Mobility

Karaoke Electrifies China’s Drivers

Volkswagen’s petrol cars remain very popular on the world’s largest automotive market. But the highest-grossing carmaker globally wants to rev up its sales of electric vehicles in China. Its third joint venture in the metropolis of Hefei is expected to play a key role in achieving this goal.

09/2022

Erwin Gabardi is paving the way for a Volkswagen e-car breakthrough in China—as CEO of the Volkswagen Anhui Automotive Company Ltd. joint venture.Porsche Consulting/Jörg Eberl

Dr. Erwin Gabar­di doesn’t beat around the bush. “If Volk­swa­gen doesn’t have sim­i­lar suc­cess with its e‑cars in China as it does with com­bus­tion engines, it’ll have a problem—by 2025 the coun­try will account for 45 to 55 per­cent of the NEV mar­ket,” he says. The NEV—or New Ener­gy Vehicle—market in China refers to cars with alter­na­tive drive sys­tems, includ­ing bat­tery-pow­ered e‑cars, plug-in hybrids, and vehi­cles with fuel cells.

Gabar­di, an Aus­tri­an with two doc­tor­ates, is refresh­ing­ly open in his analy­ses as well. “In China you have to know exact­ly what cus­tomers are look­ing for in NEVs, which often means com­plete­ly dif­fer­ent things than the rest of the world and might not have any­thing to do with elec­tro­mo­bil­i­ty per se,” he says. “Volk­swa­gen has some catch­ing up to do here.”

That being said, Gabar­di doesn’t leave the impres­sion he’s los­ing any sleep over the mat­ter. On the con­trary, he is much more focused on the oppor­tu­ni­ties for Volk­swa­gen. In the sum­mer of 2021 he became Chief Exec­u­tive Offi­cer of Volk­swa­gen Anhui Auto­mo­tive Com­pa­ny Ltd., which means he directs the lat­est VW joint ven­ture for elec­tric cars in Hefei in the province of Anhui. Locat­ed around 500 kilo­me­ters west of Shang­hai with a pop­u­la­tion of near­ly ten mil­lion, Hefei is home to major indus­tries (cars, elec­tron­ics, semi­con­duc­tors, biotech, and med­i­cine) and is one of the country’s lead­ing cen­ters of high­er edu­ca­tion. In late 2020, Volk­swa­gen increased its share of the JAC Volk­swa­gen joint ven­ture to 75 per­cent and took over the man­age­ment, which gives it free rein in day-to-day operations.

Hefei, capital of the southeastern province of Anhui, is becoming a hub for electromobility in China. Both Volkswagen and the Chinese company Nio want to make e-cars there.Porsche Consulting/Clara Philippzig

With­in the Volk­swa­gen cor­po­ra­tion, the posi­tion in Hefei is con­sid­ered cru­cial for busi­ness in China. That is where the company’s e‑mobility break­through in the world’s largest car mar­ket is expected—or rather will have to—take place. Gabar­di comes across in the inter­view as well aware of the task and only too happy to take it on. He explains the quirks of cer­tain charg­ing sta­tions in pas­sion­ate detail, describes clear­ance mea­sures as qual­i­ty cri­te­ria for car bod­ies, and mar­vels at but doesn’t belit­tle Chi­nese cus­tomer wish­es for fea­tures such as on-board karaoke.

The largest market runs by its own rules

No one can under­es­ti­mate cus­tomer wish­es (any­more) on the world’s lead­ing mar­ket for elec­tric vehi­cles. A record num­ber of near­ly three mil­lion e‑cars were sold in China in 2021, and the country’s auto­mo­tive asso­ci­a­tion expects the fig­ure to increase by up to 5.5 mil­lion for 2022. The mar­ket, how­ev­er, is firm­ly in Chi­nese hands. Of the ten top-sell­ing man­u­fac­tur­ers in 2021, not one was from Europe, and the only west­ern maker was Tesla.

