The mega platform strategies of Chinese OEMs
Aiming for improved profitability for every model in the midst of strong competition
Background: Why are privately owned Chinese OEMs moving toward mega platforms?
|Figure 1: Chinese basic passenger car market after 2000 (tens of thousands, %)|
|Source: Created by the author based on each annual edition of the 'Automobile Industry Economy Operation Report.'|
Around the year 2000, several Chinese companies emerged that had not only implemented foreign technology, but also developed own brands in-house. From then up until 2010, the primary segment of the basic passenger vehicle market was composed of sedans and hatchbacks. Armed with affordable vehicles, the Chinese OEMs rose up and, together with Japanese vehicles that had previously achieved popularity in China, ended Germany-based VW's monopolistic dominance of the market (see figure 1).
After 2010 there were sustained releases of affordable vehicles from foreign OEMs into the basic passenger vehicle market, and as a result the conventional division of high-end vehicles being released from foreign brands and affordable vehicles being released from Chinese brands was dissolved, with the market turning into a free-for-all. However, for privately owned Chinese automakers, which had weaker branding than foreign companies, the entry of foreign automakers into the affordable vehicle market exerted pressure on what had been their domain for doing business leading to a decrease in profitability. As a measure to get out of this precarious position, the Chinese OEMs attempted to shift their product strategy away from the affordable passenger vehicle market to the market for affordable, small SUVs where there was no competition. This endeavor was successful as the flash exploitation of the new market coincided with consumer demand for a switchover from sedans.
However, it can be expected that foreign OEMs will quickly enter the affordable small SUV market. Because of this, it is possible that the superiority of Chinese automakers in the new market will not last as long as it did in the conventional market for basic passenger vehicles. In order to resolve this dilemma, Chinese OEMs have begun looking toward a mega platform strategy.
After 2010, in contrast with the downturn experienced Japanese and Chinese OEMs, VW reestablished its position in the market. In addition to common methods such as local parts procurement and localization of development, the MQB strategy actively promoted by VW may provide a hint as to why VW was the only OEM to achieve this success.
In 2013, VW's production capacity for new MQB based vehicles reached the milestone of 1 million vehicles, and this is expected to rise to 4 million in 2016. In China, new MQB based vehicles were introduced to FAW VW's Changchun, Foshan, Qingdao, and Tianjin plants; as well as Shanghai VW's Shanghai Anting, Nanjing, Ningbo, and Changsha plants; thereby greatly enhancing China's position in the global production plan for MQB based vehicles. As a result of this, as VW increases the global profitability of individual models, it has also been able to simultaneously achieve flexibility and profitability in the ever changing Chinese market, making it even easier for the OEM to enter the affordable vehicle market.
At the same time, Chinese OEMs have been using a strategy of benchmarking popular foreign models and releasing them as affordable vehicles for a considerable amount of time. The increasing affordability of foreign vehicles is a matter of life or death for Chinese automakers, and the shift to a mega platform is crucial to their survival.
In order to maintain their economies of scale, Chinese OEMs tend to continue to keep even unpopular vehicles on their lineups for extended periods of time. Because of this, OEMs with a longer history have a tendency to keep more unpopular vehicles, creating a serious dilemma between profitability and maintaining economies of scale. In other words, such OEMs have all the more reasons to make the switch to mega platforms.
The adeptness of privately owned Chinese OEMs at cultivating potential markets
|Figure 2: Passenger vehicle market (SDN/HB/SUV/Minivan) composition ratio by country (2014/2015)|
|Source: Created by the author based on CATARC sales statistics.|
Did the fact that the basic passenger vehicle market began declining in 2015 (Figure 1) lead to strong pressure on Chinese OEMs that have been losing their market share since 2010? In 2015, Chinese automakers did not lose market share in the passenger vehicle market, which includes passenger vehicles, SUVs, MPVs, and minivans, making them the sole winner in the segment (Figure 2). Why is this?
Privately owned Chinese OEMs: Igniting the spark that made the SUV market grow 16 times in six years
|Figure 3: 2015 Vehicle sales in the Chinese passenger vehicle market by segment (units: 10,000 vehicles, %)|
|Source: Created by the author based on CATARC sales statistics.|
The 2015 per segment vehicle sales (Figure 3) shows that basic passenger vehicles, which make up the highest composition ratio, have declined year-over-year (y/y) by 5%, whereas SUV models have grown significantly to take up 29.41% of the entire passenger vehicle market. In particular, the SUV two-wheel drive segment accounted for 24.31% of the market for y/y growth of 59%. As for makers by country (Figure 4), Chinese OEMs have the highest composition ratio of 46.08%, surpassing the 23.85% ratio held by the second place Japanese OEMs by a large margin. In comparison to the SUV market in 2009, the privately owned Chinese automakers have enjoyed unprecedented growth.
