Chinese Automakers Surpass Foreign Brands on Home Market

Local Chinese carmakers assert complete dominance of the domestic auto market, accounting for over 50% sales in July 2023. However, Western brands are struggling to keep pace amid waning customer preferences.

The increasing demand for electric vehicles in China has catapulted the nation's auto manufacturers into a desirable and seemingly unassailable position, eclipsing foreign competitors in the world's largest automotive market.

Pioneered by industry giants such as BYD Co. and Geely Automobile Holdings Ltd., Chinese auto producers attained a watershed moment in July, seizing more than 50% of the entire automotive sales, according to data from the China Automotive Technology and Research Center (CATARC).

The turnaround in market share comes at the detriment of longstanding automotive giants, including Ford Motor Co., Volkswagen AG and the Toyota Motor Corp.

In a recent assessment, analysts from the investment firm UBS AG sounded the alarm on a potential loss of 20% international market share for Western carmakers. They forewarned of a substantial 20% decline in their global market dominance, all due to the surge of competitively-priced electric vehicles from Chinese automotive companies.

How Chinese Automakers Seize Control of Their Domestic Market

The pendulum of consumer favor in China is swinging decidedly towards native brands, compelling foreign manufacturers to reconfigure their market penetration and competitive stance. Media outlets are reporting a notable rebound in China's passenger vehicle sales for August, surpassing figures from the preceding year.

The revival is credited to substantial discounts and tax advantages extended to the environmentally conscious and electric vehicle buyers, effectively bolstering consumer confidence. In June 2023, in a significant statement, the government introduced a substantial $72.3 billion package comprising tax reductions. This comprehensive set of measures is designed to prolong the exemption and other enticing incentives to stimulate sales through the end of 2025.

According to the CATARC data, the market share of passenger vehicle sales volume (in percent) in China between 2020 to Q3 2023, categorized by automaker brand origin, is as follows:

How Foreign Auto Manufacturers Are Responding

Amidst a shifting consumer landscape in the sector, South Korea's Hyundai Motor Co. opted to divest its production assets, a decision that follows Ford's significant workforce downsizing and Stellantis NV's move to shutter its sole Jeep manufacturing hub in China last year.

Mazda Motor Corp.'s CEO, Masahiro Moro, voiced uncertainties upon ascending to the helm, underscoring his concern about the prevailing dynamics of the nation's auto market.

How Are US and European Carmakers Faring?

The dwindling market presence of esteemed US brands such as Buick, Ford and Chevrolet evidences a discernible shift in the automotive sector. The regression, marking its lowest point since the CATARC initiated data monitoring in 2008, signposts a momentous turning point.

Notably, the narrative would be even bleaker were it not for the calculative change of electric vehicle maker Tesla Inc., whose Shanghai facility came on board in 2019. Though, altogether, American brands' share of the market is below 15%.

German auto brands maintain a fragile lead in the hierarchy of automotive prominence, though signs of vulnerability have become evident. This year, Volkswagen conceded its reign as China's preeminent car brand to BYD. Even the prominent Mercedes-Benz Group AG hasn't been impervious to the crucible of China's competitive pricing thrusts.

In a strategic move to reassert its presence in the Chinese auto market, Volkswagen inked a substantial $700 million agreement in July for a 5% share in the fledgling electric vehicle venture, Xpeng Inc., grappling with financial losses. As part of this deal, the German automaker committed to producing a minimum of two novel electric vehicles bearing the distinguished VW emblem, all slated for release in the fiercely competitive Chinese market.

The trajectory of French automakers has witnessed a dramatic lapse, with their once-ingrained prevalence berthing a status of peripheral value. Significant is the fact that Citroen, Peugeot and Renault - once industry auto-producing champions, now command market shares beneath the 1% benchmark, data from CATARC reveals.

Stellantis CEO Carlos Tavares is embarking on a thought-out readjustment in China, and the motive is crystal clear. By relinquishing control of factories and intensifying partnerships, Tavares is charting a course towards a lean-capital business model, effectively alleviating financial burdens.

Can China Replicate Its Home Feat Abroad?

In August, a surge of significance unfolded in China's automotive sector, as 2.24 million vehicles were wholesaled. This figure signifies the year's zenith and charts a symbolic high for a traditionally sluggish duration.

In a report released on September 8, 2023, the China Passenger Car Association unveiled a noteworthy swell in deliveries of Chinese-made electric vehicles (EVs) and plug-in hybrids, reaching 716,000 - a robust 35% boost from August 2022.

At the forefront of China's auto market stands BYD, securing the dominant share. The brand's success story lies in its astute strategy of offering an extensive lineup of EVs catering to diverse financial brackets, from the economical Seagull and Dolphin to the premium tier. What's remarkable is that 11 of the top 20-selling brands in the local market are Chinese manufacturers.

Counterpoint Research reports that automakers such as BYD Co., Nio Inc., and SAIC Motor Corp. are expanding their horizons to international markets to bolster deliveries amidst a slowdown in domestic sales.

“If you exclude China, by far the biggest market for EVs globally is Western Europe. Right now it’s all about MG, the SAIC-owned British badge that’s spearheading Chinese growth in the region with its compact cars and SUVs. The $20,000-$40,000 segment is an area where Chinese EV brands have a lot of depth," said Ethan Qi, associate director at Counterpoint Research.