Dr. Angelika Berger-Sodian - Fotocredit André Bakker

Dr. Angelika Berger-Sodian
Photo credit: André Bakker

Dr. Angelika Berger-Sodian has worked in the top management of a Chinese-global start-up for many years and had spent seven years running her own niche management consultancy in Shanghai previously. She supported European OEMs (Original Equipment Manufacturer) and suppliers in their market entry, growth and cooperation with China. Today, she lives in Vienna and works as a consultant, author as well as keynote speaker. Her stated goal is supporting European automotive companies in their cooperation with China and preparing them for the changed circumstances in the Chinese-European world of mobility.

KPMG Contact

You were one of the first employees of NIO, a Chinese-global start-up in the field of eMobility in Shanghai. As the only European in the Chinese top management, you first built up NIO Germany (the global design center) and then managed NIO England (the advanced performance unit of the company, including the Formula E racing team). Accordingly, you have a good insight into what has already changed and will further change in the Chinese and global automotive market. Casting a glance at the Chinese market first, how do you think Chinese car manufacturers have reacted to COVID-19? Which measures were taken?

As we know, COVID-19 hit the Chinese automotive industry earlier than their European counterpart. China acted earlier in taking measures as well as easing them respectively. When we take a look at Chinese measures taken in the course of COVID-19, we should first of all be aware that the shutdown in Wuhan, Hubei province, was much more rigorous than the measures we can observe here in Europe. Many of the measures and their enforceability can, of course, also be attributed to the communist leadership.

In the Chinese automotive industry, vehicle sales fell by 80 percent. Looking at the course of the year, February in China (depending on the respective lunar years) is known for Chinese New Year (CNY) and thus for the return of millions of migrant workers to their home cities. Thus, commuting has led to a higher volume of traffic (especially in public transport), but on the other hand it offered an "easier" possibility to keep factories closed for a longer time and especially to extend the CNY holidays of employees and production workers by one or two weeks. From a sales point of view, February is not a strong month in terms of sales due to CNY, so the above-mentioned slumps in sales and their impact on the full-year result should be seen in relative terms.

However, many Chinese manufacturers have used the shutdown for innovations.

Are there support packages from the government?

As known, China is pursuing a very clear strategic industrial policy, which is reflected, among other things, in "Made in China 2025" and is now being continued in the "China 2035 Standards", a new strategic manifesto that is even less well known internationally.

China's declared goal is to become the world market leader in the field of alternative drive systems/electromobility, along with several other key industries. Looking at this overarching goal, it is also easier to explain how China has managed to achieve such progress in the field of electromobility within just a few years through appropriate government subsidies, "leap frogging" (skipping technologies), a completely new ecosystem and numerous highly innovative start-ups. In line with the same goal, the Chinese government in Beijing announced a few days ago that it would extend subsidies for alternative drive systems, which were supposed to have already been phased out, to 2022. This means that subsidies and tax exemptions for electric vehicles will be extended and at the same time the VAT on the sale of used cars will be reduced. It is also interesting to see how much has been budgeted for future planned infrastructure investments for charging infrastructure, another indicator that Beijing is still very much committed to electromobility.

Which effects do you expect on the global automotive market? After all, the COVID-19 crisis has now affected almost all markets.

COVID-19 affects an industry that was already undergoing massive changes. The automotive industry, or mobility industry, as it is often called today, was already in a state of radical changes before the COVID-19 crisis. Currently, the effects on the global market and especially the consequences are still difficult to assess, which is partly due to the complexity of global value creation. The fact that challenges on a global level, both in terms of supply chains and sales, are new to most exacerbates, that there is little experience in dealing with such complex challenges and that most companies and countries were not sufficiently prepared. It will probably not be possible to make any serious assessments until there is more clarity or medication to cure COVID-19.

In any case, it is clear that the effects will be felt in the medium and long term, and that on a variety of levels. Personally, I believe that globalization will change in the way we have lived it so far. Companies are advised to learn from the current crisis (ie resilience of their supply chain), because it would be naive to assume that this will remain the only crisis.

What is your assessment of the supplier industry? Do you expect global knock-on effects in the industry due to the strong dependencies of manufacturers on automotive-specific parts and components?

