Thinking Globally, Partnering LocallySat, 09/01/2018 - 12:49
Q: What main challenges has BAIC faced as a newly arrived Chinese OEM to distribute its vehicles in the Mexican market?
A: We started selling BAIC cars in June 2016 and we are satisfied with our results so far. In 2017, BAIC commercialized around 1,500 units and opened 22 dealerships around the country, with three in Mexico City. We are the first Chinese automaker to come to Mexico in 10 years after FAW’s failed attempt to enter the market. BAIC is now a representative of the quality of Chinese vehicles. The fact that our vehicles are now part of rental car operator Europcar’s fleet is evidence of our quality and competitive price standards.
Q: What can Chinese automotive companies looking to introduce their vehicles to the Mexican market learn from BAIC?
A: Several companies have come to visit our dealerships to see how our business model in Mexico works. These brands have vehicles that participate in the same segment as some of ours, so it is the fastest way for them to learn about the business. BAIC, however, focuses on the off-road segment with its BJ40 vehicle. Therefore, other Chinese companies must learn to specialize in the segment where their own vehicles participate. JAC is already in Mexico and other Chinese companies are looking for partners to help them enter the country. I think up to two new Chinese automotive companies will enter Mexico by 2H18.
Q: After entering the market with Grupo Picacho, what opportunities have you identified to build more relationships with other distributors?
A: We understand that no distribution group can cover the entire country, so we must find the best partner in each region. Although we built our presence with the help of Grupo Picacho, we established BAIC de México as an independent company owned by BAIC Motor Corporation in Beijing. We are trying to manage the entire value chain by ourselves, understanding both the market and the customer. Right now, we focus on sales, aftersales service, warrantees and spare part availability. We have partnered with Banorte and other financial institutions to provide adequate financial plans for the Mexican market and BAIC plans to launch its own financial branch, BAIC Finance, in Mexico with the help of these and other partners.
Q: How will BAIC meet its ambitious goal of reaching a 3 percent market share in Mexico by 2020?
A: In 2017, we were focused on structuring our internal systems and processes, so we did not push our partners to sell a certain number of vehicles. We are optimistic about selling between 5,000 and 6,000 vehicles in 2018. After that, we should be able to achieve sales volumes of 20,000 vehicles by 2019. If we double that figure, we can reach annual sales of 40,000 vehicles by 2020. There are many steps to be taken before reaching this goal. Besides retail, BAIC sells in large volumes to fleet companies and is looking to introduce its electric cars to the Mexican market.
In terms of new products, BAIC looks forward to introducing the X35 compact model and the BJ20 and BJ80 off-roaders to Mexico. We plan to launch BAIC Finance in 4Q18 or 1Q19. This new financial branch will help BAIC customers find the best solution to acquire their vehicle. We have worked with Banorte since BAIC’s first dealership in Mexico opened. We now look forward to signing an alliance agreement with this company and other banks to launch BAIC Finance. BAIC needs to achieve higher returns in the Mexican market before it can introduce more business.
Q: In 2017 you said the Mexican market was not ready for BAIC’s electric vehicle offering. What made the company change its position?
A: Cars were previously limited to an autonomy of only 200-250km and battery charging times that took eight hours at home or 40 minutes at a quick-charge station. In 2H17, BAIC contacted several distribution companies in Mexico to provide a better alternative that addresses these issues based on battery replacement services. Clients will drive to swapping stations and change their dry batteries for charged substitutes in under three minutes. Under this scheme, clients will not need to buy their batteries but lease them and only go to stations to swap them when depleted. This will not only prove an advantage in terms of charging times but also as a way to reduce electric vehicle costs. Batteries are among the highest costs in electric car production, which means that by leasing them they will become more affordable.
Q: How have BAIC’s growth projections been affected by the slight decrease in auto sales that Mexico suffered in 2017?
A: Each company’s strategy must adapt to the market but BAIC does not see an overly negative impact considering the sales drop only amounted to 5 percent. The Mexican economy can be trusted because it has matured. Most of the country’s income came from oil revenue five to 10 years ago, but today more money comes from activities such as automotive manufacturing and tourism. Furthermore, we think the cancellation of NAFTA or a modification of its basic rules are unlikely to have a particularly negative impact on Mexico. Most countries will work together to make the global economy stronger and regardless of the recent protectionist views in the US, China will not shy away from its preference for an open economy.
Q: How have your manufacturing operations in Veracruz advanced?
A: Last year, we brought the components to build around 1,500 cars and BAIC started assembly operations in June 2017 after training its employees. We assembled 500 cars in 2017 and our plan for 2018 is to finish another 1,000 and bring more vehicles ready for assembly. BAIC’s partner, AT Motors, is purchasing new components and equipment for its production line, leading to increased efficiency and productivity since May 2018.
Meanwhile, we are looking for a new location to build a second production operation in Mexico. By now, the whole country is aware of our intention and several state governments have contacted us to discuss the advantages they can offer. By the end of 2018, we expect to have made a decision on where our new plant will be located.
Q: What does BAIC prioritize when looking for a place to set up shop?
A: Logistics costs are crucial for us, as well as port accessibility to either Manzanillo, Lazaro Cardenas or Veracruz. The investment environment is also significant for us; BAIC looks for regions where local governments have developed mature policies or a strong automotive industry. Finally, we look for readily available labor that is amiable toward our operations. We cannot make a decision based on only one factor, we must analyze the state’s whole offering. Today, we must even consider the advantages of operating in or near a free-trade zone. The government has highlighted two initiatives, one in Veracruz and the other in Oaxaca, so we are considering them in our decision-making process.
Q: Is BAIC looking to build this project on its own or are you looking for a partnership?
A: Partnering is an intelligent way for companies to enter markets, so we work with local companies, share business and get feedback from local players. In Mexico, we are not looking to have a 100-percent BAIC-owned facility; we are interested in having local partners. BAIC collaborates with governments and companies wherever it is present. For instance, BAIC is an exclusive partner of Daimler in China. Daimler has been present there for over 30 years and continues to work with BAIC as we help them manage their business in the Chinese market.
Q: How ready is the Mexican market to overcome the stigma regarding Chinese vehicles?
A: We are the first Chinese automaker to come to Mexico in 10 years after FAW’s failed attempt to enter the market. BAIC is now an example of the quality of Chinese vehicles. The fact that our vehicles are now part of rental car operator Europcar’s fleet is evidence of our quality and competitive price standards. Working in a fleet means meeting quality and price standards or rental companies will not adopt these vehicles. BAIC started selling cars in Mexico in June 2016 and 22 dealerships across the country have opened since then. JAC is already in Mexico and other Chinese companies are looking for partners to help them enter the country. I think up to two new Chinese automotive companies will enter Mexico by 2H18.