Luca de Meo: Volkswagen's SEAT – and the elegant sensibilities of a bullfighter? | iAsk Top Leaders
Mention of the performance hot hatches of Volkswagen will instantly recall the Golf R or GTI to most minds, yet that would overlook a product with the same capabilities: the Leon CUPRA R. This car has a different logo to Volkswagen's other products given that it comes from SEAT, a brand under Volkswagen's umbrella.
SEAT was founded in Barcelona in 1950 in the spirit of its ''Renaissance-era origins''.
1950 was also the year in which the Spanish government decided to actively push for economic modernization and industrialization amidst its impacts on the then traditionally agricultural country. Thus, the state-owned Sociedad Española de Automóviles de Turismo (SEAT) was founded and endowed with a task and function of pulling the general train of industry forward. SEAT would go on to play a critical role in the presence of nationalization.
SEAT established a 20-acre factory in Zona Franca, Barcelona in 1951 and achieved their first objective: a 10,000 vehicle production capacity for a single model.
SEAT and FIAT joined forces for over a decade in a tech partnership two years later to produce the SEAT 600 (1957) and SEAT 1500 (1963) in Spain; they also assisted in the development of West Germany's Benz diesel engine with the technical support provided by the National Institute of Industry (NII).
Such technological backing also enabled SEAT to dramatically shift itself from parts maker to the largest car company of Spain, at one point reaching a 60% share of the local market.
The Oil Crisis at the tail end of the 1970s was a major blow to the auto makers of the world; FIAT and SEAT ultimately parted ways as the shockwaves blew through the industry and also as SEAT fell into a low point of development and growth.
The importance of 'location' - might cooperation be superior to competition?
The importance of geography and location is, apart from its strategies or Fengshui connotations, very much a part of the contestations of capital in which ideal proximities are just as important. Spanish brand redonned his cape to joint forces with Volkswagen Group in 1982. It has been proved an auspicious union after more than 30 swift years of partnership.
Looking at just how effective 'location' can be: Volkswagen Group placed 9th in the Fortune Global 500 for 2019.
''We've been under the Volkswagen’s umbrella since 1986 and can use the Volkswagen brand. Our customers in Europe are relatively younger within the Group. Our brand's growth in Europe has been at its fastest in the last 4 years, and it is very diverse.'' SEAT Group CEO Luca de Meo presents a very confident tone during our discussion.
SEAT enjoys a 50% usage right over the Volkswagen Group brand. This 'connection' has given SEAT a forward leap in quality development, gradual uplift in sales volumes and profit contributions.
However, SEAT’s ambitions are far from assuaged. SEAT is well aware it cannot simply rely on Volkswagen's 'golden halo' notwithstanding its countless enthusiasts, and nor could that provide a solid footing in today's ultra-competitive automotive industry. Growing sales brought a stronger voice. Volkswagen has begun to stand back from SEAT’s developmental plans, whether around the building of their own marketing networks or in the research and development of new products.
It also explains why high performance vehicles featured so strongly on SEAT's development agenda after 2000 in its new automobile releases – as a means to further tonally differentiate itself from the Volkswagen and Skoda brands. SEAT's high performance car offerings such as the IbizaSC and Leon CupraR, and continued strong presence in the WTCC/WRC racing scene, has allowed it a solemn transformation into an auto maker skilled at high performance vehicles. SEAT’s rapid growth in Europe, particularly in the last 4 years as it has orientated itself to a mainly youthful customer base, has been 'legendary'.
Data from the European Automobile Manufacturers' Association (ACEA) reveals annual sales of 468,400 vehicles in 2017 or 2.6% of the market; yearly sales in 2018 reached 517,600 vehicles, or a 2.9% share of the market. 12.8% year-on-year growth firmly planted the company in fifth place in the 'Best-Selling Car Manufacturers in Europe in 2018'.
SEAT's 'uncommon path' from the grassroots to a major subsidiary in today's worldwide auto market could be considered exceptional. Today's 'legend' is already established, however. Luca de Meo has decided to kick off a new ''SEAT Renaissance Plan'' as he pushes the subsidiary brand beyond Europe. China's market has been designated the foremost opportunity of globalization and SEAT has made a commitment, as of several years ago, to partner with JAC.
