2024-10-06 12:58:52
In China, foreign automobile manufacturers have long held a dominant position in the market. But with the lead taken by Chinese brands on electric vehicles, international competitors are faced with a choice: abandon this essential market, or ally with local companies.
The announced surge of low-cost Chinese electric vehicles on the world market tends to mask a development underway in China itself: the accelerated decline over the past four years in the market shares of foreign manufacturers in the world’s largest market, calling into question their survival. Faced with this challenge, what can be their strategies?
In 2008, China became the world’s largest automobile producer and market. In 2023, China will also become the world’s leading exporter, ahead of Japan. It is the culmination of a long-term strategy initiated in 1984. Chinese industry was built on the massive development of joint ventures (joint-ventures) with major Western manufacturers.
These companies are more than 50% owned by Chinese capital, but their technology is foreign, which allows a massive transfer of technology for the benefit of China. These joint-ventures German, Japanese or American companies dominated its domestic market until 2020, and made considerable profits from it.
China’s accelerated transition to electric vehicle production
For four years, the situation has changed: the share of purely Chinese manufacturers, which was 43% in 2020, reached 62% at the start of 2024. And this is thanks, essentially, to the lead acquired by China on the different stages of the electric vehicle production sector which it dominates globally (rare metals, batteries and assembly). The massive subsidies intended to accelerate their development that it received from 2009 (231 billion dollars between 2009 and 2023) also boosted this surge. This revolution is based on a political decision by the Chinese government which has also limited the sale of thermal vehicles in favor of the sale of electric vehicles. These now represent more than 50% of local sales and two-thirds of global sales.
The first to benefit from this desire to accelerate the transition to electric vehicles was Tesla which, in exchange for a complete implementation of its production line in China and 100% capital owned by itself, benefited from the same advantages as Chinese manufacturers. Tesla dominated this market from 2020 to 2023, making considerable profits. This establishment allowed China to benefit from essential technology transfers to develop its own sector.
Now, the student has caught up with his master: BYD (“Build Your Dreams”), the first Chinese manufacturer dominating the battery sector, took first place this year as a producer of electric vehicles and is developing much faster. Perhaps more serious, Chinese manufacturers, unlike foreign manufacturers, have focused on the production of entry-level and mid-range vehicles at prices lower than thermal vehicles.
What is the current situation of foreign manufacturers in China?
Foreign manufacturers, apart from Tesla, are several years behind in this transition to electric vehicles, hence the impressive decline in their market share in China. This suggests the disappearance of some of them on site. By mid-2024, BYD leads all producers in China and is up 20% year-on-year, while Toyota is down 13%, Volkswagen is down 2.9% and Tesla is down 5%. Additionally, Tesla exports from China fell 30% in the first half of 2024 according to the China Passenger Car Association.
American manufacturers are in sharp decline in the Chinese market, Tesla excepted, both because they are far behind in the production of electric vehicles and manufacture high-end vehicles. Ford has seen its sales in China divided by four since 2016. General Motors’ market share fell by half between 2017 and the first half of 2024. Profits, generally high, but made on the sale of gasoline engines, also melted like snow in the sun, which raises the question of their continued existence in China.
The Japanese and Koreans are reducing their establishments in China, fearing the consequences of geopolitical tensions in the region, and are strengthening their presence in Southeast and South Asia. The experience of 2012, following the purchase by the Japanese government of three of the Senkaku Islandsclaimed by Beijing, led to an informal boycott of Japanese manufacturers like Toyota, Nissan and Honda. After catching up in the following years, Japan’s market share in China fell again from 24% in 2020 to 18% in 2023 and 12% for the first half of 2024. Mitsubishi decided to withdraw completely from China, while that Nissan there closes its newest factory. The Koreans are in a situation similar to that of Japan, Hyundai having sold two of its factories in China and is reorienting itself in particular towards India and Vietnam.
German manufacturers, who make more than 30% on average (40% for Volkswagen) of their global sales in China, are in sharp decline. Their market share was 17% in 2023 for all of their vehicles, but only 7% for electric vehicles. Volkswagen and its 40-year-old partner SAIC have decided to close their production plants for Passat and Skoda thermal models. However, German manufacturers appear determined to catch up by investing massively in China (5 billion dollars announced between Volkswagen and BMW) and by joining forces with new partners to access their technology.
In 2022, the Stellantis group (including the Citroën, Fiat, Peugeot and Maserati brands), which produced Jeep vehicles with Guangzhou Automobile, filed for bankruptcy. On October 19, 2023, Stellantis sold its three Chinese factories to its partner Dong Feng, who will manage the production and sale of Peugeot and Citroën models in China. Furthermore, Stellantis is acquiring a 21.2% stake for 15 billion euros in the Chinese start-up Leapmotor, number 4 in sales of electric vehicles in China, and plans to sell these vehicles particularly in Europe. The Renault group, marginal and declining (0.4% of the market in China with the Dacia Spring), has chosen to join forces with the manufacturer Geely to become the world leader in internal combustion engines, transmissions and hybrids, a gamble risk.
What choices for foreign manufacturers in China?
For manufacturers who have a very strong presence in China (American, German, Japanese or Korean), pure and simple withdrawal from the world’s largest market could be suicidal. Accelerating the transition to electric vehicles and especially investment in entry-level and mid-range vehicles better suited to the Chinese consumer would be the solution. But this will take time and would in the meantime justify substantially raising customs tariffs, which developed countries are doing. However, the risk of retaliation should not be neglected.
To benefit from the technological advance of Chinese manufacturers, the search for alliances seems to be a path in which all the major manufacturers have embarked, with the risk of increasing their dependence on China or of assisting to the Chinese takeover of these alliances. Diversification towards emerging countries (India, Thailand, Vietnam) would be favored in particular by Japan and Korea, but Chinese manufacturers are also interested in it.
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