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  • Nov 1, 2014
  • Updated: 10:56am
BusinessChina Business
VEHICLES

Chinese carmakers still stuck in slow lane on R&D

PUBLISHED : Thursday, 11 April, 2013, 12:00am
UPDATED : Thursday, 11 April, 2013, 5:07am

It could take another decade before Chinese carmakers become a threat to their overseas rivals, as most spend just a fraction of what their Western and Japanese counterparts allocate to research and development.

Brilliance Auto - one of the most profitable Chinese carmakers and a joint-venture partner with BMW - invested just five million yuan (HK$6.27 million), or 60 yuan per vehicle, to develop its own minibus last year, based on the firm's documents.

That may be six times the R&D outlay of the previous years, but it is still a meagre sum when compared with R&D spending by Mercedes-Benz or BMW, which spend an average of €2,879 (HK$29,275) and €2,164 per unit, respectively.

Even at the more ambitious carmakers Geely and Great Wall, which spend over US$100 million a year to develop their own engines and car models, the sums are still far less than the billions of US dollars their foreign counterparts spend every year.

Sanford C. Bernstein, an equity research firm that recently examined the competitiveness of Chinese carmakers, said they lack the momentum and resources to develop their own brands and that many of the state-owned enterprises still rely heavily on their joint-venture partners.

"Why should they invest a huge amount of money [to advance their models] when they already [make] good sales and profits with their joint-venture partners" asked Max Warburton, the firm's senior vice-president.

While Great Wall, Dongfeng and Geely reported much higher operating margins than BMW, Mercedes and Volkswagen, Warburton said that was only because of a lower cost structure based on low wages, lower investment on R&D and lower material costs, as some Chinese carmakers get their parts from manufacturers of refrigerators and motorcycles.

He said none of those advantages are sustainable and they certainly won't help Chinese carmakers establish global brands.

Engineers recruited by Bernstein to test and dismantle two cars made by Geely and Great Wall concluded that even though the two carmakers are catching up with international standards for body structure and safety, they nevertheless lag far behind on engines, transmissions, technology and refinement.

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