The New Era of MNC OEMs Embracing In China for China (C4C) 2.0

New Era of Challenges

China's automotive industry is leading a new wave of global transformation. As the world's most dynamic and innovative market, China's NEV sector is flourishing and shifting from policy-driven to market-driven growth, with its penetration rate in 2024 Q3 year-to-date exceeding 50% for the first time and BEV accounting for 29%. What's more, China has accelerated its evolution into a global automotive technology innovation hub. In power batteries, Chinese companies now hold 6 positions among the global top 10 and command 2/3 of global installation capacity. In frontier areas like Software-Defined Vehicles (SDV), smart cockpits and autonomous driving, China demonstrates equally robust innovation capabilities. 

However, MNCs are facing unprecedented challenges in this profound industry transformation. On top of the overall China's passenger vehicle market growth slowing down to 2% 2024 Q3 year-to-date caused by consumer confidence going down, domestic brands are reshaping competitive dynamics by leveraging their outstanding intelligence price value and unique brand experience, further challenging the brand hierarchy long established by MNCs. Particularly driven by local emerging NEV players like NIO, XPENG, and Li Auto, local consumers' expectation of product intelligent performance and car purchase and usage experience has been continuously rising. While most MNC OEMs delayed the strategic adaptation to China market new dynamics, resulted in significant setbacks and continuous market share decline from below 50% in 2023 to 41% in 2024 Q3, as well as 15% drop in sales volume year-on-year.

Under the intensified price war pressure triggered by weak demand and oversupply, MNCs are facing more and more severe survival challenges in 6 areas, including brand, product, technology, profitability, business model, and compliance. MNCs are fundamentally rethinking and upgrading their localization strategies, initiating the era of In China for China (C4C) 2.0.

Figure 1. MNC OEMs' New Challenges in the Era of C4C

New Smiling Curve

With cost optimization and market demand fulfilment as the key focus of in China for China 1.0, MNC OEMs successfully established their market presence and achieved rapid growth by deploying the three-pillar approach: local production, China-specific models, exclusive features, together with strong brand influence.

Under the C4C 2.0 strategic context, MNCs are executing a dual-track strategy, shifting from midstream manufacturing towards both upstream R&D and supply chain localization enhancement and downstream customer-facing experience localization optimization. This"Smiling Curve" transformation happens for two main reasons. On one hand is for MNC OEMs to maintain competitiveness by upgrading brand positioning, product portfolio, distribution channels, consumer journey, etc., andfurther direct to customers for stronger brand awareness and optimized customer experience. On the other hand, in response to global geopolitical uncertainties and local regulatory requirements (e.g. data security), the acceleration of R&D and supply chain localization operations to establish China-centric NEV technological competenciesis becoming more and more urgent.

These customer-oriented initiatives deliver rapid market impact and sustain brand prominence, forming the essential foundation of MNCs' C4C 2.0 strategy. While technology capability-oriented initiatives require substantial capital and longer payback periods, they are essential for developing sustainable technological capabilities in China market and even benefiting their competencies in global markets. With a good balance of both, MNC OEMs aim to preserve and bolster their market competitiveness in China by increasing the "China-oriented content" throughout the entire value chain. 

Figure 2. MNC OEMs C4C Value Chain "Smiling Curve" and Key Focus

Different MNC OEMs have different layouts and focuses in the "China-oriented content" industry chain, which is closely related to their strategic positioning in China market. By analysing the two key dimensions - "China market contribution level" and "China market incremental performance", MNC OEMs can be summarized into three distinct strategic positioning choices in C4C 2.0.

Figure 3. MNC OEMs' Differentiated C4C Positioning

All-in Pioneers 

Representative: some German brands

In recent years, these MNCs have relatively stable business development in China with significant contributions to global sales. Facing the price war, some of them have announced large-scale investment plans in China, further demonstrating their commitment and patience to deeply penetrate the Chinese market, with the belief that 'those who win China, win the world'.

• Top-level structure adjustments to deeply bind to the market: Compared to others, All-in Pioneers make adjustments at the organization top-level structure to deeply bind to the local market. 

For example, a German OEM has formed a JV with a Chinese player to establish a NEV R&D company, ensuring aligned interests through shareholding. In order to reinforce its layout in China, another German brand has acquired shares of a domestic start-up to accelerate technological iteration and enhance market competitiveness with joint development of vehicle platforms.