Gloria: A lot of people in China like to catch a 'Didi'. They are potential consumers. Many other cars also ultimately hail from one of Volkswagen's subsidiaries. My question is, for the SEAT Group moving forward, are you going to seek greater integration with Volkswagen? Or are you going to create a totally separate grand strategy, different from Volkswagen?
Luca de Meo: We are one of the 13 brands of Volkswagen, so of course we leverage and take advantage a lot of the technology and competence. One of the main magics of our organization is the ability to develop a specific brand strategy and customer proposition for each one of the targets we want to address.
We are under the umbrella of the Volkswagen Group. At the same time, we act independently because we represent a different kind of consumer that is attracted by, for example, that genre. And obviously this is the idea.
Gloria: When you talk about co-development between the largest automobile company, SEAT in Spain, and JAC here, what kind of responsibilities or different responsibilities will you take?
Luca de Meo: We will also count on the technological and competence backlog of the Group to raise this joint venture to the highest possible level. Here are we not only talking about investing in plants, but also in manufacturing capability. We are actually, a few kilometers away, founding a new R&D center. So we are going to bring, of course, engineers, competence. We are going to raise the level and the competence of Chinese engineers because want to create a team - a multidisciplinary team.
China is the market leader in batteries and electrical connectivity. It is an enormous commercial revolution. As I mentioned before, the new changes happening in China are not just for customers but, as with this whole industry, mean a great deal for the entire market. We are honored to have this opportunity.
Gloria: It's an interesting match. Who knows what sparks might fly as China's consumer market meets SEAT from Volkswagen?
Luca de Meo: It's the magic of combining culture. You know, normally diversity means richness. As far as I have seen in the last couple of years, I think we were really able to get along very well, to work together, and to come up with some substantial results.
It is not hard to recognize Luca de Meo's genuine enthusiasm for China and excitement around this joint venture despite SEAT's not particularly lengthy history in China (considering its own) and the fact that most of its activities have been confined to a limited number of non-first tier cities.
Luca de Meo is frank on their fascination with second-tier cities: ''Second-tier cities are very dynamic and very impressive to see every time I come, maybe every two or three months, seeing that changing all the time. For us Europeans this is pretty special because Europe tends to be relatively stable and China is always on the move.''
China is always on the move. That is an enormous attraction to foreign investment.
Think globally, act locally?
Adoption or respect for local customs is not only an exemplar of fine manners, but also sometimes of great wisdom.
An examination of past cases of 'foreign investment succeeding in China' reveals many commonalities: the greater majority arrived with world-class, leading technologies, equipment and management models, but more importantly were able to do things in a 'local way' to make theirs a successful integration into China - which is not to be taken simply to refer to following China's rules and regulations, but more to its general sense of aesthetics and local habits or customs.
As the famous Chinese proverb goes, ''It is always a pleasure to greet a friend from afar''. SEAT's first foray into the Chinese market occurred in 1990, where it brought the 'Eagle' brand to a less than stellar reception. Its second was in 2012, and for which SEAT was well prepared. However, this attempt also failed to garner greater success as SEAT’s prices were generally higher than those of its competitors, including from the same Volkswagen Group such as for the 'Golf' and 'Polo'.
Luca de Meo takes the 'past' in these 30 years in his stride. He assigns the causes of the lacklustre reception 7 years ago to a problematic schedule compounded by the wrong products in SEAT’s business model, key to which was its entrance as a European car importer or gasoline car maker. ''Whether by the government or by the market, they're all reducing car imports,'' Luca de Meo reflects somewhat sadly.
SEAT has learned from past failures and is thus investing more heavily in deeper, more sophisticated market analyses. Volkswagen, SEAT, and JAC signed a Tripartite Memorandum of Understanding in November 2018; JAC and Volkswagen will be adding SEAT to carry out joint EV research and development. Now SEAT is returning to a Chinese market full of commercial opportunities and a ready plan, and Volkswagen and JAC by its side, to 'make a wager' on the electric vehicle.
Gloria: So will this product be specially targeted to Chinese consumers?
Luca de Meo: Of course. What we are trying to do is not simply import European cars. We will be designing cars to comprehensively suit the Chinese market. But today, for this industry, Chinese consumers are becoming increasingly sophisticated and China is perhaps the next center of gravity of the automotive industry. So we must work hard to create the very best plan and products. This is a whole new game.
