The Explosive Growth Opportunity in China’s Automotive Aftermarket

Gao Feng Insights Report, August 2016

We are pleased to share with you our paper titled: The Explosive Growth Opportunity in China’s Automotive Aftermarket.  In this report, we examine one of the major discontinuities shaping the future of the Chinese auto market:  the rapid expansion of the independent aftermarket (IAM).

China’s automotive market is transitioning from a period of rapid growth in new car sales to a slower pattern of expansion going forward.  While this slower pattern of growth is a concern for automakers and suppliers, the market remains at historically high levels of sales, and the car population continues to expand at double digit rates annually.  In addition, the average age of the vehicle population is rising.  Add to this a recent push by the Chinese government to allow sales of original equipment service (OES) parts by independent service providers, coupled with the emergence of digital platforms for accessing services, the conditions are ripe for discontinuous expansion of the independent aftermarket.

All of these factors are contributing to an explosive expansion of the automotive aftermarket services business in China.  In this environment, automakers and suppliers are seeking ways to offer a clear and differentiated value proposition in order to succeed in the aftermarket, and they must act quickly to compete with new entrants who are seeking to disrupt the traditional service model.

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
bill.russo@gaofengadv.com

Robert Zhang
Senior Associate, Gao Feng Advisory Company
robert.zhang@gaofengadv.com

Emily Wang
Senior Consultant, Gao Feng Advisory Company
emily.wang@gaofengadv.com

Disrupting the Disruptors: The Merger Of Uber China And Didi Chuxing

Forbes, August 8, 2016

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I co-authored this article with my colleague Edward Tse, CEO of Gao Feng Advisory Company

On August 1st, Didi Chuxing (Didi)and Uber China announced a plan to merge their businesses in China, effectively placing Didi in control of their combined ride-hailing business for the China market.  This deal has attracted a great deal of attention since the announcement, raising a number of critical questions which we address in this article, including:

  • Did the China government play any role in the merger?
  • Can foreign tech companies compete in China?
  • Did Uber China win or lose?
  • Could Uber China ever have become a dominant player in China if it decided to press ahead?
  • What will this deal mean to Uber and Didi’s global strategies?

China has become the epicenter of a disruptive wave of digital innovation, and the rapidly evolving landscape of partnerships for mobility services is a clear indication of this.  For sure, we can look forward to even more exciting developments in the future.

Click here to read the article at Forbes.com

Uber-Didi Merger Has Chinese Consumers Worried

The Sixth Tone, August 2, 2016

A passenger holds a smartphone showing the Didi Chuxing application, Shanghai, May 22, 2016. Qilai Shen/Bloomberg via Getty Images/VCG
A passenger holds a smartphone showing the Didi Chuxing application, Shanghai, May 22, 2016. Qilai Shen/Bloomberg via Getty Images/VCG

by Fan Yiying

After a prolonged price war for ride-hailing customers, Chinese market leader Didi Chuxing and its biggest rival Uber merged on Monday. Now, passengers are worried this will mean a quick end to heavily discounted trips.

Shanghai native Ma Yanyan, 29, rides with either Uber or Didi to work every day. She told Sixth Tone that she has noticed Uber is sending fewer coupons to its users. “As a consumer, I’m very realistic,” she said. “I’ll go back to taking taxis once Uber raises its prices.”

Wang Mengyan, 25, is a frequent user of ride-hailing apps, and she is afraid the merger will mean higher prices. “As a consumer,” she told Sixth Tone, “we want to see competition between Didi and Uber so that we can enjoy the best discounts.”

Yang Mengyi, 28, told Sixth Tone she spends about 150 yuan (about $22) on Didi every week, but that she thought the merger wouldn’t have much of an impact. “Taxis will always be another option,” she said, adding that she prefers cabs because they are more strictly regulated.

Online, many net users echoed Yang’s opinion, saying that if prices rise too high, they will just go back to using regular taxis. News of the merger — and the possible end of discounted fares — has cab drivers delighted.