• Upstream driven heavy investment across the entire value chain: In addition to shareholding structure, these MNCs also makesignificant asset investments in not only production, sales, and after-sales services, but alsoupstream R&D and supply chain with long payback periodssince they regard the localization of technology innovation as the core driving force.

For example, a German OEM has established a global R&D center in China, strengthened its local R&D team, and transferred certain core technologies R&D decision-making authority to its Chinese team.

• Local ecosystem partnership for co-development: What's more, these MNCs deeply collaborate with leading Chinese technology companies in electrification and intelligence. 

For example, a German OEM has invested billions RMB to co-develop intelligent driving software with a Chinese chip company, breaking global suppliers' dominance and strengthening the local supply chain autonomy.

Notably, these C4C 2.0 technology innovations will also benefit their overseas markets. Leveraging China's leading advantages in new energy and intelligence, they forma virtuous cycle where the Chinese market serves as the forefront of innovation to drive the global competitiveness increase.

Cautious Explorers

Representative: some Japanese & American brands

Although they also have steady performance in the Chinese market, these MNCs' business in China have limited contribution to global, and their investment attitude are more conservative. In the midst of the price war, they mainly rely on collaboration with local partners to gradually establish a foothold.

• Focus on the supply chain with reliance on local partners: Compared to the strong market performance in ICE era, Cautious Explorers started later and progressed more slowly in electrification and intelligence. To quickly bridge this gap, they strategically reduced local R&D investment, focusing resources on optimizing the upstream supply chain and deeply collaborating with local suppliers, especially in key areas such as batteries, intelligent components, and smart cockpits.
  
  For example, a Japanese brand unusually launched the core power system with both the battery and electric motor provided by its Chinese NEV partnerin their jointly developed new model. Also, Japanese OEMs have partnered with Chinese tech giants (such as Baidu and Tencent) for large language model-based AI solutions, further enhancing the intelligent driving experience.

• Strengthening local products with distinctive features: In addition, these MNCs also adopt a differentiated product strategy approach.
  On one hand, they accurately target high-return niche markets, such as an American OEM focusing on off-road vehicles and premium full-size pickup trucks.
  
  On the other hand, they effectively utilize the product strengths of local partners, rapidly expanding their product lineup through brand empowerment. For example, an American OEM has labeled its brand on local partners' specific product series, thereby enriching its market presence while reducing R&D and production costs.

This strategy prioritizes making full use of local resources to avoid large-scale capital investment, while addressing technological weaknesses, maintaining product competitiveness, preserving business flexibility. and pragmatically balancing cost advantages. However, whether it can achieve long-term technology development advantages remains to be further tested.

Risk-adverse Observers

Representative: some Korean & French brands

Faced with intense competition and rapid changes in the Chinese market, these MNCs local performance and contribution to global are particularly challenged. They are attempting to enhance their brand presence through lightweight approaches to alleviate the pressure of declining sales.

• Lightweight upgrade the downstream sales & marketing experiences services: Rise-adverse Observers typically focus on the localization upgrade of the downstream (after-sales service, brand marketing, and channel optimization, etc.) to strengthen brand experience and maintain market share. 
  
  For example, a Korean OEM is advancing the national dealership showroom experience and collaborating with energy suppliers to build brand super charging stations capable of 800V charging.
  
  Though some of them may have reduced the investment and business scale in China, or even reallocated resources to other markets, Rise-adverse Observers have not completely abandoned the Chinese market. Instead, they are maintaining a low-cost presence and waiting for the situation to become clearer.

New Way to Win

When considering the C4C 2.0 winning strategy, MNC OEMs need to firstly clarify the strategic positioning of the Chinese market within their global landscape. Considering the role as a part of the global growth engine, the brand image in Chinese market, and also the potential to become a pilot forefront for technology innovation, each OEM's specific strategic positioning will not only guide the direction of the "China for China 2.0" but also establish tailored strategic boundaries, thereby influencing the resource allocation and investment pace of technology, talent, capital, etc., as well as the local operation requirements.

