Study on Chinese and European automotive R&D – comparison of low cost innovation versus system innovation

Abstract

Chinese carmakers are leapfrogging innovation by levering electric vehicle propulsion technologies and providing low cost solutions. This has become a severe threat for mature global players. On the other hand, European premium carmakers have been able to increase their penetration in emerging markets. Even though premium cars yield higher costs of innovation and offer few possibilities to achieve scale effects, sales have skyrocketed to a record high in 2011. In both cases, manufacturers who can innovate best will emerge as winners in lucrative and expanding markets - regardless of origin or innovation approach. The aim of this paper is to outline disruptive innovation patterns of the Chinese automotive industry and to showcase the system integration capabilities of European carmakers. The paper commences with “the China Price” advantage that plays a vital role for Chinese carmakers to leapfrog technology gaps. It allows offering innovation at low cost. Also, the local electric vehicle supply chain, government supportiveness and behavior of emerging consumer groups drive growth for new technologies such as electric vehicles in China. Next, the European car industry is characterized with the evolution of key innovations coming to a large extend from German premium carmakers. Consequently, the paper shows how their global success and innovation dominance in the premium segment can be linked to their integrated R&D approach. This comprises system development, modularity concepts, in-house R&D value chain, rigorous planning processes and so forth. In summary, the paper analyses key trends in innovation patterns from the Chinese and European car industry. Furthermore, it shows related market drivers such as regulatory development and consumer behavior. At last, a generic model for new product development is used to compare automotive R&D approaches between China and Europe. The authors conclude with their findings on comparing low cost innovation versus system innovation based on Chinese and European automotive R&D.