Chen Yugang, a taxi driver in the northern coastal city of Tianjin, expressed his relief after Monday’s news. He told Sixth Tone that he used to earn about 5,500 yuan per month before the emergence of car-hailing apps. His current monthly income has decreased to less than 3,000 yuan. “Why would passengers take a cab and pay me 20 yuan when they can ride with Uber for as low as 5 yuan?” he said.

Chen said that companies like Uber have disturbed the market, and he hopes the merger will bring consumers back to traditional taxis.

Bill Russo, an automobile consultant at Gao Feng Advisory Company in Shanghai, told Sixth Tone he estimates pricing may move somewhat higher after the merger, but that “it can’t be much higher for the simple reason that ride hailing services need to compete with taxis.” He added that, to Uber and Didi, the real purpose of the merger isn’t to increase prices, but to decrease costs in the form of incentives given out to passengers and drivers in order to win market share.

Full-time Shanghai-based Uber driver Xing Zhiwei told Sixth Tone that the news of the merger has him concerned. “In less than a year, the allowance for 12 rides has dropped from 150 yuan to 40 yuan,” said Xing, adding that he fears such driver subsidies will drop even further.

Zhuang Chunhui, a communications manager for Uber China, told Sixth Tone on Tuesday that the incentive policy for drivers will not change after the merger. She said that the amount of subsidies varies in different cities at the different times. “The discounts we offer to our users will also change from time to time,” she added, “but this has nothing to do with the merger either.”

Wang Mingze, a public relations manager for Didi Chuxing in Shanghai, said the merger will enable the company to increase the efficiency with which it accepts orders, and that this “can eventually increase the drivers’ incomes.” As for passengers, Wang said price is just one part of the service. “What’s more important is whether users can book the car and enjoy a comfortable ride whenever they want,” he said.

Additional reporting by Wang Lianzhang.

Click here to read the article at sixthtone.com

This car company ripped off Land Rover. Here’s why it might get away with it.

The Washington Post, July 19, 2016

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(LEFT) The 2017 Range Rover Evoque Convertible is debuted during the
Los Angeles Auto Show in Nov. 2015, in Los Angeles (AP Photo/John Locher).
(RIGHT) Jiangling Motor Co.’s Landwind X7 SUV is displayed at the
16th Shanghai International Automobile Industry Exhibition in April 2015
(Tomohiro Ohsumi/Bloomberg).

The cars are basically indistinguishable unless you hone in on the exact stitching of the seats or the fine arrangement of the headlights. Even then, changes are so minuscule, it’s nearly impossible to realize one of these vehicles costs $41,000, and the other just $21,700.

British luxury carmaker Jaguar Land Rover and Chinese carmaker Jiangling will go to court this summer in China to settle their dispute over what exactly is fair game in the auto industry. Can Chinese companies continue to get away with “shanzhai” — a Chinese term for prideful counterfeiting — of car designs?

Range Rover’s Evoque and Jiangling’s Landwind X7 are practically the same car to the untrained eye.

It’s a judicial battle that pits Western car companies against the burgeoning Chinese and East Asian market, and one that has captured the attention of economists, auto industry insiders and intellectual property experts.

The Chinese consumer market has grown exponentially since late 1980s economic reform. Some of the largest growth has come from auto companies, both state-owned and foreign joint-ventures. In 2008, when the market was still in its relative infancy, Chinese buyers purchased 9.4 million cars. By 2015, they bought 24.6 million.

And as the industry rapidly expands, Western carmakers, from the United States’ “big three” to German luxury brands to other imports, have rushed to gobble up market share, in the process flooding China and its comparably fledgling car companies with new vehicle models.

The best way Chinese manufacturers could compete was “shanzhai,” reverse engineering foreign products as a way to enter the market without overwhelming research expenditures.

“In the automotive industry, you can copy the look of the the vehicle, but the skills required for the highly complex integrated systems, if you’re a Chinese company, you don’t have engineers with long career histories with that capability,” said Bill Russo, managing director of Shanghai-based Gao Feng Advisory Company.

“So you shorten the life cycle by purchasing or licensing or reverse engineering. And this is not a Chinese-invented cycle.”

Imitation, as the idiom goes, is the sincerest form of flattery. But it’s also a great way to make money, something merchants have realized for hundreds of years.