Our supply chains are more globalised than ever before and one of the main problems is the corresponding interlocking or domino effect. Just think about how many Tier-1-suppliers an OEM has worldwide and how many Tier-2-suppliers they work with. If an OEM closes its production, this means short-time work for the supplier. Many problems in the supply chain are now emerging slowly and may not become apparent until April or May, as there were inventories in many places that might be used up.

According to our information, China has already ramped up the economy to 80 percent – even in Wuhan the curfew has been lifted and the production facilities are starting to work again. When do you expect both, production capacity and demand, to return to pre-crisis levels? Is that even possible?

Yes, meanwhile most OEMs and suppliers have resumed production in China and a certain degree of normality is returning. The faster China manages to recover, the better for all of us. China not only plays an important role in the global supply chain, but also as a sales market.

A serious estimate of production capacities does not seem possible for now. What is clear, is that we will continue to suffer from volume losses in the long term. Many problems in the supply chain only become apparent with a time lag. The issue of demand will also be more complex to see, since in many cases purchasing behaviors will not only be characterised by caution and a higher awareness of spending, but many physical needs will be transformed into virtual ones and new criteria such as "emotional experience" will increasingly come to the fore.

I believe that the question regarding production capacities will not only be a quantitative issue (When will demand be as high as before the crisis?), but that it will also be qualitative: Will companies manage to position themselves in such a way that they can meet the changing demand behavior of customers?

As a result of the COVID-19 crisis, do you also expect a consolidation in the automotive and supplier market through M&A activities?

Yes, of course. As mentioned before, the transformation of our industry has been under way for a long time and COVID-19 or the corresponding economic consequences are now increasing the dynamics, urgency and transparency in many cases – be it in technological/innovative matters or simply in terms of liquidity.

The consolidation of the industry will take many different forms. From company closures, new and previously unthought-of cooperations and mergers, to hostile takeovers, especially in regard of the current and historically low stock market prices. In any case, I hope that neither established companies nor start-ups, despite current difficulties, will ignore the opportunities that this period also offers. For example, a financial bailout or integration into a larger company can also bring new perspectives that may not have been considered before.

Let us take a look into the future: Which medium to long-term developments do you expect in the automotive industry? Are there any positive developments, eg an even stronger focus on sustainability, an issue that is coming back to the fore as a result of reduced emissions and improved air quality? Will there be changed requirements on the part of buyers?

Personally, I don't believe that the automotive industry will develop technologically in a very different way in the future than the transformation of recent years has already initiated. But I do believe that some of the criteria of the hitherto highly praised "future of mobility" will have to be reassessed and that there will be a slowdown in many areas.

An example for that is the topic of electromobility. I personally believe that China will extend its lead on electric mobility in the next years. Not only because many experiences and success criteria of the development of the electric ecosystem will also be helpful for the transformation, but also because the European buying behavior, at least in the coming months, will become more "cautious" and possibly many will (have to) prefer a more pragmatic, cheaper petrol solution to the originally noble goal of buying an electric car. In this case, not only would the desire for sustainability in the worst case be in direct competition with feasibility – or affordability on the end customer side – but the success of the Western OEMs' electric efforts could at least be slowed down.

In this context, it will be exciting to see up to what extent CO2 regulations can be maintained.

What can we learn from China – in general and from the COVID-19 situation?

What has always impressed me about China is its clear and highly ambitious industrial policy, which not only provides direction for all stakeholders involved, but is also consistently implemented in times of crisis.

My feeling is that Europe, like many traditional companies, lacks this "master plan", this solid, long-term vision – and by long-term I don't mean ten years, but a vision up to the year 2050. My feeling is that vision and mission in the essential sense have become buzzwords on PowerPoint presentations and that much more space and time has been given to operational planning or the perpetual pursuit for efficiency and optimization. Perhaps not everything has to be perfect, but a Chinese "good enough" or a radically error-prone corporate culture might be more helpful.

With my latest book, "Im Jahr des Tigers: Warum es noch nicht zu spät ist, von China zu lernen" (engl "In the Year of the Tiger: Why it is yet not too late to learn from China"), I purposely did not write a guidebook, but a non-fiction that is intended to be a wake up call for companies, and with managers leading the way, encouraging them to rethink business plans in an innovative and experimental way. Because the clock is ticking, and China will continue to extend its lead – whether in the field of electromobility or in overcoming the COVID-19 crisis.