By ZHOU Shuqi
As Audi's sales tank, the once-mighty automaker needs to take a lift with a Chinese automaker to survive in the world's biggest car market.
It is widely acknowledged in the industry that Audi is in talks with SAIC Motor to use the platform of its premium EV brand IM Motors, making "unprecedented efforts" to gain a foothold in the EV market after years of ambivalence.
Reuters reports that the negotiations between the two parties have reached a critical stage. None of Audi China, SAIC, or IM Motors responded to requests for confirmation.
Losing touch with the leaders
The negotiations between Auto and SAIC involve IM Motors' powertrain, vehicle architecture, and intelligent driving systems. It is reported that more than 100 workers from SAIC-Volkswagen's R&D department have been assigned to the Audi deal.
Since reaching its peak global sales of 1.9 million vehicles in 2017, Audi's sales have declined compared to Mercedes-Benz and BMW. Over the past three years, global sales have fallen below 1.7 million, while Mercedes-Benz and BMW have remained above 2 million.
In China, still Audi’s largest market, its market share is shrinking. In 2017, Mercedes-Benz overtook Audi in annual sales, becoming the leader in the luxury car market. In 2019, BMW surpassed both Mercedes-Benz and Audi. Since then, Audi has ranked third in sales ranking among the three brands.
In Q1 this year, while Audi's global sales rebounded by 8 percent to 421,800 vehicles, its sales in China further declined by 15.6 percent to 136,400 vehicles. In the same period, BMW and Mercedes-Benz each sold more than 190,000 vehicles in China.
Oliver Blume, CEO of Audi’s parent company Volkswagen Group, has publicly stated that Audi has not been able to defend its position and has even fallen behind its own capacity. Audi's product lineup has aged a lot compared to Mercedes-Benz and BMW. It takes Audi more than 5 years to take a new model from conception to market.
First premium overseas manufacturer
Audi is represented by around 600 employees at Audi China in Beijing, and with two major JVs. The partnership with FAW-Volkswagen in Changchun was established in 1988, but in 2021, a new JV was established with SAIC Volkswagen in Shanghai.
Audi was the first premium overseas manufacturer in the market and the first to adapt its product portfolio to the needs of Chinese customers and now makes cars at six locations, including Changchun, Shanghai and Tianjin, with a production capacity over 600,000 vehicles.
With a new production site for EVs in Changchun, Audi is expanding capacity by 150,000 in the lead-up to the planned start of production at the end of 2024.
As the next step in its electrification strategy, Audi FAW plans to manufacture all-electric, top-range models based on the Premium Platform Electric (PPE).
Audi is partly relying on brand-exclusive quick-charging stations, building a nationwide network, with the first charging stations in operation at the end of last year. More than 600 charging points are planned by the end of this year. The brand is also cooperating with other automotive companies on a third-party charging network.
Fighting over scraps
Audi has 750 dealerships, mostly with FAW, but SAIC-Audi operates more than 100. SAIC-Audi models are being serviced via the existing FAW-Audi dealership and service network. In addition to models that Audi produces locally, nearly 30 other models are available in China as imports.
While the sales teams of SAIC-Audi's showrooms and stores come from SAIC, after-sales services are handed over to FAW-Audi, and the division of responsibilities between the two is not clear.
In Audi's ideal scenario, SAIC-Audi would complement FAW-Audi, focusing on niche segments and China-specific models. However, there was an overlap between the SAIC-Audi lineup and FAW-Audi. When SAIC-Audi lowered prices, problems quickly emerged.
You snooze, you lose (your job)
The rise of EV brands such as Tesla and Li Auto among others threatens traditional luxury brands. Over the past five years, Tesla's share of the global luxury car market has increased from 1.4 percent to 15 percent. While the combined share of Mercedes-Benz, BMW and Audi has decreased by 10 percentage points, the big three still make up 55.3 percent of the market.
Facing a common crisis, Mercedes-Benz and BMW cut prices and introduced new products. In Q1, their pure EV sales increased by 80 percent, selling more than 110,000 cars between them. Audi is behind, with only 35,600 EV sales.
Blume knows that Audi's business heavily relies on the Chinese market, and its EV line is not competitive. Audi faces constant software issues, leading to endless delays in the release of new products and, in June, Audi's global CEO, Markus Duesmann, was fired.
Slow and steady wins the race?
Audi's four EVs in China rely on four electric platforms used by other Volkswagen Group brands - MLBevo, MEB, J1, and PPE on high-end EV models.
The delivery of the PPE platform has been delayed for two years, which is one of the reasons behind Audi's EV woes.
Audi is ambitious about the EV market, planning to invest 18 billion euros over the next three years and launch 20 new models globally by 2025, of which 10 will be EVs. But achieving this goal at the current snail's pace is not an easy task.
Volkswagen and Toyota are trying to mimic Tesla with their own EV platforms, but it’s easier said than done.
ZHANG Junyi of Aurora Consultancy told Jiemian News that the advantages of Japanese and German cars are in craftsmanship and process. Software development focuses on iterative trial and error, which runs counter to traditional car-maker thinking.
Reinventing the wheel, again
The advantage of developing your own system was the ability to differentiate yourself from the competition, said Zhang. But that sword cuts both ways. Not all car companies have the will or the way to make their own systems, and the road ahead is covered in potholes.
The easiest and quickest way to differentiate yourself from the competition is to perform a lot worse than them. Already far enough behind in the race, Audi will not be allowed the luxury of further failure.
When systemic challenges cannot be resolved overnight, external procurement is a faster way to solve problems.
Developing a brand-new electrification platform is costly and what happens if the customers don't like it? By simply using a well-known platform that actually works, costs can be reduced and reputations protected. If an agreement is reached, the speed of product launches may well become too fast for Audi's slow-and-steady mentality.
If Audi is allowed to use the SAIC platform to launch competitive products, it can sell them overseas. This reflects the pressure faced by overseas carmakers. Leveraging Chinese technology is essential to compete with those same Chinese manufacturers who developed that technology.
On the other hand, does SAIC really want to compete with itself? Today's customers are totally focused on the current state of the brand and the vehicle.
No one is interested in paying for sentimentality. With a quaint, almost retro- appeal, "the first premium overseas manufacturer in China," is not a slogan that will ship many sportscars in 2023.
