»Automobil Industrie« China

Trend1：Redefining the value system

In 2024, the intense price war in China's passenger car market piled even more pressure on automakers' profitability. From January to September, the overall profit margin of automakers stood at just 4.6%, dropping further to 3.4% in September. This fierce competition has tightened the noose of traditional automakers and prompted many to do re-evaluate their strategy and business priority.

Against the backdrop of rapid development in NEVs and intelligent technologies, automakers are constantly adjusting their marketing and pricing strategies to better respond to swift market changes. At the core of these dynamics lies the new generation of Chinese consumers, whose diverse needs, behaviours, expectations on brands, and demands for more differentiated value propositions are shaping the new market reality. To re-establish their value system, automotive companies have to better understand and respond to the market, as well as adapt to the evolving value propositions of the next generation consumers.

To respond to new consumer demands, solely relying on price wars is not a sustainable option, and may undermine a brand's value as well as erode its long-term profitability. Therefore, automakers must resort to some key value-reshaping levers, such as localizing product value definition, differentiating brand marketing, vertically integrating core component value chain, and pursuing technological innovation.

• Localizing product value definition: The automotive industry's mega trends are accelerating the shift from traditional product-centric design model to user- centric approaches. The conventional focus on "data accumulation" and "feature competition" is no longer sufficient to create differentiated competitive edges. Automakers need to develop a deep understanding of users' actual vehicle usage scenarios and, based on these varied needs, create a unique and irreplaceable user experiences through optimized holistic vehicle design and integrated flexible configurations.

• Differentiating brand marketing: The core objective of brand marketing extends far beyond "creating a premium positioning." More importantly, it involves conveying value that extends beyond the product itself, such as aesthetic, experiential, social, and cultural values. By engaging consumers through these dimensions, brands can provide them with richer experiences, shape unique brand images in their minds, and strengthen the brand's emotional value to users. These initiatives help create deeper emotional resonance with them, ultimately enhancing consumers' brand loyalty and willingness to pay price premium.

• Vertically integrating core component value chain and pursuing innovation: Vertical integration does not equate to "full in-housing." In today's environment of rapid iteration and high investment, a blind pursuit of fully in-housing can lead to resource dispersion, reduced returns, and potential quality issues.

Trend2：Passing cost pressure across the whole value chain

The decline in automakers' profitability poses significant challenges to their financial health, directly impacting their overall resource allocation in the Chinese market. Facing such a huge pressure, automakers are forced to reduce medium- to long- term R&D and infrastructure investments, while also cut short-term budgets, particularly in marketing and new product launches. Moreover, to share costs and mitigate risks, automakers are expected to be more open to various joint venture and partnership model, hoping to leverage local companies' resources and networks to maintain competitiveness.

The intensive market competition impacts not only OEMs but also different types of businesses across the ecosystem. As we have observed, cost reduction and efficiency improvement have become universal priorities across the whole industry.

Under the direct pressure from OEMs' dwindling procurement budgets, upstream component suppliers are also actively pursuing more comprehensive cost-saving plans, including product portfolio innovation, digitalized procurement management, and supply chain optimization. For foreign component suppliers, there is an increasing need to focus on localized design to meet domestic market demands and reduce costs brought by their global platforms. Meanwhile, optimizing R&D planning and efficiency are key measures to lower operational costs.

Dealership groups, directly affected by automakers' marketing strategy and commercial policies, also face many challenges, such as shrinking in-store sales and increasing customer acquisition costs. In response, dealerships can explore cost-saving opportunities through various measures, such as optimizing inventory management, establishing digital sales channels, simplifying sales processes,

implementing flexible staffing arrangements, centralizing procurement, and cutting non-core expenses.

Aftermarket service providers have higher short-term operational pressures due to the ICE/EV transition and the consumers' ensuing maintenance behaviour changes. To enhance cost competitiveness, they should adopt a series of digitalized strategies to boost efficiency, such as optimizing service processes, introducing digital and automation technologies, upskilling employees, and strengthening inventory management. These improvements will be critical to lift cost competitiveness.

It is evident that to better address cost pressures across the entire value chain, automakers, dealerships, and aftermarket businesses should avoid focusing solely on individual segments. Instead, they must consider upgrades from an omni-channel perspective to identify profit improvement opportunities throughout the value chain.

