China's Lynk, Borgward brands seek footing in Europe
A decade ago, Chinese automakers made a big push to establish themselves in Europe. It was a disaster.
The first wave of vehicles had outdated designs and powertrains that couldn't meet Europe's tough emissions standards. The quality of the vehicles was subpar and they scored terribly in crash tests.
As a result, Chinese brands have been a nonfactor in Europe. Last year, the brands' light-vehicle sales peaked at 3,866 units in a market with a total volume of 14.1 million, according to JATO Dynamics. Most of those sales came from MG Motor in the United Kingdom and Great Wall in Italy.
In 2016, however, the outlook has changed dramatically. Geely Automobile's Lynk & CO brand looks like it will be a serious contender when it debuts in Europe in two years, thanks to the engineering help it is getting from sibling brand Volvo.
Borgward, a storied German brand revived with Chinese backing, also appears to be in position to succeed with the help of a team of former Daimler executives.
The two Chinese brands will introduce models to tap into growing European demand for crossovers and alternative powertrains.
Borgward's BX7 midsize crossover will feature a battery-electric drivetrain, while Lynk's 01 crossover will be sold in Europe as a hybrid or a plug-in hybrid.
Borgward collapsed in 1961 after building 1.2 million vehicles in Germany over its 40-year life span. In 2018, Borgward will start assembling 10,000 BX7s a year from kits shipped from China to a factory in Bremen, its former home.
"Production will be designed to be flexible and organized in such a way that we can adjust -- and thus increase -- production output and the number of models," Borgward CEO Ulrich Walker said in a statement.
Walker is Daimler's former China boss. His team includes Tilo Schweers, who is now Borgward's head of powertrain electrification after playing a key role in Daimler's development of alternative drive systems, and Florian Herbold, who leads Borgward's transmission development after holding a similar job with Daimler.
The Lynk 01 will be underpinned by the compact modular architecture that Geely developed with Volvo Car Group. Volvo will use that architecture for its 40-series compact vehicles, which will be built alongside Lynk models in China.
Volvo's factory in Ghent, Belgium, also will produce vehicles using the platform, which has led to speculation that Lynk vehicles would also roll off the lines there.
Tariffs and shipping costs would make it difficult for Lynk to make money on European sales unless the vehicles are made locally. But Volvo says it has no plans to make Lynk vehicles in Ghent.
Even if Lynk ships Chinese-built vehicles to Europe, it is likely customers would give them a chance.
Global automakers have demonstrated that the quality of vehicles made in China is on a par with models made in Europe. Most left-hand-drive versions of the Honda Jazz sold in Europe are built in China. In addition, the Chinese-made Volvo S60 that is exported to North America has achieved a top safety rating from U.S. regulators.
In the wake of this success, Volvo has made China its exclusive global export hub for the S90 flagship sedan, which was previously made only in Sweden.
Another advantage that both Chinese brands have is the support of owners with deep pockets. Lynk is backed by billionaire and Geely founder Li Shufu, who bought Volvo in 2010. Borgward is part of state-owned Chinese truckmaker Beiqi Foton Motor.
Despite all the pluses, Li remains cautious because of the problems Chinese brands have experienced in Europe. "We don't have the ambition of influencing the whole European market," Li said.
Added IHS Markit analyst Namrita Chow: "Both Lynk and Borgward allegedly have solid financial bases behind them, but they have yet to launch products in Europe with dealership and aftersales services."
Robin Zhu, a senior analyst at Sanford C. Bernstein in Singapore, views the export plans of Lynk and Borgward as a way to prove that local Chinese brands are no longer inferior to those made outside the country.
"There is a huge desire on the part of the Chinese government to create an industry champion, and to have something they can export with pride," Zhu said. "I think Lynk will definitely try. I have less clarity on Borgward, but perhaps it's possible too.¡±
Christoph Stuermer, global lead analyst for PwC Autofacts, said Chinese automakers will succeed in Europe only if their designs are compelling and their brand history is interesting. "Lynk is trying to stand out by using design cues from many premium brands, while Borgward is using its German heritage to make a difference," he said.
One thing Lynk and Borgward have in common is a strong focus on Germany, which accounts for nearly a quarter of the region's sales. Borgward says it chose to make cars in Bremen because of its proximity to the Bremerhaven port, the availability of skilled workers and a strong supplier base.
The automaker added that German suppliers such as Bosch, Continental and Kuka will "play a major role" in the future assembly of its EVs in Germany. Batteries will be supplied by LG Electronics, it said.
Borgward builds gasoline-powered variants of the BX7 in Miyun, near Beijing. The German plant will be its European base, with initial plans to produce an electric version of the BX7. Later, the plant will build electric and plug-in-hybrid variants of the BX6 and BX5 crossovers.
While it doesn't plan production in Germany and doesn't have Borgward's history in the country, Lynk still picked Berlin for the Oct. 20 unveiling of its first model, the 01.
Lynk Senior Vice President Alain Visser said the brand's debut in Berlin was intended to send a message.
"We clearly want to look our German competitors in the eye, showing them that we have the technology and the quality of a German-engineered product," Visser said. "Germany will be one of our first markets and a priority market."
The Geely subsidiary plans to start European sales in 2018 at the same time that it plans to launch in the United States.
Both debuts will come a year after Lynk's launch in China. The brand eventually will launch at least five models, including a compact sedan, but the range could expand even further, Visser said.
The company's hybrids will be fitted with a 1.5-liter three-cylinder gasoline engine or a 2.0-liter, four-cylinder engine built in China under license from Volvo.
While Lynk seeks annual global sales of 500,000 by 2022, the company has not disclosed sales targets for Europe or the United States.
IHS Markit estimates Zhejiang Geely's global production in 2020 will be 1.8 million vehicles, with Lynk accounting for 256,000, Volvo for 802,000 and the Geely brand for the rest.
For Borgward, IHS forecasts global deliveries of 73,000 vehicles in 2020, with almost 90 percent sold in China.
While Borgward has not announced how it will distribute its cars in Europe, Lynk said it will create a network of 500 company-owned showrooms. Lynk owners will obtain service and spare parts from Volvo dealerships and independent repair shops.
It will take years to see whether Lynk and Borgward will succeed in Europe, ending a long streak of failures by Chinese automakers that came before them. To do so, Sanford C. Bernstein's Zhu said it will be "very tough, much more difficult and much more expensive" than the brands could imagine.
Zhejiang Geely's Li, however, remains positive. "I don¡¯t see competition in a very complicated way," he said. "If we can reach or exceed the expectations of our customers, I think we can be successful."
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