Chinese car company Chery is copying Hyundai’s successful strategy in Germany

The number of new car brands from China in Germany continues to grow rapidly. Now another heavy weight has been added. Chery Motor Group, founded in 1997, is one of the most successful car exporters in China and already operates in the markets of Southeast Asia, Australia, Central and South America and the Middle East. In addition to the new Omoda brand (you can read the operating report here), which is launched in Germany with gasoline engines and electric drives, Chery also has another brand that is very attractive to SUV and all-wheel drive fans. With a length of 4.5 meters, Jaecoo 7 is in the compact SUV range. With self-made petrol engines and intelligent all-wheel drive, the Chinese could drive the VW Tiguan, Skoda Karoq, Audi Address Q3 or Kia Sportage. There are also several electric cars that compete with electric cars Hyundai and Kia, VW or Renault – but also for Chinese electric brands MG and BYD.

Chery also conducts research in Europe

Entering the German market doesn’t just happen through pure logistics and the establishment of a dealer network. The group operates its design and development site in Raunheim near Frankfurt. FOCUS online spoke to the managing director of Chery Europe GmbH, Jochen Tüting, about the plans for China, possible plants in Europe and the role that the electric car and the combustion engine play in this.

FOCUS online: BYD, MG, Nio, Polestar – German consumers feel like they are being offered a new brand from China every month. Now also Chery. Please explain who that is.

Jochen Tüting: Chery is not a start-up company, but it has been China’s leading exporter for twenty years and now operates in more than 80 markets, including Latin America, Southeast Asia, Australia and the Middle East. SUV models like the Tiggo are very important. In this area we see the greatest opportunity to gain a position as a volume manufacturer in Europe. But you have to be very broad. Therefore, we have two brands, Omoda and Jaecoo, which target different customer groups.

Although manufacturers like BYD or MG in Germany rely exclusively on electric vehicles, they take a different approach.

Jochen Tüting: Yes, we offer a full range from conventional combustion engines to hybrid models and fully electric vehicles. We have three models in the pipeline for both products. We also get this from our European trading partners. They are happy that they can serve all customers, from combustion engine buyers to electric car enthusiasts.

“We are closing the gap left by other manufacturers”

While German manufacturers are burying the combustion engine and dismantling their development departments, China is said to be launching major development plans for new gasoline and hybrid drives. This means that China is not participating in the phase-out of combustion engines in the way that the EU has decided.

Jochen Tüting: That’s fine. We design and build our own engines and transmissions. We have a strategy for all of Europe. If you go further east, there are only markets that do not fare well compared to Germany when it comes to charging infrastructure and the spread of electric vehicles. Incomes are also at a level where most people would not be able to afford a mid-range electric car at all. In addition, many competing manufacturers are withdrawing from some car parts, for example they no longer produce gasoline engines there. We can fill this gap with our products.

What about small cars? In China, for example, Chery offers the small QQ, also as an electric version. Can such cars come to Germany?

Jochen Tüting: Homologation for these vehicles will be a feasibility study. The problem, however, is the question of whether you can really make a business case because the costs of dealing with the European market are too high.

Why are Chinese cars more expensive in Germany than at home?

If you compare the prices of Chinese cars in the domestic market with those charged for the same cars in Germany, potential buyers ask themselves: Why are the cars more expensive here than in China? Finally, according to experts’ predictions, the residual values ​​that can be reached are still much lower than with established products.

Jochen Tüting: When it comes to residual value, calculations are always done conservatively, since ship operators, for example, take some risk. We assume that things will look different for Chinese brands in a few years because they will be established by then. About the price difference: An important factor is the VAT, which is lower in China than in Germany – 13 instead of 19 percent. There are also negotiation costs for the EU market, for which we also run our development center in Germany. We have to allocate these costs to a small amount for now. The more cars we sell, the lower we can adjust the price. The EU also requires standard support systems, which are not required for all models in China, and there are revisions to emissions standards. For example, we need a diesel particulate filter in the EU. China’s emissions standards are as strict as Europe’s, but currently the limits can still be met by domestic engine steps without a filter.

Chery makes a different combustion engine than VW or Mercedes more. What can you expect there?

Jochen Tüting: It’s about things like the Miller Cycle, which leaves the reduction at high compression levels, which is a problem for exhaust emissions. Instead, the trend is towards mass migration; To do this, we want to further reduce consumption, which works well with hybrid modules.

“The first thing most customers ask is: Where can I turn it off?”

You mentioned the growing number of mandatory aid systems in the European Union, which are not needed in China. How do you assess this development?

Jochen Tüting: This leads to high costs for all car manufacturers, which of course is reflected in the final price of the customer. In my opinion, the rules and standards of Euro NCAP tests in Europe have grown against the needs of customers. We also get this feedback from our dealers. There are many customers who have only one question about some driver assistance systems: Where can I turn it off? Other things are more important to customers, such as connectivity and infotainment services in the car.

Now there is a whole range of Chinese manufacturers on the German market, startups and – in their own countries – established manufacturers such as BYD or Chery. Which brands in Germany are you most interested in?

Jochen Tüting: As a volume manufacturer, we automatically compete with brands like Kia and Hyundai and see them as role models. When these manufacturers entered the market 20 years ago, they had two strategies: Either offer a car with a package that matches the competition, but at a lower price – or offer the same price but pack better equipment into the cars. This is how we start with our brands Omoda and Jaecoo. Later we can add a brand that is always on top of it. Define yourself by price, like this, for example Dacia has done, however, it is difficult. Although we have cost advantages through production in China, we cannot fully pass these through negotiations, imports, customs duties, etc.

Keyword tariffs: The EU has launched a case against Chinese carmakers because of possible distortions of competition. How does this affect producers?

Jochen Tüting: Finally, with or without taxes, it comes down to producing your own products in large markets. Once we see that we are selling the right amount, we are always looking for local production options. We do that in Europe too.

“We want to be as big as Hyundai and Kia in Europe”

A number of jobs will soon be available in Germany, for example and Ford, Bosch or ZF. Or are other European markets more attractive as a production location?

Jochen Tüting: That depends on how quickly our sales success will be achieved. If things are going well and you are under time pressure, the so-called “brown field” solution is more suitable – you take the existing plants and rebuild them. But then the amount should be very large. An alternative is the greenfield plan, that is to build completely new factories. Tesla chose this path in Grünheide.

Because you always talk about “volume” – what exactly does that mean, how many cars do you expect to sell per year?

Jochen Tüting: We can’t give any specific numbers, there are too many factors that play a role. But: If we see Hyundai and Kia as role models, then of course that also means that we want to be as big as these brands in Germany.