In the era of digitalization and online-to-offline integration, businesses can no longer rely purely on traditional sales models but must focus more on marketing effectiveness and ROI. For OEMs and dealerships, key priorities include enhancing customer experience, streamlining sales processes, strengthening data analysis, and implementing precision marketing.

Aftermarket businesses need to establish more flexible channel systems, utilize personalized services and extend product lifecycle management to boost customer retention and repurchase rates. Furthermore, component suppliers must adopt more agile Go-To-Market (GTM) models and enhance transparency in profit management throughout component distribution channels, ensuring clear profit allocation at all levels along the channels to optimize the overall profit structure.

Trend3：Transforming local organization

Intensifying competition and higher operational cost pressure require automotive companies to develop sharper consumer insights and quicker market responses. This demands organizational transformation to build new operational capabilities fit for the next chapter of China's automotive industry development.

Leadng with optmized organizationa objectives: Building syste matic organizational capabilities require long-term cultivation, yet the imminent arrival of the "15th Five-Year Plan" will introduce pressure for short-term results. Balancing these competing demands is a challenge to all players in China's automotive industry. The tension will inevitably affect their organizational goals and KPI settings.

Guided by the principle of fostering new productive forces, businesses must quickly adjust their management mindset from scale-oriented to profit-oriented. This transition aims to steer organizations toward high-quality development, enhancing both profitability and competitiveness.

Accelerated reform of domestic brands' management systems: Several domestic automotive groups initiated organizational transformation in 2024, setting the stage for deeper reforms in 2025. The restructuring of traditional automakers is expected to focus on two key directions:

1.Management model transformation: As domestic brands continue to contribute bigger revenue shares to the groups, they must transit from the old strategic control model to the operational control model. This involves strengthening integrated operations across R&D, production and sales; concentrating all key resources toward frontline operation; elevating the management level of homegrown brands within the group; and improving organizational efficiency.

2.In-depth strategic integration: Automotive groups need to enhance strategic synergy, facilitate the efficient integration of internal resources, clearly define each brand's positioning to reduce conflicts of interest, improve resource utilization, and leverage the systematic advantages of the groups. With the accelerated growth of Chinese brands, component suppliers must also explore new collaboration models with downstream OEMs to shorten time-to-market. They need to establish cross-department, more agile, and reusable R&D and delivery middle-platform architectures because it will be a key efficiency lifting approach in meeting major clients'demands in 2025.

Joint ventures' accelerated transformation to catch up: In 2024, many JV brands changed top leaders to defend their market share in China, bringing in more innovative and China-savvy executives. Additionally, some foreign brands pioneering the transformation, such as Volkswagen, have established entities in China with greater local R&D autonomy, shifting development from German headquarters to China. This move ensures direct decision-making within China and accelerates the development and intelligent manufacturing of localized products.

Under the trend of "In China, For China," more traditional joint venture automakers may leverage external resources to drive the transformation of internal organizational capacities. Starting with new business models such as technology-based joint ventures, the aim is to address inefficiencies in lengthy decision-making processes, outdated procurement systems, and slow model iteration cycles.

Similarly, international component suppliers must actively adapt by responding more agilely to market demands, accelerating capability building, and improving local compliance systems. In 2025, we expect to see more new developments in joint ventures between international and local component companies.

Trend4：Diving deeper into digital transformation

Driven by national policies and diversified consumer demands, digital transformation remains the central theme in automotive marketing and an essential path for brands to build competitiveness. With the government's encouragement to create new consumption scenarios, marketers of the auto industry are leveraging new technologies and digitalization to enhance consumer experiences. Brands should enrich their e-commerce livestreaming activities through new technologies, such as AI Large Models, virtual reality panoramas and digital avatars.

