The auto industry must pool resources to meet the challenges of the 21st century
The theme of the 15th Beijing auto show, starting later this month, is “Steering to a New Era”, and reflects the challenge facing the whole industry: all carmakers must adjust to an era of technology disruption, tougher regulations and changing ownership patterns.
For the past 20 years or so, companies focused on relentless cost-cutting, just-in-time deliveries, fewer platforms, and efforts to enhance productivity. Brands that were inefficient or lacked scale simply disappeared. In their place, challenger brands arrived with entirely new business models: from DiDi to Uber and from Waymo to Tesla.
In less than a generation, a phalanx of new brands also emerged to serve the world’s largest auto market: China. They include new-entrant brands such as Nio and Faraday Future. Domestic Chinese brands are fighting for a share of a market with 185 million vehicles on the road and where an additional 30 million cars could be sold this year.
But China faces the same issues impacting mature markets such as North America and Europe. We are battling with congestion and pollution. Regulations are hardening: the Chinese government has mandated that 20pc of industry volumes should be low-emission “new energy vehicles” by 2025. Consumers also want the same cleaner, increasingly autonomous, intelligent, connected cars and infrastructure that are being developed in other markets.
Chinese brands need to think beyond their own borders. This is recognised by Zhejiang Geely Holding Group, which I founded in 1997. It is today China’s largest privately-owned car group. We have reshaped business at home and expanded overseas.
Our international expansion has been dominated by the successful transformation of Volvo Car Group, which we acquired in 2010 from Ford. Volvo has rediscovered its direction, returned to profitability and grown overseas, created promising global synergies – including by manufacturing in China, for China and for export. We subsequently acquired the London Taxi Company in 2013, since renamed the London Electric Vehicle Company, to produce the first electric black cabs from a new plant in the UK. Last year, we acquired a major stake in Proton of Malaysia with full management rights and a controlling stake in Lotus Cars in the UK.
At the end of 2017, we became the biggest holder of share capital in Volvo AB by agreeing to acquire 8.2pc of the share capital, and 15.6pc of the voting rights. In February 2018, we acquired a 9.7pc stake in Daimler to become the single largest shareholder in the German group.
The future of the internal combustion engine is now in doubt. Our industry must think about new ways both to co-operate and innovate. Few companies can do this in isolation.
This reality check underlines part of our thinking behind recent investments in both Daimler and AB Volvo. These companies, like our own, are contemplating a world of disruptive technology and software, and ever-changing product usage. We must consolidate from being hardware manufacturers into technology companies offering online and digital solutions, as well as mobility services. As we make that transition, we believe that more companies will need to co-operate on future technologies and common systems, which can be achieved without jeopardising their intellectual property rights or unique brand positioning. They must do so without compromising strategic autonomy and without risking anti-competitive behaviour to deliver cross-industry co-operation that complies with market regulations and that is also transparent and open.
The lesson we applied at Volvo Car Group has been to protect brand and product independence. But we also recognise there are long-standing possibilities to explore partnerships and co-operation in a market-oriented manner. If any potential partnership meets the requirements of laws and regulations, all bilateral and multilateral co-operation of mutual benefit can and should discussed. This is one of the powerful attractions of the market economy, with openness towards shared strategic innovation.
This is necessary if we are to ensure the commercial viability of nextgeneration technologies. We must explore the possibility of extensive alliances instead of evading reality. We must offer new technologies in ways that promise a return on investment. New mobility services such as CaoCao, the Chinese ride-sharing service, providing electric vehicles in more than 20 cities with 16,000 electric vehicles, are clearly desirable. But as such services grow internationally, they must have a payback and cannot burn through funds.
This is our industry’s key challenge: how to navigate the era of change in ways that are sustainable and profitable. It must be possible to leverage global economies of scale and to reduce risk, while respecting brand independence and management autonomy. Equally, it must be possible to enhance shareholder returns while preserving and respecting product differentiation and IP rights.
This is not a threat to strategic independence. It is a commercial reality. As our industry continues to transform, we must harness the opportunities of the internet age. We need to establish a competitive edge, especially in areas covering vehicle technology and related digital applications in a practical and downto-the-earth manner. This effort will become even more important as technological progress reshapes the business world as we know it. In the automotive industry, this will mean moving to a platform business model in which technology is increasingly shared. So traditional automakers need a self-awakening. Those willing to join hands with each other to forge proprietary digital platforms, which will can be shared and utilised by their different brands, will hold a winning formula as our sector becomes increasingly competitive. Respectful co-operation, recognising mutual independence, offers a new route to navigate this transformation.
It is not without risks. With frank discussions – conducted fairly, transparently and compliant with all legal rules – we can deliver longlasting rewards for investors and stakeholders alike.
‘Those willing to join hands with each other to forge proprietary digital platforms will hold a winning formula’
Pollution fears: China has demanded that 20pc of auto industry volumes should be lowemission ‘new energy vehicles’ by 2025