The United States in the 1800s, for example, lacked authors who could stack up against British literary giants, so American publishers reprinted British works without paying heed to copyright laws, said Mark Bartholomew, a professor of law at the University at Buffalo.

Benjamin Franklin, the Benjamin Franklin, even published pirated works. William Wordsworth and Charles Dickens came to America to complain about it. The United States only stiffened its intellectual property laws once its industries, both mechanical and intellectual, matured by the end of the century.

“It boils down to economics,” Bartholomew said. “The Chinese economy doesn’t have this same tradition of the manufacturers like Ford or Hyundai or any of the folks who are making these cars. So if you don’t have these copyright laws, why pay if you can get away with it?”

China does have intellectual property laws, though, and it’s a signatory to international intellectual property agreements. But China’s laws are applied inconsistently, and even the international rules aren’t always enforced in China and elsewhere around the world.

Some countries recognize certain kind of intellectual property, but not others. For example, special door handles on a car: Are those a decorative creative works, or do they have some functionality? Creative works get copyrights. Objects with usefulness get patents. And states, not companies, are the arbiters of what objects get what protection.

It leaves multinational companies rushing to strategically secure their rights all over the world. In large established markets like the United States and Europe, car companies apply for protection right away. But in a developing market such as China — its auto market was until recently considered “developing” — those applications only became priorities over the last decade.

Smaller Chinese companies without strong market presence used past administrative delays as windows of opportunity. If intellectual property protection hadn’t been filed domestically, it was convenient to reverse engineer the product. And if the protection was filed sloppily, companies reverse engineered cars largely without the risk of prosecution.

Even when U.S. auto makers file their paperwork in the right way, China car companies enjoy remarkable home field advantage in their courts. More mature courts in Beijing or Shanghai might have judges more willing to hear out foreign companies, but rural courts or those in factory-heavy districts often show interest to local industry, including counterfeiters.

And so the copycats started coming. Honda fought a Chinese carmaker for 12 years for copying the CR-V. The Chery QQ riffed off the Chevrolet Spark in 2005. Shuanghuan’s CEO SUV model copied BMW’s X5 in 2007. Shuanghuan’s Noble copied Mercedes Benz’s Smartcar in 2009. The Lifan 320 copied the Mini Cooper Countryman in 2012.

Hummers and Porsches and Rolls Royces have been copied. Even Ferraris have been copied, and were shipped to Spain where they were seized by police.

“Anything known to mankind can be faked, even a Ferrari,” said said Frederick Mostert, past president of the International Trademark Association and a research fellow at University of Oxford and Peking University. To prove a point, he bought one and traveled with it and shows pictures of it at speaking engagements.

Ferraris, though, aren’t the counterfeits major car companies worry about. Any buyer looking for a luxury car is in the market to spend luxury car kind of money. That’s especially true in China, where consumers are extremely brand conscious, experts say. Nobody who wants a Land Rover is going to be fooled by a Landwind.

“People who buy [the Landwind] can’t afford the Land Rover,” said Russo, the Geo Feng consultant. “And of course if you’re the company that’s out there, you’re going to be pissed off about it, but nobody is getting confused.

“Get in that Landwind and drive it. I’ve driven many, many cars in China. It’s not the same car.”

As much as the counterfeits are inconveniences, it may be the lawsuits to stop the practice that may hurt Western automakers moreauto industry experts say. The Chinese public doesn’t like to see its industries get bullied. Plus, if one copycat company gets shut down, others pop back up. Western companies end up playing legal whack-a-mole with money they could use to make newer, better cars, said Kenneth D. Crews, a Los Angeles-based attorney and adjunct professor of law at Columbia University.

That kind of strategy actually trains customers to look for newer models and not settle on older ones that are more easily counterfeited. More mature Chinese car companies have grown up and away from copying other models. Once they made enough money to invest in research and original design, they did.

“These companies have grown to become more than just copycats,” Russo said. “They’re advanced and they’re innovative.”

