China's electric car market: big cake, many pieces

Inhaltsverzeichnis

(Hier finden Sie die deutsche Version des Beitrags)

Episode one of a ten-part series in which heise Autos takes a look at the Chinese car market. There, Chinese electric car producers - some of them strongly supported by the so-called Communist Party - are just warming up in order to soon roll up the domestic and international markets with a lot of momentum and a colorful bouquet of state-of-the-art cars. This is likely to have consequences for German car manufacturers, whose largest single global market has been China for several years.

On the one hand, this will foreseeably change the picture on German and European roads, but it will also have repercussions for German producers and their sales in China, the world's largest single market.

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From January to September, manufacturers in China sold around 17 million new cars. Around 22 percent of these are purely battery-electric, and the trend is rising. In September alone, the Chinese registered 475,000 new cars. This represents a year-on-year increase of 62 percent and the fifth record month in succession for this vehicle class.

This is bad news for German manufacturers. Because the market for electric vehicles is dominated by Chinese brands - along the entire value chain.

Ten months test drive

There are around 500 manufacturers of all-electric vehicles in China. Some are already well-known in Europe, for example BYD or Nio. Other brands or models serve very small markets. One example would be the Baojun E100 from the SAIC GM Wuling joint venture. The local government of Liuzhou city had promoted the vehicle tremendously from 2017. For example, customers could take a ten-month free test drive before deciding to buy the car.

E-small car for 4500 euros

The aim was to locate the production facility for the vehicle in the city, as well as the relevant suppliers. Thanks to premiums and subsidies, the electric small car was available for the equivalent of 4500 euros. In the meantime, the Baojun has made its mark on the streets of the city. In the first two years, the brand sold around 30,000 units. Similar vehicles - such as the Wuling Hongguang Mini EV - appeared a short time later. Also because electric cars are allowed to park there for free and even use bus lanes. Liuzhou is considered the electric capital of the world.

Hardly any room for foreign manufacturers

There is hardly any room for foreign manufacturers in this market. It is dominated by local companies. Only two companies that are majority-owned by foreign companies make it into the list of the 15 most successful EV brands (sales January to August 2022). Namely, SAIC GM Wuling and Tesla. With SAIC-VW and FAW-VW, two constructs with German participation still make it into the list.

The 15 most successful EV manufacturers in China by market share in new registrations between January and August 2022, according to the China Passenger Car Association (CAPCA).

1. BYD (29,3 Percent)
2. SAIC-GM-Wuling (9,6 Percent)
3. Tesla (7,0 Percent)
4. Cherry (5,0 Percent)
5. GAC Aion (4,6 Percent)
6. Geely (4,3 Percent)
7. Xpeng (3,1 Percent)
8. Chang’an (3,0 Percent)
9. Nezha (2,9 Percent)
10. Great Wall Motors (2,9 Percent)
11. Li Auto (2,8 Percent)
12. Leap Motor (2,4 Percent)
13. Nio (2,2 Percent)
14. SAIC-VW (1,8 Percent)
15. FAW-VW (1,2 Percent)

Problems of German manufacturers in China

Electric cars are not the great strength of German manufacturers. Although Volkswagen has a market share of 11.3 percent in China, its share of electrified vehicles (including hybrid models) is only 3.7 percent, calculates the Mercator Institute for China Studies ("MERICS"). BMW has a 3.9 percent share of the total market, but captured only 1.4 percent of this niche. Mercedes' share is also devastating at 3.5 to 0.3 percent. If the trend toward electric cars in China continues like this, the problem will worsen.

The problem is homemade. Firstly, because they simply slept through progress in the areas of artificial intelligence (AI) and system software. They entered the electric car market in China too late and with the wrong vehicles. Second, because they paid too much attention to profits during the Corona crisis. German manufacturers took advantage of the shortage of semiconductors to drive up margins. The chips they had, they installed in high-priced models.

The sweet poison of high margins

At the same time, Chinese electric brands have been pursuing a strategy designed to gain market share for years. While Volkswagen with 7.7, BMW with 12 and Mercedes with 12 percent Ebit margin in fiscal 2021 no longer fit through any door thanks to expensive internal combustion engines bursting with self-confidence, manufacturers from China sold fully equipped electric cars with mini margins. With just five percent margins, Geely is still among the most successful. The money is to be earned in the long term by monetizing the data, for example with entertainment offers, insurance and subscription systems for individual functions. The latter have met with a much more positive response in China than here.

Chinese manufacturers were thus able to exploit economies of scale much earlier. Even with e-cars that cost just 12,000 to 15,000  euros, they are now making a profit, calculates the consulting firm McKinsey. Something that seemed unthinkable three years ago.

German automakers are trying to catch up. For example, through joint ventures and shareholdings in the People's Republic. This applies not only to vehicle construction itself, but also along the value chain and through the expansion of research and development departments in China.

This should benefit the manufacturers' global sales. However, MERICS has doubts about the strategy. The market observers point out that the Chinese economy would benefit significantly more than the German economy. It is at least uncertain whether engineering jobs, suppliers and vehicle production (including global exports) in China can secure jobs in Germany.

(fpi)