Secondly, it is essential to reset the financial and business goals in line with the strategic positioning, clarify the business layout and investment return logic in key strategic areas, promote the localization of the entire industry chain and the optimization of cost structures, under reasonable balance between profit margin and market performance improvement(sales volume, market share, etc.), key technology breakthroughs (autonomous driving level, driving range extension, etc.), sustainable development vision (carbon neutrality pathways, social responsibility, etc.), as well as the enhancement of local operations and profitability (OEMs, dealers, etc.), in order to strengthen increasingly important business resilience.

Under such a framework, MNC OEMs need to further upgrade their capabilities in business, organization, and digitalization to achieve effective implementation of strategy execution.

Figure 4. MNC OEMs' C4C Framework

Business Capability Enhancement

MNC OEMs can advance their business capabilities under the C4C 2.0 strategy through three primary pathways, each presenting distinct characteristics and challenges in terms of capital investment, technology acquisition, and operational effectiveness.

• Approach 1: Self-development for complete control
  
  By establishing local R&D centers, production facilities, and sales operations in China, MNCs can maintain complete control over technology development, ensure technological autonomy and IP protection, while maintaining agility in responding to local market needs.This approach is suitable for companies with substantial financial resources, significant commitment to the Chinese market, and established technological capabilities in electrification and intelligent systems. China's robust demand for new technologies enables MNCs to advance their capabilities through healthy competition with local players, benefiting not only the business operations in China but also the global market through technology transfer. While requiring significant long-term investment, this approach provides a solid foundation for sustained global competitiveness.
  

• Approach 2: Strategic partnership with shared responsibilities
  
  Through strategic agreements or equity investments with leading Chinese technology companies (such as Huawei, CATL), MNCs can rapidly access advanced technologies and accelerate localization in key areas. This approach suits companies seeking to address gaps in electrification and intelligent technologies while optimizing development cycles and resource allocation. It offers reduced R&D costs and investment risks while leveraging partners' local market expertise and brand recognition to enhance market adaptation and product competitiveness. However, challenges exist in aligning technology roadmaps and benefit-sharing arrangements, potentially impacting the technology control. OEMs must maintain certain collaboration flexibility to balance rapid technology acquisition with long-term control considerations.

• Approach 3: Mergers and acquisitions short-cut
  
  Through acquiring innovative startups or local technology companies, OEMs can quickly secure critical resource and technologies in value chain to address gaps in electrification and intelligence. This approach suits companies with strong financial capabilities but relatively big technology gap in specific areas. While offering immediate technology breakthroughs and potential long-term cost efficiencies through resource integration, this approach demands sophisticated post-merger integration capabilities. Challenges in cultural alignment, management integration, and technology compatibility can impact the acquisition success.

Organizational Capability Optimization

In the C4C 2.0 era, MNC OEMs must not only build their business capabilities to remain competitive in the Chinese market but also enhance adaptability through localized organizational changes. Talent localization and organization mechanism restructure as two key enablers, provide companies with a management perspective closer to the local market and a more efficient decision-making mechanism, thereby gaining the initiative in the rapidly changing Chinese market.

• Enabler 1: Talent localization with local executive appointment
  
  Many MNC OEMs are increasingly valuing the localization of their executive teams, appointing Chinese executives to lead their operations in the Chinese market. This move not only helps OEMs gain a deeper understanding of local culture and consumer needs but also enables them to develop strategies that are more aligned with market realities. With a profound insight into the Chinese market, local executives can more accurately grasp policy changes, economic trends, and consumer preferences, thereby facilitating the company's rapid adaptation to the market environment and enhancing overall operational efficiency and market responsiveness. For example, an American brand recently appointed a local executive as the highest-ranking official in China (on par with the Asia-Pacific regional head), who promptly established a national sales service organization and, in conjunction with adjustments to the product line-up in China, successfully mitigated the sales decline.

• Enabler 2: Organizational structure optimization through streamlined decision-making
  
  In the rapidly changing price wars, MNC OEMs have gradually realized that even with headquarters approving numerous localization initiatives, the efficiency of localization remains low and the results are significantly diminished due to the traditional 'hierarchical reporting' global headquarters decision-making process. Therefore, to truly achieve C4C 2.0, an increasing number of MNCs are implementing localization reforms in their decision-making structures in China. This not only includes enhancing the influence of Chinese business entities through equity restructuring but also involves streamlining decision-making processes and granting local teams greater autonomy. Some OEMs even allow their China entities to bypass headquarters approval for direct business adjustments in the Chinese market. For example, a German brand has established its largest R&D center outside of headquarters in China, granting it direct decision-making authority to drive the development and manufacturing of localized products, aiming to shorten the development cycle for new products and technologies by about 30%. This streamlined decision-making mechanism enhances MNCs' agility and autonomy in China's competitive market, enabling more timely introduction of products and services that meet local consumer needs.