Gloria: We previously had a program called ''The New Trend of Chinese Car Makers''. We had the founder of NIO, Li Bin, and the founder of XPeng over here at iAsk. If they watched our conversation they may see you as a new competitor in the Chinese market. What would you say to them? Are you going to compete? Are you going to have separate products?
Luca de Meo: I have to say I really admire them for the work that some of these new, emerging, progressive Chinese brands have been able to do in the last years. Not only from a product point-of-view, but all the way through the value chain, the re-engineering of the value chain that they made. So if I can say something it would be they were an inspiration for us because I think they set the bar on some of these fields.
Gloria: Are you a big believer in electric cars? Do you believe the Chinese have the capacity to consume more electric cars or do you really think electric cars are going to be the future for all human beings?
Luca de Meo: Electric vehicles are capable of meeting very strict regulatory requirements and China also has rules on emissions. I think people can recognize the advantages of electric cars in terms of the fact they are very quiet and have zero emissions. Also, for the drivers, they have very good acceleration and are, in fact, very fun to drive. If the infrastructure is up there, it can be pretty convenient to have them and relatively cheap to actually use, maintain, and fuel.
So I firmly believe that electric cars have a bright future in the coming era and will be able to replace traditional gasoline vehicles easily. As for market share, I don't think it can reach 100% because everyone is different, but there is enormous potential in the future electric car market.
Already, today China represents 50% of the whole electric market in passenger cars in the world. So I think I think if you can make it here, you can make it anywhere in the world.
German brands have been dominating China's luxury car market with a 33.5% market share as of July 2019, Japanese brands are second with a 27.5% share and local Chinese brands represent 20% of the market.
In addition, $18 billion USD has been raised around Chinese EVs since 2011, most of that capital by Chinese EV companies including NIO, Weltmeister, XPeng and Youxia. Put all these startups together and the result is a combined yearly output of 3.9 million electric vehicles per year.
But Luca de Meo does not seem the least bit facing such intense competition: ''We are quite a mature industry from the engineering and the product to the distribution. We are more into an industrial game, a long term commitment. So I think we have the resources to be able to develop the product range and the services.''
iAsk has discovered Volkswagen Group is intending to spend €13 billion on EVs over the next five years to release around 70 different models.
Luca de Meo does not seem to want to position SEAT's cars in the direction of an 'economy brand', but towards a more 'sensory' high-end upon the Volkswagen name. He may have already revealed an inkling of his ambitions today.
SEAT's CUPRA hums at a powerful, super low frequency over 1000 RPM, roughly equivalent to the 'lug casings' of a drum in its original iteration. The exhaust might just make a sudden 'thump' with every transmission upshift in a manner quite reminiscent of a racing car as you drive it.
The CUPRA has earned a fine nickname as SEAT’s 'hot hatch' - quite apropos of the Spanish themselves. One imagines the sun setting on the street's tavern as a guitarist strums the gentle 'Recuerdos de la Alhambra'; and you get a faint glimpse of a Spanish girl in a red skirt as from a half-remembered dream.
This is Luca de Meo's 'Spanish Renaissance': not just cars for the senses, but R&D across the whole range of products.
Luca de Meo: ''You will see.''
iAsk Media offers in-depth coverage, distribution, and brand-building services for founders in both China inbound and outbound markets. Over the past five years, iAsk Media has published over 1300 pieces of founder-focused original text and audio content, and produced over 120 premium video dialogues with leading entrepreneurs and investors.
iAsk Capital further supports founders by complementing media, brand-building, and marketing solutions with a wide range of investment and advisory services, from growth capital and direct equity investment to fundraising, asset management, and M&A support. To date, iAsk Capital has completed investments in some of China’s fastest growing ventures, including Bytedance, Himalaya, Movietime, and Horizon Robotics.
Gloria Ai is the founder of iAsk Media and the founding manager of iAsk Capital, and a former venture partner at the Softbank Asia Infrastructure Fund. She serves as the international brand ambassador to her hometown of Huangshan, and was Forbes 30 Under 30 in the Media, Marketing & Advertising category. She is a graduate of Harvard Kennedy School and Peking University. Prior to founding iAsk, she served as a financial news correspondent for China Central Television in New York.