Click here to read this article at washingtonpost.com

Bill Russo to Deliver Keynote Speech at Electric & Hybrid Vehicle Technology Conference

Novi, Michigan, September 13-15, 2016

TBS&EVT 2016 overview.pdf (page 1 of 3) Preview, Today at 3.32.03 PM

Bill Russo will be a keynote speaker at the plenary session of the Electric & Hybrid Vehicle Technology Expo (Day 1, Track 1) on September 13 in Novi, MI on the topic China Drives the Future of Personal Mobility.

 

China’s Path to Electrification vDraft6 Microsoft PowerPoint, Today at 3.38.27 PM

Topic Outline: 

  • China has emerged as the world’s largest automotive market since 2009 and remains the growth engine of the global automotive industry.
  • The world has entered a new era since 2008, with over half of the world population now living in cities, and this increasingly urbanized world challenges the established set of paradigms for personal and commercial transportation, especially in the densely populated urban centers in China.
  • The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility and ownership concepts will compress the time needed to commercialize new and innovative solutions and business models for personal urban  mobility
  • Shaped by several forces, China is already the largest EV market in the world and will continue to grow exponentially.  Several scenarios will be described that are shaping the market dynamicsgovernment policies, and competitive landscape.

Click here to view the conference flyer:  TBS&EVT 2016 overview

Click here to view the Day 1, Track 1 Agenda

Autoline: “Analyzing the Chinese Auto Market”

Autoline TV

Internet Premiere:  Thursday, 6/23 @ 4:00pm ET
Detroit Public TV air date:  Sunday, 6/26 @ 10:30am ET

Michael J. Dunne of Dunne Automotive, James Chao of IHS Automotive Asia-Pacific & Bill Russo from Gao Feng Advisory Company, join John McElroy on the floor of the Beijing Auto Show to discuss the, up to now, booming Chinese automotive market and where it goes from here.

Volvo: Remaking the marque

The Financial Times, June 19, 2016

Under Geely, the carmaker is back in profit and selling well in China. But is it big enough to compete with its rivals?

There is nothing exceptional about the shiny grey chassis on display in western Sweden. Its wheels, suspension and engine are all where you would expect to find them. But it stands out because of what it represents: tangible evidence of progress in one of the most daring industrial stories of recent years.

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Known as compact modular architecture, it is a shared platform destined to underpin the small vehicles made by both Volvo Cars, the Swedish premium manufacturer, and its owner Geely, the Chinese mass-market brand. “This is a bridge between the two companies,” says Mats Fagerhag, head of the joint venture that created the platform. “Everything is nice words before you start a common project and face hard facts.”

Click here to read the full article at FT.com

Bill Russo’s quote:

“The most important thing [Geely] has done is to help Volvo become a China-centric company,” says Bill Russo, a Shanghai-based consultant. “Geely has shifted Volvo from being a marginally global company situated in Scandinavia to being a global one centred in China.”

SAIC, Alibaba to Mark Chinese Foray Into Connected Cars

Bloomberg News, June 1, 2016

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SAIC Motor Corp. is putting finishing touches to a sport utility vehicle that features software developed with Alibaba Group Holding Ltd., marking the first foray into the connected-car business by two of China’s biggest companies.

The model will be available from September and be the first of a new category of vehicles for the automaker that’s fully integrated to the internet, according to Gu Feng, SAIC’s financial controller. Among its functions, the Roewe RX5 SUV will be able to suggest alternative routes with road closures or traffic congestion, provide directions to the nearest gas station when fuel is running low, and deliver music to one’s tastes, the company said.

“Connected cars are the inevitable trend of the auto industry,” Gu said in a phone interview, declining to give a price for the new model. “We worked with Alibaba instead of Google or Apple because the latter looks at the car as a piece of hardware to install their software. If they are successful, in future they may just get a Ford or GM to produce cars for them, so we don’t see as much synergy in working with them.”

The connected car is the latest battleground for automakers and technology companies such as Google Inc. and Apple Inc. for digital revenue and control of the vehicle dashboard. Customer spending on such technologies will reach an estimated 40.3 billion euros ($45 billion) this year, with safety and autonomous driving functions the biggest categories, according to a study by Strategy&, a consulting group of PwC.

