The Shanghai Auto Show Is as Crowded as Ever. What Will the Industry Fight Over Next? | 2017 Shanghai Auto Show

New energy, new technology — but what carmakers care about most is still how to sell more cars in China's enormous market.

The first public day of the 2017 Shanghai Auto Show fell on a Friday, and more than 120,000 people still poured into the National Exhibition and Convention Center in Shanghai's Qingpu district. That is twice the 2015 turnout — and in 2015 the first public day was a Saturday.

The crowds fired up the carmakers.

In scale, and in how seriously carmakers treat it, this biennial show — the biggest date on China's automotive calendar — is a match for the four big international shows in Geneva, Detroit, Frankfurt and New York.

This year brands from 18 countries and regions showed 1,400 complete vehicles, among them 113 world premieres, 44 Asian premieres and 56 concept cars. Those numbers barely differ from last year's Beijing show or the 2015 Shanghai show, but compared with Beijing last year, far more of the industry's big names turned up in person.

"The Chinese market matters" has been the theme of at least the last three Shanghai and Beijing shows. What changes is how hard the courtship gets — more all-new models, more advanced technology, better design and, beyond the product itself, longer-term strategy. Ford plans to offer new energy versions of 70% of the models it sells in China by 2025; Volkswagen says it will hand the Chinese market more autonomy and develop localized new energy models together with SAIC and FAW.

"Mercedes-Benz has always tried to be the best, and that never changes. Stay humble, respect the Chinese market, pay attention to customers and to dealers — you cannot let up for a second," said Dieter Zetsche, chairman of Daimler's board.

"China has to come first," said Volkswagen Group CEO Matthias Müller. Volkswagen sold more cars than any other carmaker in 2016, and China is its largest single market.

They all know, of course, that the competition has escalated too.

After the SUV, will electric cars be the next thing to fight over?

159. That is the official count of new energy vehicles at this year's Shanghai show. A car with blue or green accents on its body and badge — the colors of electricity and clean energy — next to a charging post trailing cables and connectors became standard issue on nearly every stand.

Bloomberg forecasts that new energy vehicles will account for 35% of global car sales by 2040. Today the share is 0.85%.

What people call new energy vehicles covers three things: hybrids such as the Toyota Prius and the Levin Hybrid; plug-in hybrids, such as the BYD Qin you see on streets all over the country; and battery-electric cars, of which Tesla is the emblem.

The difference with a hybrid is that it still runs mainly on its combustion engine. The rechargeable motor recovers leftover kinetic energy to charge the battery while the car coasts or brakes, and in pure-electric mode the battery and motor drive the car directly — but usually for only a few kilometers.

As the technology spread, plug-in and battery-electric cars that can run 60, 100, even 400 kilometers on electricity alone became the new focus for buyers and carmakers.

So Toyota — which sold 10 million cars worldwide in 2016, second only to Volkswagen — has started developing battery-electric cars too, aiming to launch around 2020. Until now it had argued that electric cars running on lithium-ion batteries cost too much, went too short a distance and were too awkward to recharge to sell in any volume.

Toyota has already set up a dedicated team to build an electric car with more than 300 kilometers of range per charge, based on existing models such as the Prius and the hybrid Corolla — mainly for the Chinese market.

"I think new energy vehicles will become a very important place to compete, for the luxury category and for the non-luxury volume category alike," Amy Marentic, president of Lincoln Asia Pacific, told QDaily. Lincoln brought the MKZ Hybrid to the show.

Lincoln's parent, Ford, is also bringing its first plug-in hybrids to China — the Mondeo Energi and the S-Max Energi — and will build them in Chongqing from next year. Ford expects new energy vehicles to account for 15% of its passenger car sales in China by 2025.

The Velite 5, which Buick premiered in Shanghai, is the brand's first plug-in hybrid: 116 kilometers on electricity, more than 700 kilometers in total on a single tank. To push the car, Buick is adding a 36,000-yuan new energy subsidy of its own. The plug-in hybrid version of the Cadillac CT6, the high-end model from GM's Cadillac brand, manages 60 kilometers on electricity — half the Velite's.

Porsche, one of the standard-bearers of high performance, fenced off about 50 square meters in a corner of its stand for two plug-in hybrids, the Panamera and the Cayenne. But what Porsche advertised was not how far the battery goes; it was that engine and motor working together produce 680 horsepower, a peak 20 higher than the Ferrari 488 Challenge.

Tesla skipped this show, but no account of electric cars can leave out the company that pushed them this far. Almost no carmaker ignores it, even if they still doubt it will upend the industry: its annual sales and output are under 1% of GM's, yet its market value recently passed both GM and Ford, making it the most valuable carmaker in America.

Back in China's new energy market, moving in fast raises a pricing problem. Lincoln again: "First you have to make sure it carries a reasonable price in the new energy market," Marentic said. The Lincoln MKZ H starts at 330,000 yuan; the ES300H from Lexus, Toyota's premium brand, starts at 378,000.

Chinese brands price more aggressively, and that is their advantage: their badges carry less premium, and they know China's three layers of subsidy — national, provincial and municipal, down to district and county — inside out. Take the BYD Qin at 200,000 yuan. At the 2015 peak, a buyer could collect 31,500 yuan from the central government, 30,000 from Shanghai and, with a household registration in Minhang or Pudong, another 20,000 — then claim a Shanghai license plate worth about 80,000 yuan for free. That worked out to 38,500 yuan for the car, cheaper than a Chery QQ.

Which is precisely why China's new energy market remains an industry driven by policy.

After the subsidy rules and the approved-model list were revised at the start of this year, new energy sales fell 60% in January, back to 2015 levels. For many of these cars the greatest value is that in first-tier cities that ration new plates, they give a way in to people who cannot win the license-plate lottery and will not pay 80,000 yuan at auction. Policy made them sell; policy hits them hardest — models from Emgrand, Zhidou, BYD, JAC and Denza, for instance. Fifteen of them saw sales drop straight to zero.

You can also read the carmakers' present mood as a refusal to be caught out again the way they were caught out by the SUV. And the SUV has not left the stage yet. According to the China Association of Automobile Manufacturers, China sold about 24 million cars last year, more than a third of them SUVs.

The safer move for a carmaker is a new energy SUV: Jaguar's battery-electric I-PACE concept, BYD's Dynasty concept, SAIC Roewe's Vision-E concept, the Chevrolet FNR-X.

QDaily counted the SUVs across 45 carmakers: of 334 cars on display, 131 — more than a third — were SUVs.

Carmakers seem less anxious that tech companies will upend the industry, but their ambitions in "smart" are undimmed

The clearest enthusiast for smart is probably Ford. "Ford actually has plenty of the conditions and advantages you need to lead this autonomous driving revolution," said Lei, Ford Asia Pacific's director of smart mobility strategy, making no attempt to hide the ambition.

Ford recently set up a smart mobility subsidiary whose purpose is to sell mobility solutions. In practice that means a service much like Buick's OnStar or Volvo On Call. Ford built an app, FordPass, that lets owners check fuel level and remaining range, unlock doors and windows and book a service appointment; a modem in the car provides the connection.

The shape of these services is always the same: the owner does the basic things to the car from a phone, and presses a button inside the car to reach a human operator.

Nothing new there either. Jaguar, Porsche and GM, and Changan, JAC and Roewe, were all showing connected-car and intelligent connected-vehicle systems of their own. Hyundai hung a dozen-odd smart wristbands on a plastic glass wall and said you could use them to operate a car.

Among the concept cars meant to show where the industry is heading, most center consoles copy Tesla's: a single 21-inch touchscreen in place of a panel dense with buttons and knobs. Chery's Tiggo SUV concept goes further, replacing the instrument cluster with two screens standing up behind the wheel.

NIO brought the autonomous version of its EP9, of which only six were built, one for each founder. You could not touch it or climb into the cabin; the black cylinder on the roof was the only clue that it drives itself.

Audi, Škoda, Volkswagen, JAC, Changan and other carmakers at home and abroad showed battery-electric autonomous concepts with no front grille, no exhaust pipe and gull-wing doors — cars that look 20 years away from a public road.

What you felt on the floor was this: every carmaker was still discussing smart features and demonstrating autonomous driving, but they had stopped talking about Apple and Google.

The shift in mood tracks the cooling of Silicon Valley's carmaking fever. Apple said it would not build a car; Google turned Waymo into a company that sells solutions. The industry's anxiety about being disrupted from Silicon Valley has eased, at least somewhat.

China's three tech giants — Tencent, Alibaba and Baidu — seemed to have lost their enthusiasm this year too. At the 2015 Shanghai show, Alibaba's then two-year-old auto unit ran a rival "auto show" at a Hilton about ten kilometers from the convention center, herding representatives of 40 domestic and foreign car, parts and service brands into a conference hall. This year, about all you got was an emcee at the Roewe stand: "Order a Roewe i6 here today and get a 7,000-yuan Alipay red packet!"

In another corner of the hall Roewe had a "Banma Zhixing" experience zone, which mostly did corporate PR duty — there was no actual car in it, only a simulated demo. Banma Zhixing is the connected-car company Alibaba and SAIC set up together.

Last November Baidu put a fleet of self-driving Chery QQs on the road at the World Internet Conference in Wuzhen, which China's leaders attended, to show off the technology. At this year's show Baidu announced it would build driverless cars with Chery — but beyond the press release and each side advertising its own AI, hardware and manufacturing know-how, there was nothing substantial to see.

Tencent's biggest car story broke before the Shanghai show opened. On March 27 this year, Tesla disclosed that Tencent had paid US$1.777 billion for 5% of the company. If every electric car startup is copying Tesla anyway, Tencent decided, it might as well own a piece of the original.

Back when carmakers were most excited about technology, they turned CES into an extension of the auto show circuit — Ford fitted the Fusion, the American Mondeo, with lidar from the same family Google used on its driverless cars; Greg Hart, the Amazon vice president behind Echo and Alexa, started a Ford remotely from the stage with his voice.

GM took its electric plans to CES and unveiled the production Bolt, a direct rival to the Model 3. One of the world's three biggest carmakers chose CES over the Detroit show a few weeks later to premiere a new model.

Still, the car companies remain wary. They may feel some relief that the tech companies thought better of it once they saw how complicated a car is — but the conversation, or the co-opetition, between the two sides will run for a long time yet.

For now, though, the job is still selling cars

Last year Volkswagen Group sold 3.98 million cars in China, up 12% year on year, making it the country's best-selling brand — a figure that counts imported Volkswagens and deliveries by SAIC Volkswagen and FAW-Volkswagen on the mainland and in Hong Kong.

Group CEO Matthias Müller called China a "second home" and said the market "changes from one moment to the next and leads the world in electric vehicles." He plans for Volkswagen to sell a million new energy vehicles worldwide by 2025 — 60% of them in China.

Renault is a niche brand in China, selling fewer than 40,000 cars in 2016. Worldwide it sold 3.18 million, second in Europe. Asked about the Chinese market now and his plans for it, Renault executive vice president Stefan Müller said the company takes the world's largest car market very seriously, and that Dongfeng Renault already has two strong SUVs on sale, the Koleos and the Kadjar. Those two account for more than 80% of Renault's China sales.

Ford held a brand event of its own before the show opened. Of the nearly 20 minutes that opened it with a company overview, close to 90% went to the R&D center in Nanjing. Then global CEO Mark Fields laid out new plans for China: localizing powertrain production there by 2020, and US$650 million for a new global test center.

Rolls-Royce CEO Torsten Müller-Ötvös said 2016 brought the second-highest sales growth in the company's 113 years, with the Chinese market up 23%. Rolls-Royce owners are mostly between 20 and 50 and come from manufacturing, real estate, culture and entertainment, and IT — the last two supplying the younger ones.

So for Chinese buyers, probably the world's most attentive to a car's "luxury" shape and its rear-seat room, even a marque as exalted as Rolls-Royce builds a long-wheelbase model just for this market.

For the same reason, Honda again showed China-only versions loaded with chrome, unlike anything it sells in the United States or Japan; Audi, Mercedes-Benz and Infiniti each displayed standard and stretched wheelbases side by side, also for Chinese buyers.

Test rides taken and prices asked, what the crowds most wanted to see were still the luxury brands. Across 350,000 square meters, the Ferrari, Lamborghini, McLaren, Bentley and Rolls-Royce stands were packed, people queuing for staff to wave them in for photos.

"I'm at the Lamborghini stand now — these cars all look the same. What else do you want to see? Mercedes? That's a bit of a walk. Send me some rockets and sports cars to cheer me up, come on," one livestreamer said after the Lamborghini press conference, talking to the viewers on the other side of the phone clamped to the selfie stick.

On the first public day, Hall 8.1, where the expensive cars were clustered, had to cap entry.

Chinese brands out to prove their design and engineering — Geely's Lynk & Co, Great Wall Motor's WEY, BYD, Changan, NIO, Roewe — all brought near-production cars and concepts.

But when it came time to explain a car to visitors, what the salespeople and factory staff talked about most was how long the wheelbase was, whether the interior was real leather, whether there was a panoramic roof, and how large the new energy subsidy was. The concept cars in the best spots on the stands were mostly roped off, or closed to anyone who wanted to sit inside.

By the second media day, dealership salespeople had already begun replacing the factory staff, walking visitors through the models and taking down the details of likely buyers.

At which point you start to feel that nothing has changed at all.

Cover image: Pexels. Unless otherwise noted, all photos in this article were taken by the author.