RPT-BREAKINGVIEWS-Carmakers go on the defensive in Shanghai

By Katrina Hamlin

HONG KONG, April 24 (Reuters Breakingviews) - As the Shanghai auto show kicked off on Wednesday, carmakers were on edge. They were ready to parade flashy technology like flying vehicles, dancing robots, and new batteries. But all that was sidelined by Beijing introducing new industry safety standards, just days before the country's largest car fest started up, in response to a fatal car crash. It will force the industry to open a new front in China's vicious price war.

The accident last month involved a Xiaomi 1810.HK SU7. The car was travelling in autopilot mode, and collided with a cement pole shortly after a human driver took over and tried to slow down. That prompted the government last week to tell industry representatives not to use marketing terms such as “intelligent driving” and “smart driving”, and tightened rules around tests and approvals for software updates.

Carmakers have pivoted quickly. Geely’s presentation at the Shanghai fair dedicated multiple slides to a new testing centre. FAW-Volkswagen emphasised the brand’s high standards and “ultra safe” products. David Li, founder of lidar maker Hesai ZN80y.F, said his theme for the year would be “safety is not optional”.

The obsession will outlast the show, which wraps up next week. Regulators are introducing more rules as electric and connected-car technology matures. Earlier this month, the Ministry of Information and Technology issued fresh standards for batteries to reduce the risk of fire and explosions.

A fatter rulebook and the need to reassure consumers will encourage carmakers to spend on safety credentials as a competitive advantage, for example by adding extra sensors, or introducing more rigorous testing and research. Geely, China’s third-largest automaker by sales in the first quarter, wrapped up its presentation at the show with a slide stating “investment for safety is never limited”. That could incur significant costs. A crash-test dummy alone can cost more than $1 million.

With China's auto sales of late growing more slowly, carmakers have been slashing sticker prices to attract buyers, as well as jamming in more features at little or no extra costs. Those trends were still very much in evidence in Shanghai, where vehicles included built-in hotpot cookers, coffee makers and multiple screens. Further investments would pile pressure onto smaller money-losing marques such as Nio 9866.HK, or even state-backed behemoths like Dongfeng Motor 0489.HK, GAC and BAIC Motor1958.HK, whose net margin is expected to be less than 1% this year, per Visible Alpha. China’s automakers are on the defensive.

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CONTEXT NEWS

More than 70 Chinese and international automotive brands are showcasing more than 100 new or refreshed models at the Shanghai auto show, which runs from April 23 until May 2.

China is banning automakers from using the terms "smart driving" and "autonomous driving" when they advertise driving assistance features, and will tighten rules around such technology upgrades, Reuters reported on April 18.