As seen in Figure 5, the SUV market in 2009 only amounted to 650,000 vehicles out of the 10.33 million passenger vehicles sold. Japanese OEMs accounted for more than half of all sales, and Chinese OEMs had a share of only 27.21%. In vehicle numbers, Chinese automakers only sold roughly 180,000 vehicles, or 1/16 of the 2015 total.
Reasons for shifting to a mega platform strategy: a large number of low profit models
Chinese domestic OEMs accounted for 44% of the 2009 passenger vehicle market, and most vehicles were CNY 80,000 or less. At this point an interesting phenomenon can be observed.
Since 2000, Chinese own-brand vehicles entered and grew in the potential market for vehicles priced at CNY 100,000 or less, where foreign brands had a minimal presence. However, the entry of foreign joint venture own brand vehicles into the affordable vehicle market caused excessive competition. Combined with the increase of average income that lead to a mentality of upward mobility, Chinese OEMs peaked in the basic passenger vehicle market in 2009, and since then have been experiencing a steady decline in market share., However, this ignited the spark that would create the small SUV market as mentioned above, and put the automakers back on track for growth.
In 2009 Chinese makers sold 136 own-brand vehicles, and over 33,000 units per model. In 2015, there were 334 models on sale, and vehicle sales plummeted to 20,000 per model, making it clear that increasing total vehicle sales based on diversifying demand meant that OEMs would need to carry large numbers of unprofitable and inefficient models.
Additionally, as was the case for the affordable passenger vehicle market, it can be expected that foreign OEMs will swiftly enter the affordable small SUV market as it develops further. However, as demand diversifies and the desire for upward mobility strengthens, the limit to domestic OEMs' existing strategy of simply releasing additional models is already beginning to show. In order to recover from the decreasing profitability per model brought upon by the expanding volume and diversifying demand, privately owned Chinese automakers began shifting in unison toward a mega platform strategy.
The origin of the mega platform strategy
In recent years, the mega platform has gained lots of attention, but the strategy it is based on is nothing new.
Conventional platform strategy: Commonality among different models in the same segment
When taken to extremes, the concept can be traced back to the Ford Model T, which featured different upper bodies placed on a common underbody to create a variety of products (sedans and hatchbacks). However, the platform strategy at this stage was limited to vehicles in the same segment. Until 2010, Chery Automobile used this strategy, as will be described later.
Evolving to technology that allows for commonality across various segments
In consideration of platform efficiency, Chinese OEMs turned to a development strategy that allows them to meet wider market demand and surpass the limits placed on segments. Geely's FE Platform falls under this category, and the limitations on common parts have decreased in comparison to common parts available for vehicles in the same segment.
Mega platform technology: A strategy based on a standard architecture that increases modularity of structural units to the maximum
As a means to simultaneously achieve the standardization of parts and meet diverse demand for various segments, privately owned Chinese OEMs turned to the mega platform strategy. This involves an array of modular parts designed to be utilized in common for a standard architecture. In addition to adjacent segments, the mega platform strategy allows for the development of new vehicles spanning a wide range of vehicle types, greatly increasing the economy of scale per part in comparison to conventional platform strategy. One example of this is VW's MQB platform. As a result of this, major Chinese makers are turning to a similar strategy for their mega platforms. Among them, Chery's CC2X and A3X platforms, as well as Geely's CMA platform fall under this category.
Chery Automobile's platform strategy: T1X/M1X, CC2X, A3X
After experiencing sluggish sales around 2008, Chery Automobile has maintained a low profile. In order to support its multiple brands, the technology-oriented company developed various platforms such as the S (QQ), A (Fulwin), B (Eastar), T (Tiggo), M (A5), B2 (G5/G6), P (SUV), and H (MPV) platforms for its full lineup strategy, but only one model was mass produced for most platforms, resulting in a low rate of utilization.