In this context, we see automakers increasingly emphasizing user operation-driven models in addition to traditional traffic-driven approaches. They are actively utilizing advanced digital tools and touchpoints to enhance customer conversion and long- term engagement. The key trends include:

• Technology as the driver: Automakers are harnessing the influence of "AI for everything" to explore generative AI applications, aiming to enhance brand personalization, improve customer interaction experiences, and achieve greater efficiency in marketing. For instance:

- In content distribution: Uploading vehicle information and promotional materials to AI systems to automatically generate personalized cloud-based content libraries

- In consumer insights: Leveraging AI technology to analyze customer behavior data on CDP (Customer Data Platform) to develop tailor-made marketing strategies

- In customer service: Employing AIGC (AI - generated content)- powered intelligent outbound call robots to create smart communication platforms, improving customer response efficiency.

• Continuous traffic management: Increase investment to integrate the public and private domains. Automakers are placing greater emphasis on effectively combining traffic from both public and private domains. By leveraging precise data analysis and scenario-based marketing, they aim to enhance the efficiency of prospect conversion while actively building their private traffic pools to support long-term user retention and engagement.

• Growing importance of Key Opinion Consumers (KOCs): Automakers are strengthening social media and community operations to establish OEM-led Customer-to-Customer communication channels. As consumers' preference for new media grows, automakers are increasingly focusing on community management to meet the needs of different consumer segments. The quality and distribution efficiency of contents on owner app communities are steadily improving, gradually capturing traffic and user attention from mainstream portaapps. Automakers should also proactively leverage online KOCs to create multiple commercial values, including brand building, sales conversion and directing traffic to private domains.

• Ongoing advancement of retail intelligence: Expanding and deepening the application of new technologies. In the retail sector, many brands continue to invest in digital solutions to enhance the sophistication and integration of dealership operations. This includes implementing smart employee badges, intelligent license plate recognition, and customer traffic analytics, which enables data-driven store management and seamless coordination with upstream supply chains. The technologies can help retail channels leverage the synergy created by the integration at the brand level.

While the marketing activities continue to be digitalized, an integrated digital system to link production and sales is also being developed with a faster face. Automakers are implementing digital solutions to achieve data-driven intelligence across all business segments to enhance decision-making efficiency and management transparency.

Trend5：Expanding globally with caution

Since 2020, China's annual overseas automotive sales have skyrocketed from less than 1 million units to approximately 6 million, making China the world's largest automobile exporter. However, as the "low-hanging fruit" markets become saturated, growth rates decline, and competition intensifies - the next phase of international competition requires a new approach. Automotive and component manufacturers going global need to shift from an export-oriented mindset to the perspective of operating businesses at a global level, transitioning from covering low-barrier markets to entering high-value markets, while seizing regional opportunities amidst profound changes in the global political and economic landscape.

By 2030, localized manufacturing is projected to account for approximately 50% of Chinese automakers' overseas sales. In this new phase of globalization, Chinese automakers face two critical challenges: 1) establishing a global system consisting of global headquarters with international capabilities and localized operations, and 2) building end-to-end localized value chain competencies.

• Comprehensively enhancing global management capabilities: First, there needs to be a shift in mindset which repositions the China headquarters to the global headquarters. Second, headquarters need to develop global management and service capabilities to support international expansion. Additionally, clear functional boundaries between headquarters and overseas operations should be established. Overseas entities should prioritize building localized functions for products, branding, and services tailored to local end users, while also gradually improving localized talent management systems.

• Forging localized value chain capabilities: For overseas products, automakers must plan and define vehicle models from a global perspective, combining local market insights with product adaptation to create hit products. In the manufacturing process, they should leverage external partners' resources to explore diverse localization strategies while establish standardized management, cost control, and global capacity coordination systems to enhance local manufacturing profitability. In sales and services, while continuing to enhance end-market management, Chinese brands must align brand value systems and communication strategies with local preferences, exploring integrated marketing on a global scale.

As Chinese companies have already achieved high market share in low-barrier markets, the focus now has to shift to mainstream markets with larger potentials, which would require Chinese companies to enhance systematic capabilities and drive sales breakthroughs.

• Build model markets with premium brand position and systematic capabilities: Selecting and prioritizing breakthroughs in model markets that can demonstrate global brand building successes and whole value chain capabilities. Winning "highland" markets requires rapidly securing key accounts and deploying innovative strategies that resonate with local users, establishing a localized brand image that represents "new forces, new strengths."

