“The market is like a water bed. Not only is it true that new entrants are stealing market share from the existing brands, the market as a whole only has room for about forty brands plus a few niche players.It has proven to be the optimum worldwide, and this means that each new brand will also have to displace another brand,” says Pieter Gabriels, owner of the consulting firm ACE Force, which he advises especially for Chinese and European automotive players . In this series of articles, 27 new brands are counted, of which 19 are still to shine. How many of them will survive? “I think a handful. The advantage of the established order, which should not be underestimated, is that they have a reputation and understand that Europe is a collection of islands.”
Gabriels has been involved with several of the aforementioned Chinese players (see file), so he is reluctant to rate their chances of success. But looking at the list of non-Asian newcomers, Gabriels sees few bright spots.Yet the established order cannot sit back. “The market will be shaken enormously. It is not for nothing that you see European manufacturers now rapidly electrifying their line-up, adjusting the retail structure and optimizing their own production. Leasing is becoming increasingly important because only large leasing companies can cover residual value risks, and because customers demand this – both business and private.”
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One of the new entrants appears to be General Motors. A good example, according to Gabriels, of a manufacturer that has not invested much and is therefore losing a lot of market share. General Motors reported to Europe with three EV brands next year: Chevrolet, Cadillac and Hummer. Gabriels must smile. “How many times can a donkey hit the same rock? Americans think Cadillac is a premium brand, we don’t. Chevrolet is the brand that could possibly do that. But are there still people at GM headquarters, who have experienced the previous attempts?They have closed their European offices.There is no more knowledge, there is nothing. Then there’s no point other than we can all enjoy another year or four. The only chance they have is if they establish a European organization, bring European cars and find a big, powerful distributor. And even then it will be difficult, but there is a lot of money and CEO Mary Barra wants it.”
According to Gabriëls, it is logical that major European retailers are eagerly looking at newcomers. “A lot is changing at the moment, including the role of the dealers. So it makes sense that they try to strengthen their positions.” What should dealers look for in their assessment? “To a manufacturer’s vision and power and the ability to understand that Europe as a whole does not exist. They are separate (parts of) countries, each with its own customs and traditions. In any case, a car developed in Europe is loved worldwide , but it is certainly not the other way around.Europe is now like a kind of brand museumwith a lot of culture and a lot of history. Not only did General Motors misjudge this several times, now that I see what models Lucid, Rivian and Fisker are coming out with, I don’t give them much of a chance against the established order. Too expensive and not our taste. Some Chinese brands understand this better than others. Geely and BYD are good examples of this. They thoroughly immerse themselves in the European market, taste, demand and distribution preference. These organizations have significantly better cards than those who “just join Europe”.
German auto professor
Less pessimistic is the German car professor and widely quoted analyst Ferdinand Düdenhoffer. “Brands like Suzuki are in the market, but they are not of any importance. The newcomers who counter this with innovative products have a chance to gain market share. I think the arrival of BYD and Geely is an exciting view becausethey add something to the market.” Düdenho is claiming that software development is the key to success. “Here too, the Chinese manufacturers are very fast, faster than some traditional brands. I expect the Japanese brands Renault and Jaguar Land Rover to lose market share at the expense of the Chinese brands that combine good products with a good price.” Gabriels agrees with Düdenhoffer that market share can be gained at the expense of existing brands. “The newcomers who have the right combination of product and price, a digital strategy and invest enough in building brand awareness and reputation have a chance. At least if they understand that they are not running a sprint, but a marathon.” Gabriëls does not see any serious candidates for success in Europe among non-Asian participants. “I see only a few brands with a well-considered strategy. Most people are very happy with their (oversized) product, and that’s where things go wrong. The majority will first come with an electric top model in the D and E segments. Existing brands won’t just give up the scarce space there. The B and C segments are the most important here, which are the growth segments. Unfortunately, most of them are missing there. Volume growth is only really possible in these segments.”
For the importer organization RAI Association, the new players provide an important opportunity to regain lost ground. With Stellantis’ departure earlier this year, it lost about a quarter of the market. Of the 27 new residents, 6 are members of the association. “It takes a lot of administration to enter the European market. We can help with that, with knowledge and our network,” says Huub Dubbelman, chairman of the Automotive Section.
WHAT DOES IT COST?
Launching a brand in Europe is an expensive investment. The development and production costs of a car quickly add up to a billion euros. To have a chance of success in Europe, it helps if a model has been developed specifically for Europe. Modification of existing models is often insufficient. The successful overseas brands in Europe build a large part of their cars especially for Europe and often also in Europe. Organization A European organization quickly costs around ten million euros per year in wages (approx. 100 employees), rent, homologation and IT. If a brand wants to start selling cars independently, national sales departments and branches are needed, which require large investments and can easily amount to millions of euros per year. The primary cost item is marketing. Both Pieter Gabriëls and Niek Hertsenberg (Autobinck) believe that 50 million euros per year is the necessary minimum. “These are new brands, and so a lot of branding is needed to ensure brand awareness, then the vision of the brand must be spread, and then lead activation is necessary: Which models can be bought where? Everything must be newly developed for Europe, and adjustments must be made for every market within Europe,” says Gabriëls. He predicts that few brands will be able to carry out successful marketing. “In my experience, Asians do not immediately understand that marketing is very necessary at the beginning, when the volume is lowest then. It doesn’t sit well with their logic. Remember that marketing in Asia has a completely different meaning than in Europe. The first few years are often lost.”
Tesla has proven that it can also do without the RAI Association, says Dubbelman.“Everything is for sale. But we are a shortcut to a successful marketing introduction for all new entrants. Tesla has had the wealth of no serious competition for ten years.” The biggest problem that Dubbelman sees for many participants is the rapid development of software. “Software primarily means collecting data. But facial recognition is now also normal for Chinese manufacturers. These topics are becoming increasingly sensitive and we also have strict privacy laws in the Netherlands. We see that it is this information that is experienced as very valuable to our new members.”
Investment firms Blackrock and Vanguard are the biggest investors in the manufacturers on this list (as far as we can tell). The two are among the five largest investors worldwide, in newcomers but also in the established order (such as GM and Volkswagen). The two have tens of billions in Tesla and are betting that one of the other newcomers will be just as successful. In addition, investors demand greening from both giants. The two bet on several horses. Together, the interests of both in car manufacturers are worth hundreds of billions of euros. It is a lot of money, but the total investment portfolios amount to around twenty trillion (one thousand billion).