Chinese car customers, attracted by the quality and cachet of the foreign brands, have given Western automakers a much-needed boost for the past 40 years, enabling sales in the Asian country to play a significant role in the revenue and expansion goals of European and US manufacturers, according to Bloomberg.
At the present time, Chinese EV manufacturers do not allow Western automakers to dominate their own market anymore. In fact, local automakers currently account for the majority of new-energy vehicle (NEV) sales, putting multinational giants like Volkswagen AG and BMW AG at risk of falling behind in the largest EV market in the world.
Almost 80% of EV sales through the first seven months of 2022 were made by domestic automakers, based on the China Passenger Car Association’s (PCA) data. While the market is currently dominated by the long-standing BYD Co., newer entries like Hozon New Energy Automobile Co. and Xpeng Inc. are now outselling VW’s two Chinese joint ventures.
Source: China Passenger Car Association
New energy vehicles include EVs, plug-in hybrids, and hydrogen cars
NEVs, which include plug-in hybrids and fully electric vehicles, made up more than 25% of new automobiles sold in July, up from less than one in six just a year earlier. On the other hand, the PCA recently boosted its forecast for 2022 NEV sales to 6 million, which is twice last year’s total. By 2040, annual sales will have increased to 22.3 million, or more than a third of the global market for NEVs, according to BloombergNEF, which expects years of consistent growth after that.
However, foreign automakers like Daimler, General Motors, and VW run the risk of stalling because of certain things like their sluggish electrification progress and inability to appeal to typical Chinese consumers on price and features. Additionally, traditional automakers, which rely on sales of gasoline-powered vehicles to finance their switch to electric vehicles, run the risk of losing those sales as China’s thirst for EVs increases.
“Legacy automakers have barely any competitiveness in their electrified products,” says Yale Zhang, managing director at Shanghai-based consultancy Autoforesight Co. He also pointed out that the cars are overpriced despite lacking in range and having outdated designs. “They are heavily relying on the path of gasoline cars,” Zhang says. “But a new toy like electric cars does not necessarily need a storied history.”
“This industry requires scale economy and profitability,” says Charley Xu, a partner at Boston Consulting Group in Shanghai. “A key advantage for legacy automakers is the cash flow they’ve earned from selling gasoline cars. It could give them the time and capital to catch up.”
Tesla Inc., which ranks third this year in NEV retail sales with a 7.5% market share, is the lone exception to Chinese supremacy. One of the many concessions Elon Musk got from Beijing to construct his first factory outside of the US is that it is the only foreign automaker permitted to operate in China without a local partner.
PCA Secretary General Cui Dongshu asserted that price is the primary edge of domestic brands against western rivals. Indeed, the cost is an important factor in a nation where many people are still purchasing their first car. For instance, the little Hongguang Mini from SAIC-GM-Wuling Automobile Co., with a starting price of just $4,700, is one of the most well-known EVs in China.
In an effort to stand out, other Chinese automakers are also constantly adapting. Notably, Hozon sells cars that are an upgrade over the Hongguang Mini and start at a reasonable price of less than $12,000 to families in smaller cities and rural areas.
Impressively, startups like Nio and Xpeng have created interactive, intelligent voice systems that are comparable to Alexa from Amazon.com Inc. These in-car digital assistants are popular among young families because they can roll down windows, play music, and even hold human-style conversations with passengers.
On the other hand, the new electrified Audi built on its Premium Platform Electric won’t hit the market until at least the end of 2024, while GM anticipates delivering its first-ever fully electric Cadillac to Chinese consumers later this year. Additionally, VW launched its ID series of electric vehicles at the end of 2020, nearly three years after Nio and Xpeng unveiled their initial models.
“If you’re not in China and if you don’t cope with China’s speed and treat China specifically, I have my doubts that you will be a leading manufacturer in the next 5 to 10 years,” Stephan Wollenstein, Volkswagen’s former China chief executive officer, said in an interview before stepping down in August.
Clearly, foreign manufacturers have lagged behind local companies when it comes to updating aspects that matter to Chinese consumers, such as mapping and navigational capabilities, and links to prominent social media and entertainment apps.
It is also worth noting that the conventional manufacturers who have relied on selling gasoline-powered cars face an even greater unanticipated threat as a result of the recent success that BYD and Great Wall Motor Co. have had selling plug-in hybrid vehicles in that price range, which allow consumers a less expensive on-ramp toward EVs.
“There’s not much loyalty in the Chinese consumer group,” says Zhang. “As long as they find affordable and reliable new-energy vehicles, it is easy for them to shift from Volkswagen, Nissan, or Toyota.” — Peter Vercoe and Chunying Zhang