Gabar­di acknowl­edges the suc­cess of the com­pe­ti­tion with­out a trace of envy. He is fas­ci­nat­ed by the devel­op­ment tra­jec­to­ries of local providers like BYD, X‑Peng, and Nio. “Our Chi­nese com­peti­tors have become incred­i­bly pow­er­ful in the NEV sec­tor,” he observes. “Their cars have state-of-the-art func­tions and design, and are com­par­a­tive­ly inex­pen­sive. We’re tak­ing a close look at them and ana­lyz­ing the sit­u­a­tion with our col­leagues in Wolfsburg.”

One insight is that Euro­pean com­bus­tion engines have large­ly lost their com­pet­i­tive edge. As for dri­ving com­fort and expe­ri­ence, the Chi­nese mod­els are com­pa­ra­ble “and also have info­tain­ment and con­nec­tiv­i­ty fea­tures tai­lored to their cus­tomers,” explains Gabardi.

That is pre­cise­ly where Volk­swa­gen Anhui needs to get mov­ing. For exam­ple, Chi­nese cars have on-board karaoke and self­ie capac­i­ties. They also have smart-home func­tions and apps that can make restau­rant reser­va­tions. “It doesn’t occur to us to want some­thing like karaoke in our cars,” he remarks, “but the Chi­nese think it’s cool. The sell­ing points are no longer the engi­neer­ing exper­tise or the clear­ance mea­sures, but a range of col­or­ful gimmicks.”

“In Germany nobody needs karaoke in their cars, but in China people think it’s cool,” is Gabardi’s conclusion from years of local experience.Porsche Consulting/Jörg Eberl
“We want to make decisions for the Chinese market here in China in the future,” says Gabardi, here in conversation with David Romanowski, Senior Partner at Porsche Consulting.Porsche Consulting/Jörg Eberl
“If Volkswagen isn’t as successful with its e-cars in China as it is with combustion engines, it’ll have a problem,” says Gabardi, who has doctorates in economics (University of Graz) and mechanical engineering (TU Graz).Porsche Consulting/Jörg Eberl

The CEO of Volk­swa­gen Anhui Auto­mo­tive rec­og­nizes there’s work to be done. The pri­or­i­ty right now, there­fore, is to catch up. “In terms of fea­tures, we first have to make cars that can hold their own with local com­peti­tors while retain­ing our spe­cial char­ac­ter­is­tics like qual­i­ty, depend­abil­i­ty, and safe­ty,” he says. “The next step will be to define new ser­vices and features.”

The “In China, for China” principle

The guid­ing prin­ci­ple here is the idea of “In China, for China.” As far as pro­duc­tion goes, around 90 per­cent of cars sold in China are already made at local plants, which now num­ber more than 40. Inno­v­a­tive tech­nolo­gies and dig­i­tal ser­vices are also expect­ed to be devel­oped local­ly. Hefei will be play­ing an impor­tant role here.

A new research and devel­op­ment cen­ter was there­fore ded­i­cat­ed back in Decem­ber of 2020. Devel­op­ment speed will play a cru­cial role in future suc­cess. As Gabar­di explains, “Our Chi­nese com­peti­tors can put a karaoke fea­ture into a car in two or three months, but we need about a year. We’ll have to change that, and put cus­tomer wish­es into prac­tice more quick­ly.” The process­es also have to become more stream­lined and agile. “We can’t dis­cuss every detail with the head­quar­ter in Ger­many any longer—for me that’s also part of the ‘In China, for China’ idea. We want to make deci­sions for the Chi­nese mar­ket here in China in the future.”

Development, production, and sales—all in one place

In addi­tion to research and devel­op­ment, Hefei will bring qual­i­ty assur­ance, simul­ta­ne­ous engi­neer­ing, and pre-series pro­duc­tion togeth­er and also inte­grate them through­out the value chain. More­over, the newly found­ed Dig­i­tal Sales and Ser­vices sub­sidiary is charged with adding pre­cise­ly those activ­i­ties to the value chain. Its job is to cre­ate direct cus­tomer inter­faces at var­i­ous online and offline points of con­tact, and to devel­op mobil­i­ty and con­nec­tiv­i­ty ser­vices and options designed specif­i­cal­ly for Chi­nese customers.