Afterward, with its multi-brand strategy at a standstill, the automaker consolidated its Chery, Karry, Rich, and Rely brands under the Chery brand. However related platform resources remained and have survived under Chery Holdings' subsidiaries like Cowin, and in Karry commercial vehicles. In addition to Chery Automobile brands, joint ventures such as Qoros and Chery Jaguar Land Rover were added to the company's lineup. In an attempt to create a synergistic effect through consolidating the dispersing management resources, the automaker moved to strategically implement a mega platform strategy. Currently, three projects are being carried out for the main T1X/M1X platform, and the more modular CC2X and A3X platforms.
|T1X platform (Source: Chery press release)|
At the current stage, the T1X/M1X is the mainstay of Chery's mega platform strategy. In comparison to the M1X, on which no information is available aside from that it will focus on passenger vehicles, the T1X will primarily function as the exclusive platform for the Tiggo series, and will be used in vehicles with wheelbases ranging from 2560 mm to 2800 mm, and variable minimum ground clearances from 145 mm to 190 mm. The distance between front and rear seats can also be adjusted from 776 mm to 966 mm.
The T1X platform can support A and B segment SUVs as well as three-row seven seat MPVs. The T1X is an upgraded version based on the Chery TX concept car unveiled in 2012, and incorporates Jaguar and Qoros design philosophies, having been developed by a mixed team that included numerous human resources based in areas outside of China.
|TX concept car (at the 2012 Beijing Motor Show)||
The Tiggo 7 compact SUV. Source: Chery press release
At the 2013 Geneva International Motor Show the TX, the base for the T1X, was awarded the Best Concept Car Design at the 2012 Car Design of the Year Awards hosted by Car Design News. An exclusive international team composed of twenty staff members formerly associated with leading car companies such as Porsche, Mercedes-Benz, BMW, GM, and Chrysler played a major role in the development of the TX.
The Tiggo 7 (development code: T15) compact SUV released on September 20 2016 was the first model released that was developed based on the T1X platform. It will be followed by three models including the Tiggo 3X (T17), the Tiggo 9 three-row seven seat mid-size SUV, and a PHEV. In terms of common parts, using the Tiggo 3X (T17) as an example, 87.8% of its parts modules and 83.6% of its body parts are shared with the Tiggo 7 (T15).
Unlike the T1X/M1X platforms, which were the core of Chery's Strategy 2.0 (aiming to return back to the top rankings for privately owned OEMs); the CC2X is expected to be the core of Chery's 3.0 strategy (close competition with foreign OEMs). Because the CC2X is based on Qoros' CF16 platform, the modularity of the platform as a mega platform is higher than the T1X/M1X. Since the company is planning for mixed production with Qoros vehicles in the future, Qoros' technical resources, which are more advanced than Chery's, will be utilized. Moreover, not only is the platform expected to increase the consumer experience of Chery products, it is also expected to increase the occupancy rate at Qoros' plants, which are experiencing sluggish sales.
The first CC2X model will be the seven-seat Chery M31T that is scheduled for release in 2017. Based on its development code, it is expected to be a compact SUV.
Chery's 3.0 strategy will be completed with the A3X, for which development is being lead by the Advanced and Basic Technology Institute, which separated from the Central Research Institute. The A3X is a platform for small vehicles such as SUVs in the A0 segment as well as passenger vehicles, and mutually complements the CC2X. Chery is also exploring its options for joint development with Jaguar and Land Rover, and the modularity of the A3X is expected to be more advanced than that of the CC2X.
Geely Automobile's platform strategy: FE and CMA
In 2014, Geely Automobile released a platform strategy similar to that of Chery that consolidated its brands under a single Geely brand. In addition to the KC platform, which will focus on B segment vehicles, since 2015 the FE and CMA platforms have been gaining attention, as they will sequentially underpin mass-production vehicles.
FE (Framework Extensible)
The FE platform has a long history, with its roots going back to Geely Automobile's early reverse-engineering days. Geely's chassis technology, which was acquired through reverse engineering, was brought into the world as the Vision, Emgrand EC7, and the Gleagle GX7, and gradually evolved into Geely's unique platform. In the A-/A segment, passenger vehicles (hatchbacks/sedans), crossover vehicles, and SUVs have 80%, 75%, and 35% or more common parts, respectively. In order to cover a wide range of models, the wheelbase is variable from 2550 mm to 2700 mm, and has a 1500 mm to 1570 mm width tread. Additionally, the distance between front and rear seats can be adjusted from 550 mm to 710 mm.
