Traditional automakers won’t dominate China’s electric market so easily

Traditional manufacturers overtaken by new Chinese entrants

For Tianna Cheng, an office worker in Beijing, the main dilemma when buying a 180,000 yuan ($27,000) Xpeng electric crossover was whether she should opt for a BYD car or a Nio; she did not seriously consider foreign brands. “If I had been buying a gas-powered car, I might have considered foreign brands,” said the 29-year-old on her way home from work. “But I wanted an EV, and aside from Tesla, I’ve seen few foreign brands properly applying advanced smart technologies.”

Driven by demand from consumers like Cheng, electric car sales are rising in China’s roughly $500 billion auto market, the world’s biggest. In the first four months of 2022, the number of new energy passenger cars — pure EVs and plug-in hybrids — more than doubled from a year earlier to 1.49 million cars, according to data from the Automobile Manufacturers Association. from China. Cleaner technology accounted for 23% of China’s passenger car market, where overall vehicle sales were down 12%, reflecting a sharp drop in demand for gasoline-powered cars.

Sale of plug-in vehicles (all electric or hybrid) in China in March 2022: In addition to Tesla, foreigners are totally absent (Source: CleanTechnica)

No foreign brand is among the top ten automakers in the New Energy Vehicle (VEN) segment this year, with the notable exception of the American pioneer You are here, which ranks third, according to data from the China Passenger Car Association. All others are Chinese brands, from BYD and Wuling in Chery and Xpeng. Chinese leader BYD has sold around 390,000 EVs in the country this year, more than three times as many as global leader Tesla. The top-ranked traditional automaker is Volkswagen’s joint venture with the FAW Group, which ranks 15th in electric vehicle sales.

Chinese cars do everything like a smartphone

Cheng said foreign brands, whether the Buick Velite 7 or the ID series. at Volkswagen, it failed to deliver what she was looking for: an EV capable of giving her the “comfort” of having a smartphone-like experience in her vehicle. “Foreign brands are so far from my life and lifestyle,” said Cheng, whose digital assistant manages logins to apps like Alipay and Taobao and “does everything for me, from opening windows when music is on,” while the software on your car provides over-the-air updates.

It’s a real turnaround. Global brands have dominated China since the 1990s, typically taking a collective 60-70% share of passenger car sales in recent years. In the first four months of 2022, they took 52%, with their April monthly share being 43%.

A sign of the scale of the challenge faced by traditional automakers, Makoto Uchida, CEO of Nissan, told Reuters that some brands “may disappear within three to five years” in China. “Local brands are getting stronger,” said Uchida, who was once Nissan’s China boss, adding that the quality of electric vehicles from Chinese automakers has improved rapidly, with progress being made within a few months.

“There will be many transformations in China and we need to watch the situation carefully,” said the CEO, adding that automakers need to be agile in designing, developing and launching new models. “In these respects, if we were slow, we would fall behind.”

Historic builders versus tech natives

Bill Russo, a former Chrysler executive who now runs Shanghai-based consultancy Automobility, said global brands need to change things quickly because they control less than 20% of China’s growing auto market. “Chinese brands are winning the race for EVs,” Russo said, adding that consumers’ shift to cars that are essentially smartphones on four wheels seemed irreversible and traditional automakers were struggling to keep up.

“I think it’s a secular evolution towards high tech,” he said of consumer demand for a “user-centric digital service experience,” emphasizing the emphasis on interface, connectivity and applications. “Traditional companies are not high-tech natives.”

Interior of the BYD Tang, with a huge central screen and an all-digital dashboard (Source: BYD Europe Site)

Volkswagen Group brands including Volkswagen, Audi, Bentley, Lamborghini, Porsche and Skoda have dominated the market for much of the last two decades, alongside General Motors brands such as Buick, Chevrolet and Cadillac. According to LMC Automotive, the two global groups had global market shares in China of nearly 13% and 12%, respectively, last year. Detroit giant GM also has a 44% stake in locally controlled SAIC-GM-Wuling Auto (SGMW) and includes its sales in the group’s figures, although SGMW does not make American brands but only Wuling and Baojun cars.

General Motors launches the conquest of China

GM is now trying to win over young buyers from big cities who have so far avoided its models, according to two people familiar with the automaker’s China business. The group has announced electrification plans and will spend more than $35 billion globally by 2025 on more than 30 new EVs, including more than 20 in China, starting this year with the launch of the all-electric Cadillac crossover SUV Lyriq.

Both sources said the Lyriq launch would be followed by a Buick electric SUV and a smaller, sportier electric crossover, both also slated for this year. Sales of Buicks are down 32% over the past five years to 828,600 vehicles in 2021, while sales of Chevrolet are down more than half to 269,000 vehicles, according to LMC Automotive.

GM told Reuters it aims to install a production capacity of one million EVs a year by 2025 in China, adding that demand for the Buick Velite VEN and Chevrolet Menlo EV family “has increased significantly” in 2021 and the first three months of this year. . The company said it is rolling out smart technologies, including hands-free driver assistance on highways, “aircraft-grade” cybersecurity and over-the-air software updates.

Tesla as the only foreign solution?

Volkswagen, which is spending about $55 billion on electric vehicles by 2026, has launched its new generation ID series. in China early last year, but fell short of its target of selling 80,000 to 100,000 cars last year. The goal is to sell between 160,000 and 200,000 ID cars. this year, although it only sold 33,300 through April.

According to one of the GM and Volkswagen insiders, one of the main concerns of foreign brands is that their new EVs are designed more for the American and European markets, with a greater focus on performance and durability. “Road speeds? In most major Chinese cities, traffic is so congested that people cannot drive faster than 60 km/h most of the time,” said the source close to GM, who is familiar with the plans and processes for manufacturer’s product development. .

Volkswagen said demand for VEN in China is strongly linked to the “smart car” theme, adding that it is investing in local R&D, including software. “Our strategy will allow us to achieve our ambitious targets in China. By 2030, we also want to be the market leader in electric vehicles and thus ensure that Volkswagen remains number one in China in the future,” he said.

Estimated production of fully or partially electric vehicles: China is an important market, the only growing global market (Source: Statista)

The challenge for global brands is to find the formula that will allow them to attract consumers from large cities with disposable income, such as Cheng in Beijing and Li Huayuan, a civil engineer in Shanghai. Li only half-considered the Japanese and German brands when he bought his BYD electric sedan last year for 290,000 yuan, including insurance. “It seems to me that only Tesla stands out among American brands,” he said of his BYD car parked in the city of Mianyang, Sichuan province, where he is working on a project. “Other brands don’t even seem competitive to me.”

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