A NEV revolution in the making

The Report

"A NEV revolution in the making" was authored by Deloitte Auto Consulting Team. The report outlines five major trends and drivers in China’s NEV market. These cover technology choices, product differentiation, retail and network transformation, the competitive landscape, and value chain evolution. The report also puts forward three types of value chain models and strategic thinking frameworks to enable companies to design an effective NEV strategy.

Viewpoints / key findings

Five trends shaping China’s NEV market

• Battery electric vehicle (BEVs) and fuel cell vehicles (FCVs) will lead the development of new market. In the passenger vehicle market, BEVs will dominate, as plug-in hybrid electric vehicle (PHEVs) are only transitional products, while in the commercial vehicle sector, FCVs will be tested first, yet have a long way to go before they enter the passenger vehicle market.
• Features and design will be the primary factor influencing consumer decisions. Hard features will no longer be deciding factors in NEV purchase. The key differentiators of NEVs will be smart and connected functions as well as human-oriented design.
• Emerging NEV players are disrupting automotive retail through a direct sales model. Balancing user experience and cost efficiency is key to cracking direct sales model. Traditional OEMs will have to focus on cross-channel integration and align their innovations with the direct sales model.
• China's NEV market is likely to see a period of consolidation. With the rapid emergence of foreign, joint venture (JV), and local OEMs, China’s NEV market will enter an era of intense competition from 2020. Only the smartest and most profitable will survive.
• Evolving value chain will change automotive industry's profit structure. NEVs have expanded the traditional automotive industry value chain from upstream to downstream. The upstream now extends to the power battery and intelligent technology sectors, while the downstream extends to retail, user lifecycle services, battery recycling, and other elements of the end-user market.

Three value chain position models and their core capability requirements

• Full-chain player. Most full-chain players will emerge from established traditional OEMs and leading new entrants in the field. To gain leadership in the market, full-chain players need to build competencies in advanced technologies, product innovation, sales and retail models, advanced user experiences, data-driven digital ecosystems, and cost efficiency in operations.
• NEV brand owner and retailer. Most NEV brand owners and retailers will emerge from small, emerging NEV companies, sub-brands of traditional OEMs, established dealer groups, and mobility services providers. This type of NEV players need to ask themselves three key questions while developing their core competencies: How can we create differentiated product and service offerings to penetrate our target markets? What new, user data-based businesses should we develop to generate new revenue streams and drive greater profitability? How can we think ahead to lead the new retail transformation and innovate user experience?
• NEV manufacturer. Most of these NEV companies will be traditional OEMs who are lagging behind their peers in NEV development, or newly established players with manufacturing cost leadership. Cost control and supply chain management will be these OEMs’ essential core capabilities.

Creating a strategic framework for NEV layout design.
Under our proposed strategic thinking framework, the first question they need to ask themselves is: What value and experiences should we offer to our users? The short answer is: Only products, services, and experiences that address pain points and meet user demand can create value and win in the market. The second question is: How do we structure business models to create value with greater efficiency and lower costs? There is no single or infallible approach to strategic planning, but we have drawn up this framework to help NEV companies in their strategic planning efforts, enabling them to focus on key issues and succeed with greater accuracy and efficiency. (figure1)