Digital Capability Building

In the C4C 2.0 era, as MNCs deepen their digital transformation across R&D, manufacturing, and services, (e.g. smart production, digital customer journey, etc.), digital ecosystem and well-rounded data compliance management has become core strategic pillars in ensuring the digital capabilities of MNC OEMs.

• Pillar 1: Building a new digital ecosystem tailored for Chinese market
  
  MNC OEMs need to accelerate the development of a digital ecosystem tailored for the Chinese market, establishing deep collaborations with leading local tech companies, especially in key areas such as AI, big data, autonomous driving, smart cockpits, etc. For example, collaborating with AI companies to develop advanced autonomous driving technology, working with cloud service and big data firms to create in-vehicle data analysis platforms, partnering with local internet companies to develop more intelligent customer facing apps and digital services, etc. Through these multi-level, multi-domain collaborations, MNC OEMs can not only more effectively leverage China's advantages in technological innovation but also provide customers with smarter, more personalized, and more seamless experiences, thereby gaining a stronger position in fierce competition and further enhancing brand value and market influence.
  

• Pillar 2: Strengthening data security and end-to-end management
  
  In recent years, the global automotive industry has seen frequent data breaches, highlighting weaknesses in corporate data security management. To address this challenge, MNC OEMs are comprehensively upgrading their data security management systems. By establishing data classification and grading systems, they implement differentiated management for data of varying sensitivity levels and set corresponding security controls at each business stage. They also deploy self-managed private or hybrid cloud platforms to control core data, enhance security, and reduce dependency on major suppliers. For example, a German brand has established a dedicated software department, planning to connect 40 million vehicles globally to its self-built cloud platform by 2030. Additionally, companies are strengthening supply chain data security management, ensuring that third-party partners comply with security standards through contractual obligations and security assessments, and establishing data security emergency response mechanisms to improve early warning and incident handling capabilities.

• Pillar 3: Optimizing cross-border data governance and transmission
  
  To adapt to China's continuously improving data regulatory requirements, MNCs are accelerating their data localization strategies. Several MNC OEMs have established local data centers in Chinato ensure the local storage and processing of important data and personal information; and have strengthened compliance management through specialized data governance frameworks. For example, a German brand has launched a cross-departmental data governance project, setting up dedicated positions such as Chief Cybersecurity Officer, Chief Data Security Officer, and Chief Data Privacy Officer, forming a comprehensive management mechanism from data collection, storage to cross-border transmission, effectively ensuring the compliance of all data operations. Meanwhile, companies areoptimizing data transmission architecturethrough technical means to ensure global business collaboration while meeting compliance requirements.

Core Insights

From external capabilities to internal strengths, from products to services, and from business operations to organization, MNCs are deepening their C4C 2.0 strategies in all aspects. Whether through the comprehensive investment of All-in Pioneers, the pragmatic focus of Cautious Explorers, or the strategic lightweight upgrade of Risk-adverse Observers, each choice reflects a different interpretations of Chinese market's long-term value.

However, the C4C transformation is not something that can be achieved overnight. Beyond establishing a clear strategic direction, it demands continuous enhancement of systematic development in business capabilities, organizational competencies, and digital infrastructure. This is a protracted battle that tests a player's strategic resolve, resource commitment, and innovation breakthrough. 

Deloitte further believes that C4C is not only a localization strategy but also a critical choice to enhance the global competitiveness of MNCs. The true significance of C4C lies in how to transform the innovation momentum of the Chinese automotive industry into a sustained driving force for global. MNCs that can achieve self-transcendence in this process will continue to hold a significant position in the global market landscape.

Deloitte China C4C Solutions

Over the years, Deloitte China has been partnering with MNC OEMs in reviewing strategic priorities, implementing strategic initiatives, and driving sustained growth in their China operations. We provide C4C solutions in 6 main areas, covering brand, product, technology, operation & profitability, business model, and compliance.

Figure 6. Deloitte China C4C Solutions [Automotive Industry]