Audi’s research and development center in China couldn’t be better placed. It’s right in the middle of Beijing’s trendy 798 Art District, a former military complex now dotted with galleries, design companies and cafes.
“We are the pioneers at Audi when it comes to the wishes of Asian customers,” said Saad Metz, the head of the development center. “And they are becoming more and more important.”
Mr. Metz, 49, manages a 250-strong team from 15 nations operating in various locations in Asia. He says partnering with top Chinese tech firms like Baidu, Alibaba and Tencent is important. Developing technologies for Audi’s vehicles with the Chinese is a huge opportunity, he said.
Audi is coordinating closely with BMW and Daimler, Mr. Metz revealed in an interview with Handelsblatt. Apparently the three companies have already worked out joint legislative proposals.
And Audi needs opportunities. It’s looking for fresh ideas to invigorate its sales, which dropped for the first time in 2015. The Volkswagen subsidiary sold 571,000 vehicles, 8,000 fewer than the previous year – in contrast with other German premium carmakers, who saw accelerated sales.
Mercedes-Benz recorded an enormous uptick in demand for its cars in China. The Stuttgart-based carmaker managed to sell 281,588 vehicles in 2014, but the figure climbed to 373,500 in 2015. BMW also increased sales, from 455,000 to 464,000.
Last year the Chinese government moved to allow unathorized dealers to sell imported cars in a bid to boost competition and keep luxury auto prices in check.
Mr. Metz says Audi was hit particularly hard, but he noted that at least the brand shed its image of being the government’s favorite car. The state is no longer ordering any German cars for official government use.
What the Chinese now wants is to ramp up electric vehicle usage. The government wants more “green” cars on the road, because its environmental agency says traffic exhaust, at over 25 percent, is the main cause of air pollution in major cities.
In 2011, Beijing was already trying hard to push electric mobility into mainstream usage. The government introduced generous incentives for e-car purchases. It also spent €3.8 billion ($4.3 billion) since 2006 to develop better batteries. The goal was to get half a million e-cars onto China’s roads by 2015.
All the effort and financial incentives didn’t seem to have produced results. But that has changed dramatically in recent months. Consulting firm Roland Berger counted 306,000 electric vehicles in China in 2015, and sales increased in the first half of 2016 by 123 percent. That makes China the world’s largest market for electric cars. One reason is electric cars are given licensed preferentially in major cities.
But the number of cars in urban areas has also become a problem. In Munich, cars drive at an average speed of 20 miles per hour during traffic jams, compared to barely 11mph in Beijing. The Chinese capital, which has a population of 22 million, has 5.4 million cars.
German carmakers are not perturbed by such developments, and the companies continue to focus on growth. Although a consolidation in China’s car market occurred in recent years because of slower growth, the popularity of German brands remains undiminished.
Increasingly it’s image that drives car sales, and the trend toward digitalization in China is playing an ever-bigger role.
Trends indicate that the car of the future in China must be able to do more than just navigate and have a great audio system. The car should come with software for apps such as WeChat (China’s WhatsApp). Car purchases are increasingly about status, or impressing neighbors, friends and relatives.
That’s especially true in the premium-car sector where German automakers excel. The three major German carmakers BMW, Daimler’s Mercedes and Volkswagen dominate China’s premium car market.
But expectations about technology and luxury items differ greatly from those of car buyers in the West. Part of that has to do with Chinese car buyers being considerably younger than their Western counterparts. The average age of an Audi driver in China is 35. In Germany, it’s 50. With just under 21 million cars, China is the world’s largest auto market.
This year, China is expected to replace the European Union as the main selling market for German car producers. Germany’s VW, BMW and Mercedes are becoming increasingly dependent on China, a market that includes government controls and many specific measures. Germany’s carmakers were doing better business there until the government intervened and limited the number of new car registrations because of environmental concerns.
If you ask Audi’s development head Mr. Metz about the project he would most like to tackle, he would say producing an improved SUV. Such vehicles already have a 40-percent share of the premium market, and no end to the boom is in sight.
Audi’s experts will have to present more concrete plans for a self-driving car very soon. Beijing is expecting fast progress, and a pilot project is planned in Shanghai this summer. There, Audi is coordinating closely with BMW and Daimler, Mr. Metz revealed in an interview with Handelsblatt. Apparently the three companies have already worked out joint legislative proposals.
Audi believes it has left its sale slump in the dust. So far in 2016, sales at the VW subsidiary have increased 3.5 percent.
Hans-Jürgen Jakobs is a senior editor at Handelsblatt and a former editor-in-chief of the newspaper. Frank Sieren has been living in Beijing since 1994 and has been a Handelsblatt correspondent since 2010. He is considered as one of the leading German experts on China. To contact the authors: firstname.lastname@example.org and email@example.com