Auto giants convert Chinese rivals into clients


By Katrina Hamlin

(The author is a Reuters Breakingviews columnist.)

HONG KONG, April 23 (Reuters Breakingviews) - Volkswagen VOWG_p.DE and Toyota , the two world's largest automakers, are adopting a similar strategy in China. By sharing their electric vehicle technology with local rivals, they could turn up-and-coming competitors into customers. With dozens of local startups entering the market, it's a clever way to leverage economies of scale.

Startups may opt to buy ready-made hardware and know-how to avoid investing heavily in duplicative research or factories. Letting young companies piggy-back on industry leaders' technology could help them become credible rivals - but the strategy is more shrewd than generous.

The tactic squeezes more revenue from the new technology, which will be welcome because consumer sales are still modest; pure battery-powered vehicles accounted for only 1.6 percent of the global auto market in 2018, while hybrids made up 3.1 percent, according to Nomura.

It also helps justify their sunk investments in development and production. Creating external demand jacks up volumes and cuts costs for components, facilities, and engineers. In Toyota's case, it has even allowed the company to recycle a design for a discontinued model.

If the idea takes off, it will transform the industry. Factories could devolve into white label OEMs, while marques become studios. Some startups are already doing things differently: Nio , China's answer to Tesla , has contracted production to carmaker JAC; peer Xiaopeng has also outsourced manufacturing too.

The ultimate prize would be defining industry norms. By disseminating their designs as widely as possible, Volkswagen and Toyota could dominate key links in the electric supply chain - much like Foxconn does with smartphones. If enough local companies use their technology, they could set de facto national standards, in the same way Android has become the operating system of choice for Chinese phone makers. Offering a shortcut to rivals is risky, but this road looks worth exploring.

On Twitter


- The Volkswagen Group aims to produce 22 million battery-powered vehicles by 2028, including 11.6 million in China, the company announced on April 15.

- As well as producing vehicles under its own marque, the company is offering its new electric mobility system - called the Modular Electric Toolkit, or MEB - to other automakers, who can use the technology as a basis for their own models, the company announced in March. Two factories operated by Volkswagen alongside Chinese joint venture partners will produce the MEB system in China from 2020.

- Toyota Motor has agreed to license electric car technology to Singulato, its first deal with a Chinese electric vehicle startup, Reuters reported on April 16. In return, Toyota will have preferential rights to purchase green-car credits that Singulato will generate under China's new quota system for all-electric and plug-in hybrid vehicles.

- Toyota Motor said on April 3 it would offer free access to some 24,000 patents for hybrid-vehicle technology, including many used in its Prius model, to supply competitors with components including motors, power converters and batteries used in its lower-emissions vehicles through 2030.

This article appears in: Stocks , World Markets , Economy

More from Reuters


See Reuters News

Research Brokers before you trade

Want to trade FX?