• Component suppliers entering high-margin markets by providing long-term added value: Leading Chinese component suppliers with technological and cost advantages are expanding into high-barrier markets including Europe, America, and Japan. Facing strict local regulations and sophisticated standards established by international automakers, these companies must prioritize building robust data compliance systems and comprehensive capabilities. Additionally, providing more agile responses to local OEM demands, delivering tailored localized services, or achieving deep integration through strategic investments will be key focus areas for Chinese component manufacturers in their global expansion.

Meanwhile,amid increasingly complicated shifts in the global landscape, establishing a robust risk management system has become imperative. Businesses venturing abroad must set up comprehensive monitoring and mitigating mechanisms to swiftly identify, respond to and resolve risks.

Trend6：Commercializing cutting-edge technologies

Cutting-edge technologies are the indispensable drivers of automotive industry's development. 2025 is expected to be a pivotal year for numerous innovation's accelerated breakthroughs. Thanks to advances in fundamental sciences, proactive policy support, and the growth of scenario-based applications, we expect there will be three major technological trends for 2025.

Accelerated adoption of core technologies: AI will accelerate the end-to-end applications across vehicles and industry chains, further enabling advanced autonomous driving. This includes the full integration of Transformer and BEV (Bird's Eye View) technologies into end-to-end AI systems spanning the vehicle's perception, planning, and decision-making behavioural actions. There will also be more applications of AI in R&D, significantly improving development efficiency. Large models will influence multimodal integration into smart cockpits.

In electrochemistry, next-generation battery technologies will continue to evolve with core technologies, such as high-nickel, high-silicon, and solid-state batteries, reaching maturity. We have noticed forward-looking initiatives from numerous automakers, new energy vehicle companies, and even consumer electronics players. Driven by technology giants and auto industry leaders, we expect a surge in EVs equipped with solid-state batteries within the next two to three years.

Other technologies will also show promising developments. With advancements in high-voltage platforms, silicon carbide controllers, low-loss silicon steel sheets, and deeply integrated multi-in-one systems, we expect high-efficiency, high-density electric powertrains exceeding 20,000rpm to enter mass production for passenger vehicles. The 800V architecture will become increasingly adopted and emerge as the standard configuration for mid- to high-end mass-production vehicles. Wire- controlled active suspension technology is expected to breakthrough the limitations of passive suspension tuning. It will be able to work in conjunction with autonomous driving systems, autonomously adjusting suspension parameters to fit more complex driving scenarios.

Exploration of intelligent transportation system: In the field of smart cities and smart mobility, eVTOL technology is evolving across diverse applications, spanning short-distance passenger transport, cargo delivery, and tourism services. As a crucial component of the low-altitude economy, flying cars will accelerate their commercialization in 2025. Advancements in battery technology, artificial intelligence, and lightweight materials have provided the technical foundation for flying cars. Furthermore, regulatory support is strengthening, exemplified by China's Ministry of Industry and Information Technology's encouraging policies for general aviation equipment innovation, which promote both technological development and commercialization of flying cars.

Cross-Industry technology integration: The automotive mobility ecosystem continues to expand, further linking up with artificial intelligence, transportation logistics, consumer electronics, and healthcare industries. We already see tech companies entering segments like aftermarket services, digitalization, and even battery recycling, as well as the smart cockpits integrating with health and wellness companies in both functions and ecosystem. Tech and consumer electronics players are investing in AI and humanoid robotics, while the solar-storage-charging and electricity trading technologies have been applied or piloted in logistics parks.

By 2025, as cross-industry integration accelerates, traditional boundaries will continue to blur. For companies currently operating in one industry, this trend presents both the allure of market expansion and the risks associated with strategic transformation. Companies will need to maintain strategic focus, precisely define their roles, optimize business models, and prepare their technological roadmaps for the next five years.

2025 marks a crucial year for China's automotive industry players. Industry leaders face two critical challenges that require holistic review: how to tackle the short-term uncertainties and intense competition, and how to strategically allocate resources for the long-term "marathon" transformation.

The Roland Berger automotive team looks forward to partnering with industry participants, working together across a variety of areas, including strategic transformation, operational efficiency enhancement, organizational restructuring, ecosystem building, digital implementation, and global expansion.