In choosing Alibaba’s Yun OS, SAIC is promoting a Chinese alternative to connectivity systems offered by Google’s Android Auto and Apple’s CarPlay. While Hyundai Motor Co. introduced Android Auto to its Sonata sedan last year and will roll it out to other models, Toyota Motor Corp. is involved in the open platform SmartDeviceLink championed by Ford Motor Co. and another initiative called MirrorLink.

“SAIC and Alibaba hope to grow the pie with services and even if they share it, it’s a bigger pie for both,” said Bill Russo, Shanghai-based managing director at Gao Feng Advisory Co. “The car is becoming the third space, after home and office, where people expect to be connected to the internet — and an increasing number of such collaborations are happening among traditional automakers and internet technology companies.”

Alibaba said it didn’t have additional comments on the collaboration with SAIC Motor.

Among its other plans, SAIC Motor is considering:

  • Listing some of the company’s units, such as its Chexiang.com platform, overseas with Hong Kong as the preferred market
  • Starting a second venture fund in Silicon Valley after investing the first $100 million on projects such as new-energy vehicles and electronic commerce
  • Building cars in India, possibly through acquiring existing plants
  • Selling left-hand drive cars to other European markets besides the U.K.
  • Building up its Hong Kong asset management unit over the next three to five years and issuing bonds

SAIC, which has manufacturing joint ventures with GM and Volkswagen AG, is seeking to boost deliveries of its own Roewe and MG brands and expand overseas even as it navigates the trend toward autonomous driving. The company’s sales have risen sevenfold in a decade to 5.9 million vehicles last year.

“The automobile is about to change fundamentally and it could run without an engine, gearbox, even a driver,” said Gu. “This is the most challenging moment for me and I feel the pressure every single day.”

Click here to read this story at bloomberg.com

When Big Apple Meets Little Orange

Forbes Asia, May 23, 2016

Click here to read the full article at Forbes.com

by Bill Russo, Edward Tse and Alan Chan

Apple CEO Tim Cook with Didi Chuxing President Jean Liu Photo Courtesy of Didi Chuxing
Apple CEO Tim Cook with Didi Chuxing President Jean Liu
Photo Courtesy of Didi Chuxing

On May 13, Apple announced a USD 1 billion investment in China’s leading on-demand mobility (ODM) service, Didi Chuxing (Didi).  Didi’s legal name in Chinese means “little orange”, and an internal announcement made to Didi’s employees literally welcomed the apple to the orange family.

To understand the logic of this investment, it is important to first understand the popularity and explosive growth of such services in China – along with the role that Didi plays inside the expanding ecosystems of its largest investors, Tencent and Alibaba.

Originating from separate taxi-hailing services in 2012, Didi is now a one-stop mobility solutions provider that provides a variety of services including taxi-hailing, private-car hailing, on-demand bus, peer-to-peer ride-sharing, designated driver and test driving.  Didi currently has 14 million registered drivers, completing over 11 million rides per day in over 400 cities across China.  With over 87 percent share of the Chinese private car-hailing market, Didi is far larger than all the other ODM service providers in China, including Uber.

As a global leader in smart connected device technology, Apple has been exploring opportunities to expand the reach of its iOS ecosystem.  It is an “open secret” that Apple is working on its own vehicle program, code-named Project Titan, investing billions in R&D and poaching talent from leading automakers including Tesla, General Motors and Ford.  As a manufacturer of intelligent devices, Apple is a “serial disruptor” of industries ranging from media to telecommunications, and views smart transportation as a key target.

The logic of this collaboration is quite evident: the premier global smart device maker (Apple) has set its sights on disrupting transportation in partnership with the dominant mobility services platform (Didi) in the world’s largest car market with the largest number of mobile internet users.   Through this partnership, Apple and Didi will have the opportunity to shape the connected mobility ecosystem for China as well as the rest of the world.

A Collaboration Model for Connected Mobility Innovation

The traditional owner-centric business model of the car industry is being disrupted by shared ODM services.  As a result, we have witnessed the rapid emergence of a user-centric business model served by mobility services platforms dominated by Uber and Didi.  Apple’s investment in Didi will ensure that they will be able to access China’s dynamic internet and mobility ecosystem.

