Redefining value: Why China cars have all the tech and can still be priced cheaply?

Chinese cars have flooded the Philippine market and many other countries around the globe. It is because Chinese automakers have found ways to undercut the competition by offering quality vehicles that are more affordable but have features comparable to or even better than their Japanese, European, and American counterparts. 

But the question is, how has China evolved so quickly to produce quality, feature-rich, and, most importantly, cheap vehicles so customers can afford them?

Lower production costs

First, we tackle the pricing and how Chinese manufacturers get their vehicles so affordable. The simple answer is economies of scale; China has a vast manufacturing industry that can build cars in bulk and thus be able to lower prices at a much more affordable point. 

Couple this with cheap labor, government subsidies, and volume production gives you vehicles that have lower market pricing. 

China-brand distributors and even Kia, Ford, Hyundai, and Volkswagen have taken advantage of an existing low 5% import duty levied on China-made cars with engine displacements below 1.5 liters. It is why most Chinese cars have 1.5-liter engines that are typically supplemented with a turbocharger to increase their outputs. 

Also Read: What's with China-cars and 1.5-liter engines?

Their affordable pricing has allowed distributors to make a solid business case, translating to more units sold for higher profit margins. It's a win-win situation where the customer gets a quality product at a more affordable price point while, at the same time, the distributor builds up the brand’s reputation in terms of sales and gets a decent profit out of it as well.

What about advanced technology?

China can create advanced technology more quickly and efficiently thanks to lower production costs and government funding.

The joint-venture setup required for Western car makers to be able to manufacture cars in China also led to accelerated technology transfer. Chinese brands suddenly had modern tech at their disposal. And often times, these technologies found in American, European, and Japanese brands were made in China as well.

It also helps that many Chinese brands have hired leading Japanese, Korean, American, and European designers and engineers to help further their designs and technology. Great Wall Motors' chief designer, for example, is Phil Simmons, a design studio head of Land Rover. BYD's global interior design director is Michel Paganetti, and its design director is Wolfgang Egger, both Europeans with a long history of design credentials in various European car brands.

This influx of Western talent gives the Chinese a wealth of knowledge to be able to leapfrog Western brands in terms of design, research and development. 

It also helps that Chinese manufacturers such as Chery, Jetour, GAC, Geely, GWM, and soon Omoda and  Jaecoo have done their research about the car-buying population. They are in touch with the needs and wants of customers. These needs and wants change per market, but by addressing them, Chinese brands can expand their portfolio of vehicles quickly with models that people will actually be enticed to buy. 

Improved distribution network

Thanks to the multiple partnerships Chinese brands have created, they have gained access to better vehicle distribution networks. Access to these networks makes their vehicles more readily available, making it easier for the public to purchase them.

Partnering with local distributors will help the Chinese brand raise awareness of their products and ensure that the customers' needs are appropriately met regarding after-sales services. 

Buying Western brands

The acquisition of Volvo by Geely in 2010 seems to be the poster child for Chinese car-making expansion. By acquiring a controlling stake over struggling Western car makers, Chinese brands suddenly had access to cutting-edge technology developed by foreign engineers. By funding R&D, good ideas that would never have come to fruition had there been no money, suddenly saw light. 

SAIC Motor's purchase of the British MG brand is another example of a Chinese brand banking on the reputation, equity, and access of a Western marque. Because SAIC had the manufacturing capability, MG now lives on not just as a brand that has recall in many Western markets, but also as an outlet for Chinese manufacturing and business expansion.

Do you think Chinese car brands are becoming a strong force in the local market?

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