AHK Automotive Circle - July China auto market update

We have kicked off the new event series “AHK Automotive Circle” by German Chamber of Commerce in China | East with a breakfast session in AutoForm's Shanghai office on July 27th. Prof. Tilman Tillmann presented "challenges in digitalization", I provided China's auto market update and we discussed participants' current topics. In this article, I share my take-aways of China’s auto market July update.

In the first half of 2023 in China, we saw a weak recovery of passenger vehicle sales from the low 2022 baseline, a stabilization of commercial vehicles sales that starts to digest the construction stimulus from 2020-2021, and record vehicle exports and EV sales. Overcapacity and low demand drive exports and the ongoing price war. Only a few players dominate the EV space by delivering affordable models and a futuristic user experience.

Passenger Vehicle (PV) sales: Weak recovery and consumer down-grading

Passenger Vehicle (PV) sales in the first half of 2023 showed weak year-on-year growth compared to a low 2022 baseline. Internal combustion engine (ICE) sales are basically flat and only NEV and export shows continued growth. Demand is still weak, despite lifted Covid and supply chain constraints. Stimulus in 2022 has pulled ahead sales from 2023.

Tesla has initiated a price war in 2023, that has quickly extended first throughout the EV space and then even further to the ICE market. Overcapacity supply and weak demand leave no other way out. The China Association of Automobile Manufacturers (CAAM) rallied several domestic and international OEMs to stop the price war to avoid further profitability deterioration. However, just one day after CAAM announced the agreement to halt discounting, they withdrew it quickly due to antitrust concerns.

The first half of 2023 brought us several segment shifts. Weaker consumer confidence drives a down-grading from premium to affordability, so that no-frills BYD thrives while premium NIO underperforms. Domestic brands achieve the majority with 53% sales share in 2023H1 for the first time since China opened its automotive market 40 years ago. Japanese brands suffer the most and their market share has dropped from 20% in 2022 to 15% in 2023H1. GAC Toyota lays off a thousand workers this month.

Commercial Vehicle (CV) sales: CV stabilization from dismal 2022

CV sales have stabilized in 2023H1 from the very low base in 2022. CAAM expects 3.8-4 Mio annual CV sales in 2023. The important truck segment within CVs depends strongly on construction activity. The construction stimulus from 2020-2021 and standard upgrade lead to record truck sales during that time, but exhausted demand in 2022 and after that. Today, housing market is mostly weak with single state-owned enterprise lead investments. China’s export of commercial vehicles has been increasing and offers long-term growth potential.

Vehicle exports: Overcapacity drives China to become global export champion in 2023

China overtook Germany in 2022 as 2nd?largest exporter and is on track to overtake Japan as 1st?largest exporter in 2023. China’s vehicle exports have grown by 80% YoY to 1.9 Mio vehicles in Jan-May 2023. The top three export destinations have been Russia, Mexico and Belgium – Belgium being an entry gate to the European Union market. The top export destinations for EVs have been Belgium, the UK and Thailand.

Overcapacity and weak demand drive China’s exports as a “release valve” in this push market. Most exports are still ICE vehicles. We can expect another significant wave of export growth of EVs, due to China’s EV supply chain’s cost advantage and competitive products. The VW ID3 currently sells for circa EUR 35k in the EU vs. only 15k in Mainland China, representing the higher competitiveness of the Chinese EV market.

New Energy Vehicle (NEV) sales: Affordable EVs drive growth to 30% NEV sales share

NEV sales have continued in their strong growth stage in 2023H1. CAAM expects a 30% NEV sales share with 9 Mio NEV sales in 2023. Affordability of EV models drives EV adoption and therefore NEV sales to new records. The market’s price cuts lead to attractive offers. Additionally, Chinese regulators extended purchase tax exemptions in 2023. Companies have launched attractive EV models at more affordable price points than ever. The BYD Seagull offers a small yet completely functional car for just CNY 80k, filling a void in this low price segment that international carmakers are unable to meet today.

NEV leaders: Few players dominate EV field by affordability and futuristic user experience

The NEV space is dominated by just a handful of players. This concentration will continue to drive consolidation. The top 10 companies occupy 80% of NEV sales. Also, Chinese brands account for over 80%. BYD, Tesla and Chinese private OEMs dominate EV sales. BYD and Li Auto cover 74% of the popular plugin hybrid (PHEV) sub-segment. Basically, all international joint-venture and Chinese state-owned enterprise OEMs struggle in the fast-evolving EV space.

The NEV leaders reveal two success factors: They make EVs affordable and offer consumers a futuristic user experience. Whatever you may image future mobility to offer, the strong consumer group of younger Chinese expects this tech in their cars already today – seamless integration in digital natives’ lives and advanced automated driving.

Automakers have recognized this and launch bold initiatives to catch up with new consumer expectations. Geely acquired Meizu mobile phones and NIO announced to offer mobile phones under their own brand. Toyota will change their product design process to enable hardware product iterations throughout product lifecycles, like upgrading sensors for automated driving after a car will have been sold. The Volkswagen (VW) group announced several investments in and collaborations with Chinese automakers to double down on the China market through their “In China, for China” strategy. Audi will license SAIC’s IMMotor platform and VW will license Xpeng’s platform, in order to bridge the time until VW’s own SPP platform will be ready.

Data source: China Association of Automobile Manufacturers (CAAM):?https://en.caam.org.cn/Index/lists/catid/66.html

Event photos: