From cold to hot sales, what did Chinese cars do right in Saudi Arabia?

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2024-07-01 09:56Creator in the automotive field

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01Chinese automobiles are gradually emerging in the Saudi market, and their market share is expanding due to their high cost performance and in-depth knowledge of the local market.

02The Saudi government actively promotes the development of new energy vehicles and has set a target of 500,000 electric vehicles per year by 2030.

03However, the Saudi market is highly competitive, and Chinese auto brands need to understand the Saudi market better and make adjustments according to changes in the market situation.

04To this end, Changan Automobile plans to introduce electric vehicles to the Saudi market in 2023 to meet consumer demand.

Technical support is provided by Tencent Hybrid Model

The rise of Chinese automobiles in the Saudi market depends not only on high cost performance, but also on in-depth understanding and adaptation to the local market. Through localized cooperation and special technological transformation, it has gradually won the hearts of Saudi consumers, and its market share has been expanding

"Caijing" reporter Jiang Wei from Riyadh

Editor: Lee H.Y. Yin

| Editor's note

There is nothing more exciting for the Autobots than the word going to sea.

If the keywords in the industry are selected, the word "involution" must be in the first echelon, from price to configuration, from peers to cross-border battles, it is not easy for automakers. When the growth rate of China's automobile consumption becomes more and more stable, in this context, only by going out can we obtain a larger incremental market, which is the real trick to break the involution.

So, are Chinese car companies ready? From products to production lines, from manufacturing to management, how can China's auto industry follow the local customs and lead the trend? In order to obtain first-hand information, Caijing Automobile went to the front line where the artillery fire could be heard as much as possible, recording and observing, just for you who want to see more details and facts......

Ade, a Saudi Uber driver, drives a sleek SUV that he meets with passengers who often mistake it for a luxury car from Europe and the United States, so he always corrects that it is actually a Chinese-made SUV.

Ade didn't like Chinese cars at first. Before buying this Chery Xingtu, he drove a Korean car. But when he decided to buy an SUV, he found that Japanese and Korean cars were too expensive, so he had to look at Chinese cars, and then he found that Chinese cars are very cost-effective. A modern Santa Fe costs 160,000 riyals (1 riyale is about 2 yuan), while Chery Xingtu only costs 125,000 riyals. "Compared with Japanese and Korean cars, Chinese cars are cheaper, but they are great value for money, from technology to design, and there is a seven-year warranty." Ade told Caijing.

Over the past few years, more and more Chinese cars have appeared on the streets of Riyadh, the capital of Saudi Arabia. From Changan, Geely, Haval to Jiangling, more than 20 Chinese brands have entered the Saudi market, and now Chinese brands have accounted for more than 15% of the Saudi auto market. In 2020, Changan Automobile sold nearly 20,000 units in Saudi Arabia, becoming the first Chinese brand to enter the top 10 in the Saudi auto market.

As the sales director of Changan Automobile's Middle East and Africa Division, Yang Yue moved to Saudi Arabia this year, from four or five business trips a year to more than two-thirds of the time in Saudi Arabia a year. Saudi Arabia's market capacity deserves more investment, as it is the main automobile consumer market in the Middle East, with the highest per capita ownership in the world, and the market competition is so fierce.

"Now the Saudi market has entered the most competitive phase in history. Chinese brands have entered on a large scale, and Japanese and Korean brands that have been developing here for a long time will not sit idly by and watch their market share being snatched away by Chinese brands. Yang Yue said to Caijing.

Saudi Arabia is the most populous country in the Gulf region, and its economy is also the largest among the Gulf countries, with a per capita GDP of $31,500 in 2023. The oil industry is the backbone of the Kingdom's economy, with the world's second-largest crude oil reserves, but it is working to diversify its economy since Vision 2030 was launched in 2016. In recent years, Saudi Arabia has become the largest export market for Chinese automobiles in the Gulf and even the Middle East. According to data released by the China Association of Automobile Manufacturers, in 2023, Saudi Arabia will be the sixth largest market for China's vehicle exports, and China will export 213,000 vehicles to Saudi Arabia.

No one doubts the potential of Saudi Arabia as an export market for automobiles, but seizing the opportunity is a huge challenge. "If you've done the Saudi market, it's going to be easy to go anywhere else." Li Chuang, regional manager of Jiangling's Middle East and Africa Department, who has been working in the Saudi auto market for nearly 20 years, sighed.

01 Two transfers

Saudi Arabia is a country on wheels. Due to the inadequacy of the public transport system, travel within and between cities is mainly dependent on private cars. There are few buses on the streets of Riyadh, and there are few sidewalks. Saudi Arabia has a long summer in the tropical desert climate, with temperatures reaching 40 or 50 degrees Celsius between April and October, and the scorching sun deters pedestrians, so it is wiser to travel in an air-conditioned car. Due to the large number of people driving, traffic jams on the streets of Riyadh are the norm.

"A world of difference." Li Chuang, who entered the Saudi market in 2007, told Caijing. In his impression, before 2018, there were few Chinese cars on the streets of Saudi Arabia, when the Saudi car market was mainly occupied by Japanese and Korean cars such as Toyota, Hyundai, and Kia.

Changan entered the Saudi market in 2015. At that time, Saudi car consumers did not have a good impression of Chinese brands, and their evaluation of Chinese cars stayed at low price and poor quality.

However, Saudi Arabia is a market that is hard to ignore. It is the largest consumer market for automobiles in the Gulf region, with a stable political environment and no foreign exchange shortages or exchange rate fluctuations. Saudi Arabia's currency, the riyal, has been pegged to the US dollar since 1986, with the exchange rate set at 3.75 riyals per dollar.

Although Changan is confident in the quality of its products, the first step in opening the Saudi market is to find the right local distributors, as Saudi agency law does not allow foreign brands to sell directly in Saudi Arabia. Most of the after-sales of Chinese brand cars in Saudi Arabia are also handled by dealers, and the Chinese side sends technical personnel to guide them.

Chinese cars were previously unknown in Saudi Arabia, but dealers have made them popular, Mashari Alotteibi, general manager of Saudi dealer Wallan in charge of the Geely brand, told Caijing. "Geely is successful because it has a good product, and we have successfully promoted it. The partnership with us sends a very strong signal to consumers that they can buy this car and can rely on Valan's services, which we have been for more than 40 years. He said.

A car hypermarket in the northeast corner of Riyadh Photo by Jiang Wei

Changan's dealer in Saudi Arabia is Almajdoui, which is also the dealer of South Korea's Hyundai Motor in eastern Saudi Arabia. Alma Jedui has been in the automotive business since 1985 and has a deep understanding of the Saudi automotive market and its users.

Why work with Alma Jedui? Chang'an said that this is a two-way choice, dealers choose Chang'an, and Chang'an also chooses dealers. We assessed that it had advantages and strength, and the other party also saw the strength and future of Chang'an at that stage, and choosing a Chinese brand was a risky investment for them at that time. Yang Yue said.

Although the image of the Chinese brand was not so popular at that time, there was a consensus with the distributors in Chang'an to tell users that it was a Chinese brand, because they felt that Chang'an could change this impression, and finally practice proved that Chang'an's strategy at that time was correct.

Based on the strategy of distributors, Changan has made adaptable changes in localization and the reliability of product quality, but in just a few years, Changan has successfully opened up the market in Saudi Arabia. With a strong network of dealers, Changan has developed 39 channels in Saudi Arabia, covering 90% of the Saudi population. In terms of adaptability, taking into account the different usage scenarios and habits of Saudi users, Changan Automobile has made changes in terms of coping with extremely hot weather and tire durability.

Changan's market in Saudi Arabia started with large customers. One of the major characteristics of the Saudi market is that there is a large expatriate population, so there are many rental cars. Changan's best-selling car in Saudi Arabia is Yuexiang, which is mainly sold by large customer orders, and many local car rental companies offer this car.

Chang'an said that the big customer is equivalent to a mobile advertisement, and everyone can see that this is Chang'an's car when running on the street. Users have the experience of driving and traveling, and begin to understand the Chang'an brand. When he goes to buy a car again, he may consider Chang'an.

The Saudi public's impression of Chinese car brands is gradually changing. Changan Automobile's explosive growth in Saudi Arabia occurred in 2018. This is the third year that Saudi Arabia has put forward its Vision 2030. Launched in 2016, Vision 2030 is a sweeping economic and social transformation in which Saudi women are empowered.

Changan is the first Chinese brand car to enter the top 10 in Saudi Arabia by sales Photo / Jiang Wei

On September 26, 2017, the King of Saudi Arabia recognized the right of women to drive cars in a statement. On June 4, 2018, Saudi Arabia issued a driver's license to women for the first time. Twenty days later, on June 24, female drivers were finally able to drive on the roads in Saudi Arabia.

According to Saudi media reports, Saudi Arabia sold nearly 730,000 cars in 2023, with 30% of buyers being women. Unlike male drivers, who pay more attention to the engine, female drivers pay more attention to the design and configuration of the car, such as whether there is a reversing camera and radar, which happens to be the advantage of Chinese cars. At the same price, the styling and configuration of Japanese and Korean cars are often inferior to those of Chinese cars. "The success of our brand is inseparable from the policy of opening up driving for women in 2018, and many women like Changan cars." Yang Yue said.

The outbreak of the new crown epidemic at the end of 2019 has become another turning point in the development of Chinese automobiles in Saudi Arabia. Toyota and Hyundai were forced to cut production during the epidemic due to chip shortages, while Chinese automakers were able to continue production thanks to the advantages of China's supply chain, and the vacancies left by Japanese and Korean cars were filled by Chinese brands. From the second half of 2020 to 2021, the market share of Chinese automobiles in Saudi Arabia increased significantly. In 2019, before the pandemic, Saudi Arabia imported 48,000 vehicles from China, and by 2023, this number has reached 180,000.

In Saudi Arabia, one of the things that Yang Yue and her colleagues like to do is count cars. Once, in the space of a minute, she found seven Changan cars in the traffic, "very proud".

Tapping into a completely new market is not an easy task. Unlike passenger cars, the commercial vehicle market relies heavily on salespeople to expand. In Riyadh, whenever he sees a new tower crane, Li Chuang will visit the construction site. "If you run, you have a lot of chances, and to sit here is to die...... Selling a car depends on who suffers more, who is more attentive, and who is more attentive to survive. He said.

But local Saudi salespeople lack the motivation to go out and run business, preferring to stay in the showroom. Every time Li Chuang went to the exhibition hall, he urged the sales staff to take the initiative to go to the construction site and not stay in the office to blow the air conditioner, so that "they were a little afraid of me".

"The only way for commercial vehicles is to keep running." Li Chuang said. According to data released by JMC, from January to October 2023, JMC completed the export of 13,000 vehicles in Saudi Arabia, a year-on-year increase of 136%.

At the end of last year, JMC began to launch its first passenger car, the JMC Avenue, in Saudi Arabia.

"The quality of the Chinese cars is good and the design is thoughtful. There has been a change in the customer's perception of Chinese cars, they were not very receptive to Chinese cars before, but now they have changed their attitudes. Omar Moussad, manager of the showroom in Riyadh for Jiangling dealer Aljabr, told Caijing. He also bought a Jiangling Avenue himself, thinking that it was full of horsepower and a good driving experience.

In order to make Jiangling Avenue more accessible to the Saudi people. In March, JMC sponsored a Saudi female driver to compete in the Jamil Rally, the largest women's rally event in Saudi Arabia, and finished 27th out of 55 teams, with the vast majority of other cars competing in Japanese Toyotas.

The Saudi market is so different, a few years ago women were not allowed to drive, and now there are rallies dedicated to female drivers. During Ramadan, showrooms are open until 12:30 p.m., and local consumers prefer to go to hypermarkets rather than showrooms to buy cars, all of which require outsiders to get used to entering the market.

A car hypermarket in the northeast corner of Riyadh Photo by Jiang Wei

In the northeast corner of Riyadh, there is a car hypermarket, which stretches as far as the eye can see. About 30 to 40 percent of the cars in the area are sold through hypermarkets, where distributors often offer larger discounts than showrooms. Saudis usually go to the showroom to see the car before going to the hypermarket to buy it. "Hyundai and Kia initially disagreed to enter the store, thinking that it would damage its brand image, but not agreeing is a dead end. Local consumption habits are just that. Li Chuang said.

02 Competition

The largest share of Saudi automobiles is Japan's Toyota, followed by South Korea's Hyundai. Toyota, which has been in the Saudi market since 1955, has brand loyalty in the kingdom that is difficult for other brands to catch up with. U.S. large-displacement cars used to dominate the Saudi market, but as Saudi consumers shifted from pursuing large displacement to practicality, the market share of U.S. cars gradually decreased.

In some stereotypes of the outside world, Saudi Arabia, an oil-filled country, is bound to be full of luxury cars. But the reality is that the rich are only a minority, and the majority of Saudis belong to the middle class. Uber driver Ade is a salesman, and in order to subsidize his family, he only drives online car-hailing part-time.

Most Saudi consumers value value for money when buying a car, and the top selling cars here are mainly ordinary family cars and SUVs. The top-selling car in the region is Toyota's Yaris, which costs just over 40,000 riyals, followed by Hyundai's Accent.

More than 40 percent of Saudi Arabia's 32.2 million people are immigrants from India, Pakistan, Bangladesh, the Philippines and Egypt. These foreign workers are price-sensitive, value the residual value of used cars, and hope that the cars will be sold for a good price when they leave Saudi Arabia. Japanese cars such as Toyota usually have a higher used residual value compared to Chinese brand cars.

Although Chinese cars won more consumers with a steady supply during the pandemic, the competition has become increasingly fierce with the return of Japanese and Korean cars after the pandemic is over.

"Why aren't consumers buying Chinese cars as they did in the previous two years? Because Chinese cars are their second choice, and now the first choice has returned to the market. We can feel that the competition is fierce. Alotaibi confessed. He said that the development of Saudi Arabia should think like a local, and Chinese automobiles need to better understand the Saudi market and make adjustments according to changes in the market situation; The price is the advantage of Chinese cars, don't raise the price easily, otherwise it will only push customers to other brands.

In the face of the sudden emergence of Chinese automobiles, Japanese and Korean brands are trying to regain the market share that has been stolen. However, according to Li Chuang's observation, Toyota is not saving the market by cutting prices, but by introducing more different models to meet the needs of different user groups.

Chinese cars mainly attract consumers through price, appearance and configuration. Considering that young people make up the majority of Saudi Arabia's demographics, Changan's models in Saudi Arabia pay more attention to design. According to the results of the 2022 census released by the Saudi General Bureau of Statistics, the median age of the Saudi population is 29 years old, with 63% of the population under the age of 30.

Amotaibi said that buyers of Chinese cars usually have little driving experience, and they are first attracted by the appearance of Chinese cars and the configuration options offered by Chinese brands. "When women started driving, there was an increase in sales of small SUVs. The penetration of Chinese cars in this field is very good. Now many other brands are also pushing small SUVs to grab market share in Chinese cars. Aloteibi said.

In terms of after-sales service, Chinese automobiles, which have been in the Saudi market for a relatively short time, still have a big gap with Japanese and Korean brands.

Shabani, who had studied in China, didn't hesitate to choose a Haval, his third car, and the two cars he drove before were Ford and Mercedes. He said that he believes in Chinese brands, and Chinese cars not only have an advantage in price, but also have excellent quality. "But the problem of Chinese cars is after-sales, and Japanese cars have been in Saudi Arabia for decades and have established a very complete after-sales network." Shabani told Caijing.

"When you come to Saudi Arabia to sell cars, you must ensure after-sales, if you can't keep up with the after-sales, this brand may be smashed." Li Chuang said. He told dealers that the showroom area could be smaller, but the supply of parts must be guaranteed.

In the evaluation of Chang'an's Google Maps page in the Dammam showroom, Saudi users are full of praise for the new showroom, from the design and display of the showroom to the sales service, the few negative reviews are focused on after-sales, especially the replacement time of parts.

Changan Automobile's showroom in the eastern Saudi city of Dammam Photo by Jiang Wei

The Changan team admits that one of the biggest challenges faced by Chinese cars going overseas is the problem of spare parts and service, which requires a certain period of transportation and strict requirements for the timeliness of spare parts supply. In order to solve the problem of spare parts supply, Chang'an is preparing a regional spare parts warehouse, which will soon be put into operation and use, radiating more regions, so as to improve the efficiency and quality of Chang'an's after-sales service.

03 Future

Despite the huge demand for automobiles, Saudi Arabia has not established its own automotive industry and is completely dependent on imports. For a long time, Saudi Arabia, which focused on the oil economy, did not have much incentive to develop industry, but with the advancement of Vision 2030, Saudi Arabia is eager to get rid of its over-dependence on oil.

In 2017, Saudi Arabia tried to convince Toyota to build a factory in the country to assemble cars and produce some parts. However, Toyota's conclusion after research is not feasible, because the local labor cost is too high, in order to improve the employment rate of Saudi nationals, Saudi Arabia has implemented a "Saudiization" policy, requiring enterprises to employ Saudi workers, the number of foreign workers has decreased in recent years, and locals are not willing to engage in blue-collar jobs; Saudi Arabia not only lacks automotive technical talents, but also lacks a supply chain for automobile production, and there is no spare parts to match; Since Saudi Arabia only imposes a 5% tariff on imported cars, there is little advantage to localizing production unless the Saudi government provides a large subsidy.

