China Drives the Future of Automotive Innovation

Gao Feng Insights Report, October 2015

We are pleased to share with you a report titled: China Drives the Future of Automotive Innovation.  This new report is the product of a collaboration between Gao Feng Advisory Company and our partners at Tech Mahindra.  Tech Mahindra is a specialist in digital transformation, consulting and business re-engineering solutions, and is is also amongst the Fab 50 companies in Asia as per the Forbes 2014 List.

For global automakers, China represents the greatest opportunity for growth in the 21st century.  Since 2009, China has been the world’s largest market by volume, and will likely surpass 25 million units in annual car sales in 2015.  Over the coming decades, we believe that China will remain the key battleground for dominance of the global auto industry.

However, this battle will not be waged using the conventional automotive technologies which have been refined over the past century.  We believe several driving forces, which are particularly evident China, have the potential to disrupt the status quo of the automotive industry:

  • The unique context of China’s urban transportation challenge, the highpenetration rate of mobile internet, combined with the rapid and aggressive introduction of alternative mobility and ownership concepts, are compressing the time needed to commercialize smart, connected car technology and related services.
  • The automotive value chain is being disrupted by non-traditional players as they enter and compete to deliver mobility solutions.  Disruptive new entrants are utilizing big data to draw insights about customers’ mobility patterns in order to address their “pain points” and offer new solutions for their mobility needs.  Such mobility needs are increasingly being met through on-demand and shared services versus individual ownership.

We believe that the confluence of these forces, along with rapid innovation to address “pain points” associated with mobility in the China context, are positioning China as the catalyst to drive the transformation of the business model and technological underpinnings of the global auto industry.  In this report, we highlight the six themes that are shaping the future of mobility, and describe the key features and functions of future automobiles.

We welcome your comments and feedback on our briefing paper or in general about our firm.  We would be glad to meet you in person to share our data and perspectives in a fuller manner.  Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does.  We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company

Aloke Palsikar
Senior Vice President & Global Head, Manufacturing Vertical
Tech Mahindra, Ltd

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Tech Disruptions Impacting the Auto Industry

Beijing, China, October 28, 2015

Audio Interview:  Bill Russo of Gao Feng Advisory Company talks about how convenience-centric mobile users are buying fewer cars

Click here to access the AmCham site with a link to the full audio interview

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Cars are the ultimate mobile device. And changes in mobile purchasing and big data have changed the way consumers interact with cars, with taxi hailing apps as the most vivid example.

Bill Russo, Managing Director and Automotive Practice leader at Gao Feng Advisory Company, spoke at AmCham China Oct. 28 to address these tech disruptions impacting the auto industry. Russo has nearly 30 years of experience in the auto industry, paired with 12 years in the IT industry. Listen in to the full podcast below to hear what he makes of tech’s latest target.

Q: The China market is adopting new innovations in cars faster than other places in the world. What are these innovations happening here first?

A: The car is a mobile device and today it’s not as connected as other things that people carry with them. So the expectation is high that the car will be an extension of their mobility world.

I think we’re actually saying that Chinese adopt new mobile technology faster than the rest of the world, not necessarily new mobile technology in cars.

When you compare China to anywhere else in the world, it’s much more densely populated and everybody’s connected through some form of mobile device. The Internet population is now well in excess of 600 million, and almost all of them are connected some sort of mobile device.

To the auto industry, one of the disruptions that is plainly evident if you live in China is that people have the choice of whether to own a car. It’s become less and less convenient to drive a car or hail a taxi at certain times of day. Internet companies came in and said that’s another convenience that we could provide. You can book a car through your mobile device. That’s having a disruptive impact on the way people use mobility.


Digital Disruption in China’s Automotive Industry – AmCham China

October 28, 2015, 12-2pm

Bill Russo to present on the topic:

Digital Disruption in China’s Automotive Industry

AmCham China Conference Center
The Office Park, Tower AB, 6th Floor
No. 10 Jintongxi Road
北京市金桐西路10号 远洋光华国际 AB座6层
Beijing, Chaoyang District, China

Click here to register

Digital Disruption in China’s Automotive Industry - AmCham China on EventBank Safari, Today at 4.55.07 PM

Ripples of emissions scandal felt in China

Nikkei Asian Review, October 1, 2015


The U.S. limits nitrogen oxide emissions to half the amount allowed in Japan and Europe. © Reuters

Click here to view the article at Nikkei Asian Review

SHANGHAI/BEIJING — On the face of it, Volkswagen’s diesel scandal should have little impact in China, the company’s largest market, as none of the models involved are sold in the country. However, the German manufacturer, which through its joint ventures with local automakers SAIC Motor and FAW Group has seemed to be able to sell anything with a VW badge, may be facing a profound change in attitudes among Chinese consumers.

     Last year, the Volkswagen Group sold 3.68 million cars in China, accounting for a market-leading 15.7% of sales in the country. Since VW established its first joint venture with SAIC in 1984, the company has sold few diesel vehicles in China. FAW-Volkswagen put out a statement Sept. 24 saying that none of the models being investigated by U.S. authorities have been sold in China.

Diesel plan denied

In 2013, VW raised the idea of introducing new diesel models — of the type involved in the current scandal — to China. “Bosch and VW have lobbied the Chinese government to adopt diesel technology to absorb the extra diesel engine and parts production capacity in the EU, but after this event, diesel will not be an option for future fuel efficiency,” said Zhou Jingzhe, director for China and Korea at IHS Automotive Advisory Service.

“The belief that German cars are the most technologically advanced in the world has been damaged,” said a VW salesperson in Beijing. “We are going to have a hard time from now on.”

FAW-Volkswagen sales tumbled 14% on the year in the year to Aug. 31. “We may well need to re-revise our sales target downward for this year,” said an official at one of VW’s joint ventures.

“I had already decided not to buy [another] Volkswagen before this news,” said Jimmy He, a Chengdu-based businessman who previously bought a VW Tiguan SUV. “Different models of Volkswagens are quite similar in design and are quite ordinary.”

     “The immediate impact [of the rigged emissions tests] on sales in China may be limited, but questions may have been raised in the eyes of consumers with regard to their perception of the trustworthiness of the VW brand,” said Bill Russo, who previously oversaw Chrysler sales in China and is now a managing director at Gao Feng Advisory in Shanghai.

The online buzz has been very critical. “They must be underestimating Chinese consumers,” said one commenter. Said another: “Volkswagen has been my favorite brand of car, but now I’m disappointed. From now on, I’ll buy Chinese or Japanese cars.” Another person wrote, “It turns out that German companies are just as untrustworthy as Chinese companies.”

Under the microscope

Sources at VW’s Chinese joint venture partners say they are already receiving inquiries from government officials regarding emissions and other quality measures. “If they discover any flaws or misconduct at such a global company as VW, it would give them a huge career boost,” said one executive. “Our fear is that those government officials will intensify their scrutiny.”

Another potential threat comes from investigative reports by state-controlled media, such as China Central Television, which in March highlighted a problem with VW’s automatic dual-clutch gearboxes two years ago and other issues regarding the carmaker.

“Of course [the new scandal] will remind Chinese consumers of the [dual-clutch gearbox] and axle problems,” said Jochen Siebert, managing director of JSC Automotive, a China-focused consultancy. “[But] so far, VW has managed to get over these problems, and this time won’t be different. I believe that China and the Chinese have bigger fish to fry and will get on with their lives and other topics, so it will not have a lasting impact in China.”

     But the scandal could trigger a shift in perceptions among Chinese consumers. They have tended to favor German cars, believing them to be better than U.S. and Japanese models. “Due to the arrogance and cheating with diesels, VW is stepping down from the altar,” Zhou said.