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Chinese automakers need to spend more to become globally competitive

Detroit Free Press - Chinese automakers are about a decade away from being globally competitive and will have to increase their spending on research and development to close the gap, according to Sanford C. Bernstein.

Carmakers such as General Motors, Volkswagen and Toyota are outspending Chinese brands on research and development and lead in engineering, said Max Warburton, an auto analyst at Bernstein, which has a neutral rating on China's auto industry. The Chinese have the will and money to make their auto industry world class, he said.

"The Chinese are 80% of the way there; 20% doesn't sound very hard, but it's probably the most complex bits to get right," Warburton, who is based in Singapore, said last week. "They'll be spending until they make it work and eventually they'll end up with Chinese carmakers on the world stage."

China's brands are losing share in their home market as foreign manufacturers increase local production and introduce lower-priced models. The country's automakers spend less than 2% of revenue on research and product development, or about half the global average, according to the China Association of Automobile Manufacturers.

Of the more than 100 Chinese automakers, SAIC Motor stands the best chance of becoming a world-class manufacturer as it has learned a huge amount from its joint-venture partner GM and has more experienced engineers compared with the rest, Warburton said.

The Bernstein team was also "positively surprised" by the progress made by smaller, independent Chinese automakers such as Geely Automobile Holdings, Warburton said. A teardown of Geely's EC7 model showed that the Hangzhou, China-based company had a clear grip of engine technology and called it almost competitive with global automakers.  (From Detroit Free Press)

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