Chinese cars could shake up European sales

A decade ago the Chinese made a big push to try and establish themselves in Europe. It was a disaster. The first wave of cars had outdated designs and technology as well as powertrains that weren't ready to meet Europe’s tough emissions standards. The quality of the cars was subpar and, most worryingly, they scored terribly in independent crash tests.

As a result, since 2006 Chinese brands have been a non-factor in Europe. Light vehicle sales peaked last year at 3,866 units in a market with a total volume of 14.1 million, according to JATO Dynamics. Most of those sales came from either MG Motor in the UK or Great Wall in Italy.

Fast forward to 2016 and things have changed dramatically. Geely Automobile's Lynk & CO brand looks like it will be a serious contender when it debuts in Europe in two years because of the design and engineering help it is getting from sister brand Volvo. Meanwhile Borgward, a storied German brand revived with Chinese backing, also appears to be in position to succeed thanks to help from former Daimler executives as well as leading German suppliers such as Robert Bosch, Webasto and Schaeffler. With their forthcoming models, the two Chinese automakers will also try to tap into growing European demand for SUVs and alternative powertrains. Borgward's BX7 midsize SUV will only be offered with a battery-powered drivetrain while Lynk & CO's 01 crossover will be sold as a hybrid or a plug-in hybrid. Both brands plan to only offer vehicles with internal combustion engines in China.

The brands have also either committed to building vehicles in Europe or have the possibility to do so. Borgward, once Germany’s third-largest automaker, in 2018 plans to start assembling 10,000 BX7s a year from kits shipped from China at a factory in Bremen, its former home.

"Production will be designed to be flexible and organized in such a way that we can adjust – and thus increase – production output and the number of models," Borgward CEO Ulrich Walker said in a statement. Walker is Daimler's former China boss. His team includes Tilo Schweers, who is now Borgward's head of powertrain electrification after playing a key role in Daimler's development of alternative drive systems, and Florian Herbold, who leads Borgward's transmission development after holding a similar job with Daimler.

The Lynk & CO 01 will be underpinned by the compact modular architecture (CMA) that Geely developed with sister brand Volvo Car Group. Volvo will use the CMA for its 40-series compact cars, which will also be built alongside Lynk & CO models in China.

Volvo's factory in Ghent, Belgium, will also produce vehicles using the CMA platform, which has led to speculation that Lynk & CO cars would also roll off the lines there. This is because the combination of transportation costs and tariffs would make it difficult for Lynk & CO to make money on its European sales unless the cars are make locally. Volvo said that there are no current plans to make Lynk & CO vehicles in Ghent.

Even if Lynk & CO shipped China-built cars to Europe it is likely customers would give them a chance. A number of well-established automakers have proved that the quality of cars made in China is on par with models made in Europe. Most left-hand-drive versions of the Honda Jazz sold in Europe are built in China. In addition, the China-made long-wheelbase version of the Volvo S60 that is exported to North America has achieved a top rating from the U.S. National Highway Traffic Safety Administration.

This success helped convince Volvo to make China its exclusive global export hub for its S90 flagship sedan. The S90 was previously made only in Sweden.

Another advantage that both Chinese firms have is the support of an owner with deep pockets. For Lynk & CO it is Chinese billionaire Li Shufu, whose Zhejiang Geely Holding Group also includes Geely and Volvo. Meanwhile, Borgward is part of state-owned Chinese truckmaker Beiqi Foton Motor.

Despite all the pluses, market watchers – as well as Zhejiang Geely's Li -- remain cautious because of the problems Chinese brands have experienced in the region and because Europe is considered the most competitive market in the world. "We don't have the ambition of influencing the whole European market," Li said.

Added IHS Markit analyst Namrita Chow: "Both Lynk & CO and Borgward allegedly have solid financial bases behind them, but they have yet to launch products in Europe, with linked dealership and aftersales services."

Robin Zhu, a senior analyst at Sanford C. Bernstein in Singapore, views Lynk & CO's and Borgward's export plans as a way to prove to Chinese consumers and the local government that locally made vehicles are no longer inferior to those made outside the country.

"There is a huge desire on the part of the Chinese government to create an industry champion, and to have something they can export with pride. I think Lynk & CO will definitely try, I have less clarity on Borgward, but perhaps it's possible too," Zhu said.

Christoph Stuermer, global lead analyst for PwC Autofacts, said Chinese automakers will only succeed in Europe if their designs are compelling and their brand history is interesting. "Lynk & CO is trying to stand out by using design cues from many premium brands, while Borgward is using its German heritage to make a difference," he said.