Why inviting the Chinese to share factories could prove tough

As reports pile up of Chinese carmakers talking to European manufacturers to use their excess capacity to build electric models over here, a word of warning comes from one senior executive who learnt the hard way that introducing unrelated models into a factory can be very tricky indeed. “More than one platform on one production line is by nature a compromise,” former Nissan and Aston Martin executive Andy Palmer told Autocar. Nissan is in talks with Chery to manufacturer cars at the Sunderland plant as the Japanese manufacturer looks to increase capacity above its current rate of about 50%, according to a Financial Times report. Nissan’s joint venture partner Dongfeng has also been linked to possible production in Sunderland, and it is reportedly in discussion with Stellantis to build cars in its underutilised European plants. Stellantis discussions to fill its factories have also reportedly included China’s Hongqi, while Chery was last year said to be in discussion with Volkswagen to potentially build cars in its German facilities that were otherwise due to close. The Jaecoo owner has also been linked to production in UK plants belonging to JLR, Chery’s joint venture partner in China. So far the only factory sharing deal to be signed is with Stellantis and its China partner Leapmotor, who will build the electric B10 hatchback in Stellantis' plant in Spain starting this year. The process won’t be easy. As both Nissan chief planning officer and chairman of the Infiniti premium division, Palmer was instrumental in bringing the Mercedes A-Class-based Infiniti Q30 to Sunderland from 2014. “That was an extremely difficult and expensive task,” he said. As it turned out, the model was not a commercial success. Car plants are typically laid out to incorporate the needs of a single platform, from which you can then build new derivatives. Bringing in a whole new model on a different platform mucks with the logic. “At the very simplest level, just the way that you hang the car on the production line, and the pitch of those cars will be different,” Palmer said. The relationship will also need to be fairly strong. Chery for example now owns Nissan’s former plant in Barcelona and has agreed to buy the Japanese company’s South African facility. But making cars alongside Nissan Sunderland will require a working relationship on a new level. “The Chery Sunderland report surprised me, to be brutally frank with you,” Palmer said. “I thought [Nissan’s joint venture partner] Dongfeng made much more sense.” The now-dead partnership between Mercedes-Benz and Nissan was sealed with a share swap. “Not for fiscal reasons, but more for solidifying the relationship,” Palmer said. “Even then the relationship broke down. Car companies don't play together well in the sandpit. They just don't. Try and name a collaboration that has really worked and it’s very difficult,” Chinese companies work very differently to established global automakers, often ripping up the rule book in their desire to move faster and outpace the competition. That could be source of a culture clash in a factory sharing situation – but maybe that would be no bad thing, Palmer argues. “If you can bury your ego, there are things to be learned from the way that the Chinese are doing stuff, particularly around batteries and the software stack,” he said. Palmer draws comparisons with the way that the Europeans learned from the Japanese in the 1970s and 80s, when their superior manufacturing skills and supply chain knowledge became attractive to the likes of Austin Rover, which hooked up with Honda, even if it never made Honda-badged cars in its plants. Ultimately Honda, Nissan, Toyota and Suzuki decided to set up their own plants in Europe rather than use outmoded facilities from established companies and the Chinese might well follow BYD in Hungary and do the same. GAC’s Aion and Xpeng meanwhile have chosen to go with contract manufacturer Magna Steyr in Austria. Factory deals with established carmakers are uniquely scrutinised politically in a way that most other industries aren’t. “There's a lot of free capacity [in Europe], but the owners are not necessarily wanting to share with us,” MG’s head of Europe William Wang told Autocar in February. “Politically, it's hard.” MG is currently searching for a European factory location, with Spain currently top of the list according to a Bloomberg report in April. For the Chinese, moving to manufacture in Europe away from their established, low-cost ecosystem will be a shock financially. “It will definitely be more expensive,” Wang said. Sharing a plant however would allow Chinese carmakers to gain a production foothold in Europe or the UK without the capital expense of setting up their own facility. While parts, labour and energy costs will be high, it could also could be a sound business move. “Assembly here offers brand credibility as well as risk reduction,” David Bailey, professor of business economics at the Birmingham Business School said. “Vehicles built locally can reassure customers, fleet buyers, and regulators about quality standards and long-term commitment to the market.” The Chinese are hyper sensitive about their standing in Europe, particularly after automotive exports from China to Europe last year overtook the value of those going the other way for the first time. “I go to China about every month. The Chinese are acutely aware of the geopolitical tension and the perception that the West has of them,” Palmer said. The most cost-effective way to share a car plant is to build cars on your platform for other brands, the way Renault is doing for Nissan, Mitsubishi and soon to be Ford at its Douai facility in France. Or as Stellantis is reportedly planning with Leapmotor, use the Chinese platform for your own cars, in this case a potential future Vauxhall EV. Failing that you could turn over an entire line to the new brand, as Nissan could do with its underutilised Line One in Sunderland, which can then be converted to deal with a new platform. What’s more likely to happen is that Chinese carmakers will initially build from kits semi-built in China and finished off in Europe. This so-called SKD method is currently employed by Chery in Barcelona, but has come under fire from the EU for not adding much local value. European automotive parts organisation CLEPA is pushing for the EU to insist that to qualify as European under the controversial Industrial Accelerator Act (the one that may or may not penalise UK-built cars), 70% of the value must be generated in the region. Under the EU-UK trade agreement that figure is 55% starting January 1 2027. “You've got to do a fair bit more than just SKD to reach 55% local content for you to be considered a localised car,” Palmer said. That would require China to established a whole supplier ecosystem, after which it’s probably not worth the hassle sharing with a competitor and instead easier to start from scratch with a whole new plant.

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Why inviting the Chinese to share factories could prove tough

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Why inviting the Chinese to share factories could prove tough

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