A wide range of engines can be mounted, such as a 1-liter turbo, a 1-liter direct injection turbo, 1.3-liter turbo, a 1.5-liter naturally aspirated engine, a 1.5?liter direct injection turbo, a 1.8-liter naturally aspirated engine, an 1.8-liter direct injection turbo, a 2.0-liter naturally aspirated engine, and a 2.4-liter naturally aspirated engine. Transmissions include a 4 electronic automatic transmission, five-speed manual transmission, six-speed automatic transmission, six-speed dual clutch transmission (DCT), and a seven-speed DCT. Furthermore, in addition to gasoline engines, a variety of fuels such as ethanol, alcohol, CNG, and LPG can be used, and the platform can also be applied to other power plant options such as battery electric vehicles, extended-range electric vehicles, hybrid electric vehicles, and plug-in hybrid electric vehicles.
This self-developed platform is commendable, but modularization is still crucial in order for it to function as a mega platform.
CMA (Compact Modular Architecture)
The CMA is a new mega platform for small vehicles that is similar in concept to VW's MQB platform, and is composed of advanced modular parts. The CMA is a variation of Volvo and Geely's jointly developed Scalable Product Architecture (SPA), and is used for small vehicles.
The CMA platform will be used in Volvo's 40 series, as well as multiple models from Geely's Lynk & Co. brand. The Lynk & Co. brand's lineup features diverse products; ranging from A segment passenger vehicles and B segment passenger vehicles and SUVs, such as the CS11 (sedan), CX11 (SUV), CC11 (Crossover) and CH11 (Hatchback); and is intended to fill the space between the Volvo and Geely brands. The first production vehicle will be released in 2017, but in order to differentiate between the Lynk & Co. and Volvo brands, parts commonality has been restricted to a moderate level. For example, commonality of transmission parts has been limited to roughly 50%, leaving enough space for differentiation between the brands.
(Source Volvo Cars)
Changan Automobile's platform strategy: P3
In comparison to the aforementioned OEMs, Changan's platform strategy is still at an intermediate stage. Having started with the Eado platform announced in 2009, the OEM is currently shifting to the P1 (A00 segment), P2 (A0/A segment), P3 (A/B segment), and P4 (B/C segment) platforms. In the next stage, the automaker aims to increase commonality between platforms. The next generation Eado is scheduled to implement the P3 core platform. In the future, the P3 will be used to sequentially develop the C201 (targeted at three-person families), the C301 (targeted at married men and three-person families), and a new mid-size sedan/hatchback (targeted at fashionable young consumers aged 26 to 36).
Aside from the P3, currently the P4 is in its final stages of development, and the first model to incorporate the platform is scheduled for release in 2017. At the same time, the P1 and P2 platforms are still in the developmental stage.
In comparison to models from non-Chinese OEMs that have already implemented a mega platform strategy, privately owned Chinese automakers are selling less per model by a factor of 10. Although the local OEMs have focused on the affordable vehicle market, and suppressed sales prices, when considering the scales of economy for similar models from non-Chinese OEMs including overseas production, the Chinese makers have an extreme disadvantage in profitability.
This fact pushed many Chinese companies to actively implement a mega platform strategy, but the current situation continues to prove difficult. Excluding OEMs such as Chery and Geely, which have formed direct partnerships to gain access to advanced foreign technology; other OEMs are still using a per segment platform strategy, and have yet to implement a mega platform strategy that spans multiple segments. Moreover, a few OEMs are still implementing a product strategy of reverse engineering popular vehicles.
However, the trends of state-owned companies that have purchased foreign chassis technology must be carefully observed. Although details are still unknown, Beijing Automobile Works announced its M-trix platform, based on a Saab platform it acquired. The platform will be used to cover the A, B, C, and MPV segments, excluding Senova vehicles. Additionally, SAIC Motor has developed the Global E platform, based on GM's Epsilon II, and has implemented it in its high-end Roewe 950.
Privately owned Chinese OEMs started the affordable vehicle market trend of the 2000s, as well as the SUV market, which was developed in the early 2010s. Given their desperation for survival, it is certain that the shift to a mega platform strategy will bear fruit. In particular, OEMs that quickly turned to a mega platform strategy have been able to sequentially improve costs and performance, giving them a significant advantage over other OEMs. A close eye must be kept on the future trends of privately owned Chinese automakers.
China, platform, Chery, Geely, Changan Automobile
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