The com­plete e‑car fac­to­ry with a peak annu­al capac­i­ty of 350,000 vehi­cles is “essen­tial­ly fin­ished,” reports Gabar­di. “We’ve already made the first body in white. The first actu­al car is sched­uled to leave the fac­to­ry for test­ing in Sep­tem­ber 2022, and pro­duc­tion cars are sup­posed to start rolling from the Hefei assem­bly line in the fourth quar­ter of 2023.”

In 2020 Volk­swa­gen invest­ed two bil­lion euros in Hefei: half in the joint ven­ture with JAC and the other half in the Gotion bat­tery maker to secure a sup­ply of that cru­cial com­po­nent for the Chi­nese e‑cars.

That invest­ment pack­age has also helped ensure excel­lent rela­tions with the local gov­ern­ment. Good rela­tions with local gov­ern­ments are one of the guar­an­tors for suc­cess in China, says Gabar­di. “We’re not only invest­ing in the com­pa­ny but also in the city of Hefei, which means we’re help­ing the local econ­o­my cre­ate value.” The fact that a Ger­man cor­po­ra­tion made this bil­lion-level invest­ment dur­ing the Covid-fueled eco­nom­ic cri­sis in 2020 “will not be for­got­ten,” says Gabar­di. That’s why there’s a “very good and extreme­ly direct link” to key per­son­nel, and rela­tions “are quite friend­ly,” says the top-level manager.

It would there­fore appear that Volk­swa­gen has found ideal con­di­tions for its elec­tro­mo­bil­i­ty hub in a rel­a­tive­ly low-pro­file part of the coun­try, even among Chi­nese. And when you lis­ten to Erwin Gabar­di, you def­i­nite­ly think that Volk­swa­gen Anhui is mov­ing into the fast lane and prepar­ing to pull out ahead.

Cost control and flexible approach


When Volkswagen decided to acquire 75 percent of the JAC Volkswagen joint venture in Hefei and thereby also control its management, a team from the Porsche Consulting management consultancy led by Senior Partner Dr. David Romanowski was brought on board to guide the integration phase. For this post-merger integration, processes and structures are being standardized and departments consolidated. In this particular case, the consultants have been supporting something more closely resembling the launch of a new company. They have been focusing on four areas: the product portfolio and characteristics, factory planning, sales preparation, and organizational ramp-up.
Erwin Gabardi values the advice of David Romanowski (left), Senior Partner at Porsche Consulting, and his team.Porsche Consulting/Jörg Eberl
The very first job, however, was to turn the business case for the new Volkswagen (Anhui) Automotive company into a business plan. “That covered the entire value chain and included planning for IT, personnel, investment, and budget, but also subsidy negotiations with the local Chinese government,” reports Romanowski. Dr. Erwin Gabardi, the CEO of Volkswagen Anhui, emphasizes the importance of investment planning right from the start. “At various points we were 30 percent above the planned sum of a billion euros, and the Porsche Consulting team was extremely helpful in getting the costs back under control.” Porsche Consulting has also actively supported the project management. A crucial factor in success here was the stakeholder management, with the consultants coordinating different operational units. There were three points of contact on the Volkswagen side alone: corporate headquarters in Wolfsburg, Volkswagen Group China in Beijing, and the joint venture team in Hefei. “Given the many players and issues, that was a very complex construct,” recalls Romanowski. “But in my view it all worked out really well,” comments Gabardi. In addition to the usual challenges, work on the project was complicated by the Covid crisis and the chip shortage. “For enormous projects like this, you generally solve three problems and are confronted with two more,” says Gabardi. That makes it all the more important to maintain a flexible approach. “Flexibility, direct involvement, and helping to tackle whatever problems arise—that was really helpful. You won’t always find that kind of pragmatism with other consultancies.” Gabardi therefore values the “all-rounder qualities” of the Porsche Consulting experts, “which make flexibility possible in the first place.”
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