Reflections on China's Transformation of the Car Industry, Part H: Solution: Be Agile and Innovative 👍
In the end, innovation in engineering—leading to high productivity—is what wins competitions.
Agile software development, rooted in Lean car manufacturing principles, emerged during a pivotal revolution in the 1980s. Now, we are witnessing another, much greater, transformation in the automotive industry—one that may offer valuable lessons. In this series:
Part A: The Disruptions
Part D: Traditional Car Manufacturers Reluctant to Evolve 👎🏾
Part F: Lacking on Plan B and C 👎🏾
Part G: Acknowledge Mistakes
I began this series on December 31, 2024. While some might view these articles (on EVs) as a departure from my usual focus, long-time readers likely anticipated that my conclusions would circle back to software development.
Indeed, the core of this article series is my advice to Western software companies: prioritize innovative engineering and reduce bureaucracy to better compete with emerging companies in courtries such as China. Well, my prediction came true far sooner than expected. The launch of China’s AI, DeepSeek, on January 20, 2025, sent shockwaves through the tech industry and even rattled the financial markets.
German and Japanese car manufacturers thrived over the past several decades largely because China served as their biggest growth market. However, the rise of Chinese EVs has completely reshaped the landscape.
As a result, German and Japanese car sales in China are declining rapidly. Many Chinese consumers no longer view brands like Benz, BMW, and Audi as luxury, especially when compared to some of the new Chinese EVs.
Now, Chinese EVs are coming back to eating their market shares in overseas markets.
As I mentioned before, the inactivity and short-sightedness of executives have contributed to this situation. However, I believe there are still solutions. These automakers still have key advantages, such as long-established brands and reputations built over decades. To capitalize on these strengths, they must focus on releasing truly exceptional EVs at competitive prices.
The solutions:
Be Agile (for real)
Set Clear Direction and Let go of non-hands-on senior roles
Be Innovative
Set realistic pricing
Manufacturing in own countries (i.e. in Japan/Germany)
1. Be Agile (for real)
Traditional car manufacturers like Toyota, Honda, BMW, and Audi can still stand, but they must undergo a major shift in mindset and embrace significant changes.
One article I read about the success of Chinese EVs highlighted their frequent releases of new car models. This mirrors the "Release Early, Release Often" strategy used by successful software companies to drive productivity and innovation.
For instance, Geely owns several brands, including Lotus and Volvo. Within the luxury EV market alone, it operates two distinct brands: Lynk & Co and Zeekr, creating competition within the company itself.
Frequently releasing new models allows Chinese EV manufacturers to experiment with new technologies, which are characteristic of modern vehicles. This continuous quick feedback loop leads to optimization and refinement. In contrast, traditional cars, like those from Honda, have seen little change over the past 20 years.
2. Set Clear Direction and Let go of non-hands-on senior roles
We all know how difficult it is to break old habits. Similarly, companies often struggle to pivot in a completely new direction due to internal resistance. A prime example is Kodak, which ultimately declined because of its own invention: digital photography.
In practical terms, a company may need to let go of a significant percentage of senior managers and engineers to facilitate meaningful progress.
For example, I have personally experienced several instances where existing test architects and principal software engineers intentionally undermined my obviously successful end-to-end test automation proof of concepts. Why? Because they feared the unknown and were uncomfortable with technologies outside their expertise.
If CEOs spend a significant portion of their time on the working floor, as Steve Jobs and Elon Musk did, there’s less need for many managerial positions.
According to this “DeepSeek Caused Panic at Meta GenAI" post, the annual payout of one Meta GenAI “leader” (there were dozens of them) is bigger than DeekSeek’s training cost ($5.5 million).
3. Be Innovative
While Chinese companies currently dominate the EV battery market, if Japanese, German, and American car manufacturers put in the effort (real this time), they should be capable of producing comparable (or even superior) products.
Some might argue that "costs might differ," referring to labour costs. However, labour costs in China have always been relatively low (and even much lower several decades ago), yet this didn’t stop Western companies from dominating the car industry for over five decades.
The solution lies in innovation.
Indeed, Chinese EVs now present formidable competition. But a technological breakthrough, like solid-state EV batteries, could destroy competitors, including Chinese EVs.
4. Set Realistic Pricing
For traditional car companies, the days of minimal effort with high-profit margins are over.
Some Japanese EVs are already available in the Australian market, but they were initially priced too high, well too high. For example, Nissan Australia recently recognized this and reduced its EV prices by A$21,000 early this month.
Toyota has an EV model, bZ4X, in Australia, priced at A$66,000. It was not selling well, simply it was not that good (and now Toyota acknowledged this).
Low range: 436 KM WLTP
Slow charging speed: 150KW, 10-80% ~45 minutes
Lacking features such as a 360-degree camera, head-up display, and ventilated seats, most of those came standard in A$40,000 Chinese EVs.
These battery metrics are relatively low compared to much more affordable Chinese counterparts, yet the price was set higher than the Tesla Model 3 (priced at $54,900). What were Toyota executives thinking?
The competition is intensifying, and that's the reality. American car and motorbike manufacturers faced a similar challenge from Japanese companies in the 1980s—some survived, and some did not.
Currently, German and Japanese car manufacturers charge exorbitant amounts for extras, such as A$5000 for leather seats, among other things. Those days are over. Customers will soon expect many previously optional features to be included as standard, as many Chinese EVs did so.
Yes, the profit margins for car companies are much slimmer compared to 10 years ago, unless they have truly groundbreaking, innovative technologies.
5. Manufacturing in own countries (i.e. in Japan/Germany)
In Part G, I highlighted several reports on significant job cuts in the auto industry in Germany and Japan.
Recent news: Lexus, Toyota's luxury brand, is set to begin manufacturing cars in China.
I think this is a poor decision for two reasons.
Lexus, to my knowledge, only making cars in Japan so far.
Many customers purchased Lexus for this reason. Moving production to China will likely diminish the brand's appeal.This will only strengthen the reputation and status of Chinese EVs.
China has yet to establish itself as a strong car manufacturing culture compared to Japan and Germany. This remains one of the few advantages that Western car companies can leverage. For instance, I would be willing to pay 20-30% (but not 50%-80%) more for a Toyota EV made in Japan than for a comparably equipped BYD EV.
Don’t use “cheap labour in China” as an excuse. If that were the determining factor, then why does Silicon Valley pay software engineers such high salaries, even though programmers in India and China earn significantly less? The software weighs more and more in modern vehicles and the growing use of automation in manufacturing.
We should have confidence in the free world and our democratic systems, as they foster innovation far more effectively than China's dictatorship regime (which is bad).
First, those fat cat executives in Western software firms should wake up. While I haven’t interacted extensively with senior leaders in other industries, my experience in the software sector reveals that many so-called CIOs and CEOs I’ve encountered are far from impressive. They speak highly of innovation but, in reality, fear it and resist real changes.
I guess that’s the edge software solopreneurs have when they fully commit to true Continuous Delivery, backed by daily automated end-to-end (UI) regression testing. Without a foundation of solid and rapid regression testing, how can software development truly be innovative? It’s almost glaringly obvious once you think about it, isn’t it?
Related reading:
“Vice President” (VP) is a Bad Position Title in Software Companies
Benefits of Real E2E Test Automation and Continuous Testing series: Executives, Managers, Business Analysts, Developers, Testers and Customers.