"Building a car factory here is like building a building in the desert, and it feels incredible." Li Chuang agrees with Toyota's conclusion.

Chang'an said that whether localized production can be achieved depends on local policies and basic conditions, because localized production not only depends on the input-output ratio, but also depends on whether the local area has a complete industrial chain, production and manufacturing costs, taxes and other preferential policies. Although Saudi Arabia provides preferential facilities in terms of land, water and electricity, and taxation, it still does not have the advantage of localizing production.

In October 2023, South Korea's Hyundai Motor announced that it would build an all-bulk parts plant in Saudi Arabia in a joint venture with Saudi Arabia's sovereign wealth fund, the Public Investment Fund (PIF), in which 70% of the shares will be owned by PIF and 30% by Hyundai Motor. The two companies will spend more than $500 million to build an automotive plant in King Abdullah Economic City (KAEC), which is scheduled to start construction in 2024 and start production in 2026, with an annual production capacity of 50,000 vehicles, including electric vehicles and fuel vehicles.

In Riyadh, traffic jams are the norm Photo by Jiang Wei

A person familiar with the Saudi auto industry said that Hyundai's establishment of a factory in Saudi Arabia was due to the government's relatively good terms, especially in terms of imports.

King Abdullah Economic City is one of the largest special economic zones in Saudi Arabia, located near Jeddah on the Red Sea coast. Lucid, an American electric vehicle company, has already begun assembling electric vehicles there, the first car factory in Saudi Arabia. As with Hyundai's project, Lucid has received investment from PIF. Since September last year, the plant in Lucid has been assembling cars in semi-bulk parts. It also plans to achieve vehicle production after 2025, with 150,000 vehicles being produced annually.

At present, most of the electric vehicle brands interested in setting up factories in Saudi Arabia are electric vehicle brands. In 2022, PIF announced a partnership with Foxconn to establish Ceer, the first local electric vehicle brand in Saudi Arabia, which is planned to be sold from 2025. In June 2023, during the 10th Entrepreneurs Conference of the China-Arab States Cooperation Forum, the Ministry of Investment of Saudi Arabia signed an agreement worth SAR 21 billion with Human Horizons, the parent company of Hi-Hop Automobile, to establish a joint venture engaged in R&D, manufacturing and sales of automobiles.

In order to promote new energy vehicles, the Saudi government has set a target of 500,000 electric vehicles per year by 2030, and Riyadh will have 30% of new energy vehicles.

"The promotion of electric vehicles in Saudi Arabia is 'thunder and rain'." Li Chuang said. Although Saudi Arabia has tried to promote the popularization of electric vehicles through government procurement, the effect is not obvious, and it is difficult to see electric vehicles in Saudi Arabia. According to Saudi media reports, Saudi Arabia imported 210 electric vehicles in 2022 and more than tripled in 2023, but only 779 were imported. The Saudi government has previously pledged to buy between 50,000 and 100,000 electric vehicles from Lucid over the next decade.

According to a recent survey by global consulting firm AlixPartners, 70% of Saudi respondents expressed interest in buying an electric vehicle. Globally, users are primarily concerned about cost and charging when choosing an electric vehicle, but Saudi respondents are less concerned about financial issues and more on safety, vehicle complexity, and after-sales support.

Saudi Arabia's electricity bill does not have much price advantage compared to oil prices. Li Chuang still remembers that when he first arrived in Saudi Arabia more than ten years ago, the price of gasoline was 0.55 riyals per liter, about nine cents. Although oil prices have since risen to 2.18 riyals per liter, Saudi Arabia's oil prices are still low relative to many countries.

Changan currently does not have an electric vehicle in the ten vehicles sold in Saudi Arabia, but plans to introduce electric vehicles to the Saudi market this year. After visiting the market, the Changan sales team found that if the government increases guidance, new energy vehicles are not without opportunities. Geely has already started selling electric vehicles in Saudi Arabia, but Aloteibi said that the demand for electric vehicles in Saudi Arabia is not strong at this stage, and the infrastructure supporting electric vehicles, such as charging piles, still needs to be built, and the government's policy of encouraging the purchase of new energy vehicles has not kept up. "The role of government in the promotion of electric vehicles is important." He said.

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