technology-enhanced cars. The two companies are setting up a strategic alliance to work together on AI, cloud computing and big data for EVs. China-made passenger vehicles that will go on sale this year will include Tencent’s technology.

The trend for intelligent vehicles is relatively new. So even foreign automakers belatedly entering the Chinese market have a good chance at finding an edge in this market. China remains a key market for sales growth, with EV sales expected to hit about 10mn this year, higher than last year’s 9.5mn, and accounting for about half of all car sales in the country.

With the country expected to remain the world’s largest EV market next year, catching up has become more urgent for Toyota: its China market share shrunk last year as buyers shifted to local EVs. The Japanese carmaker, for now, has an edge over lossmaking Chinese EV start-ups with an operating profit margin of more than 11 per cent. It needs to move fast to take advantage of shifting trends.

june.yoon@ft.com