Apple gains a Chinese partner not only with a strong mobility services brand, but also with a proven market sensing capability and keen understanding of how to address mobility pain points.  Apple can leverage this to launch a car that delivers the perfect connected mobility user experience, and this can be leveraged both inside and outside of China.  Didi will benefit from being affiliated with the world’s premier smart device company, and also gains a major global strategic partner to help penetrate into overseas markets and compete globally with Uber.

While not the primary motivation, Apple’s investment in Didi can also help foster goodwill in China, signaling a willingness on the part of Apple to collaborate with leading Chinese companies.  The importance of maintaining such goodwill was underscored recently when Chinese regulators shut down access to some of Apple’s online media stores, triggering concerns among investors.  In addition, Didi expects to turn a profit next year and eventually list their shares, which could provide Apple with a fast return on their capital investment.

The recent loss of momentum in Apple’s profit growth and share price performance has raised concerns among investors that the Apple may not be able to recover its shine.  The deal with Didi brings hope that Apple can disrupt the auto industry in the world’s largest auto market.

From Connected Mobility to Connected Lifestyle

However, connected mobility is just one segment of the larger “connected lifestyle” opportunity.  The convergence of disruptive technologies such as autonomous driving, artificial intelligence and virtual reality will have the power to transform our everyday lives.  The implications of this go far beyond mobility, which is just one of the spaces where we will be connected through a smart device or platform.

Cars will increasingly become smart, connected, electronic and autonomous – and increasingly accessed through a mobility service.  A logical interpretation of Apple’s strategy is that it views the car as a “third place” after home and office where people are connected to the internet.  Its investment in Didi should be viewed as a strategic opportunity for Apple to capture a larger share of a mobility user’s time online, thereby generating recurring revenue.  By creating a more personalized mobility solution, Apple also hopes that the users of such a mobility service would eventually prefer an Apple hardware platform when they are on wheels.

More than just a taxi-hailing service, Didi is a technology-enabled platform. With advanced algorithms to match supply and demand, surge pricing and real-time route optimization, Didi is efficiently moving people and things by maximizing the utilization rate of vehicles.  More importantly, with big data and machine learning capabilities, Didi’s competitive advantages are constantly evolving and being reinforced.

Like WeChat and Alipay, Didi has emerged as one of the few “Super Apps” holding a vital part of Chinese consumers’ daily connected lifestyle.  These Super Apps typically start by addressing a major pain point and eventually evolve into ecosystems of connected lifestyle services for potentially billions of users.  They possess valuable “big data” on a user’s mobility patterns that are of high commercial value.

“Apple + Didi” vs. “LeEco + Yidao”

In fact, the “Apple + Didi” model is already being experimented by LeEco, a leading Chinese internet media company founded (as LeTV) in 2004.  Last year, LeEco purchased a 70 percent stake in another Chinese car-hailing app Yidao Yongche.  LeEco is also the principal investor in Faraday Future, a U.S.-based electric vehicle startup that is featuring a “subscription model” where users can enjoy the flexibility and convenience of mobility on-demand without having to own the vehicle.  Apple’s recent monthly paid iPhone subscription program indicates that they may already be considering such a business model for other smart devices.

The usage-based model effectively eliminates the problem of up-selling features to individual owners by allowing the businesses that generate revenue from the device to cover the cost for adding the technology.

LeEco’s vision is to cover all aspects of consumer’s connected lifestyle by establishing an extensive business portfolio with mobile internet, e-commerce, sports, internet finance, entertainment and others.  It is rapidly building a vertically-integrated ecosystem comprised of “Content, Devices, Platforms and Applications” offering premium user experience across multiple screens (i.e. mobile, tablet, computer, cinema, TV and cars).

Disrupt or Be Disrupted

Going forward, we expect to see increasing levels of co-opetition, and more cross-border, cross-industry collaborations:

Co-opetition: Google is an early investor in Uber while Baidu is a strategic investor in Uber China.  Alibaba is a major investor in Didi.  Meanwhile, Ant Financial Services Group, Alibaba’s affiliate that runs Alipay and other financial services, has partnered with Uber to enable Alipay globally.  Apple’s deal with Didi could potentially challenge both Uber and Google.  In addition, Didi is a member of an “anti-Uber alliance” including Lyft in the U.S., Grab (formerly GrabTaxi) in Southeast Asia, and Ola in India.  With Didi’s aspiration to become a global company, Apple could eventually extend strategic partnerships to other companies in the alliance as well.

Cross-border: China (Beijing) and U.S. (Silicon Valley) will be the leading innovation hubs for connected mobility and beyond.  The Chinese government is keen to promote electric vehicles adoption and digital transformation to improve urban mobility and address environmental issues.  China could leapfrog and become the epicenter for connected mobility innovation on a global scale, with its massive population serving as a fertile ground for technology commercialization, as well as connected lifestyle.  Permutations and combinations of cross-border alliances for connected lifestyle will create tremendous value for Chinese internet users as they trade-up for better products and services.

Cross-industry: The boundary between automotive and internet technology industries will become increasingly blurred.  General Motors, as one of the most forward-looking incumbents, has formed a strategic partnership with Lyft, acquired self-driving start-up Cruise Automation and established a new business division named Maven to experiment with new mobility services. Other automakers are also catching up by piloting ODM services, including Daimler’s Car2Go, Ford’s Go!Drive and Ford Pass, BMW’s DriveNow, and Audi On-Demand.  We have already seen emerging “disruption clusters” in China, including (1) LeEco, Faraday Future, Aston Martin and Yidao Yongche, (2) Future Mobility, Tencent and Foxconn, (3) NextEV, Tencent and JD.com, and (4) Alibaba and SAIC.

A Partnership to Reimagine Mobility

China is at the epicenter of a disruptive wave of automotive innovation and beyond.  The mobility experience is being redefined with innovative usage-based business models.  Incumbents and new players must re-evaluate their connected mobility strategies with a new lens for delivering the perfect connected mobility experience.  Past success in the old automotive game is not a guarantee for future success.  In fact, one would surmise that past legacy could often become a barrier for swift and innovative moves going forward.  It is time for the leading companies from China and Silicon Valley to join forces to re-imagine mobility and the marriage between Apple and Didi could offer the promise of doing just that.

Bill Russo to Chair Future Mobility Panel at JP Morgan Global China Summit

Beijing China, June 14, 2016

The Future of Mobility:  China’s Automotive Industry in the Age of Disruption

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The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are transforming the manner in which we experience the product.   The particular conditions of urbanization, an ever-expanding middle class population, pollution, and congestion are uniquely challenging in China, which may create opportunities for innovative new mobility solutions for China.

 The conventional hardware-centric, sales-driven, asset-heavy and ownership-based business model with sporadic customer interactions is now competing with a connected, on-demand, and often personalized mobility experiences.  This new form of “connected mobility” is driving new technologies in the world of navigation, analytics, driver safety, driver assistance and information virtualization.

China’s automotive industry is at the forefront of disruption as the driving forces are much more apparent in China than that in the rest of the world:   Urbanization. A Growing Middle Class. Pollution. Grid Lock.

How are these factors shaping the auto market in China?  What solutions are being developed to ease mobility “pain points” in China?  How do you see these solutions impacting and shaping our everyday lives today and in the future?  How will this impact the structure of the industry going forward?

Innovations such as these, originating from both traditional OEMs and new mobility solutions platforms, many of whom are Chinese, could pave the way to a an entirely new business model for China’s auto industry.

Topics for discussion:

  • Defining the disruption in the China context – What are the disruptive trends in the world of mobility?
  • Big picture view of the competitive landscape – What does the new competitive landscape look like and how will it evolve?
  • How should incumbents respond? Disrupting or being disrupted? – What new internal capabilities are required? How to work with local start-ups:  compete or collaborate?
  • China for the world – Will China lead to world’s development and innovation in Connected Mobility?

Ms. Jean Liu, President, Didi Chuxing

Mr. Hubertus Troska, Member of the Board of Management, Daimler AG; Chairman & CEO, Daimler Greater China

Mr. Matt Tsien, President & CEO, General Motors China

Mr. Carsten Isensee, EVP of Finance, Volkswagen China

 

Moderated by:

Mr. Bill Russo, Managing Director, Gao Feng Advisory Company