With 25.76 million passenger and commercial vehicles, more than 400 working carmakers, and a one sector accounting for 45% of all motor vehicles offered by the five most effective intercontinental carmakers, China is the world’s greatest vehicle current market. Even far more amazing: it accomplished all this with a penetration amount of only 19% in terms of motor vehicle ownership—one-3rd that of Germany (59%) and fewer than a person-quarter that of the US (84%).
When the COVID-19 pandemic strike China a calendar year ago, all industries were impacted, and automotive was no exception. By the time the pandemic peaked in China in February 2020, auto product sales experienced dropped 79% from the prior-12 months interval and 88% from just two months previously, in December 2019—the get started of the pandemic. Still by slowing the pandemic inside of its borders, China was the very first automotive market that rebounded.[i] In actuality, April’s gross sales figures marked the initial 12 months-in excess of-yr growth in automotive sales in China given that a rollback of tax breaks in July 2018 finished a long time of uninterrupted advancement.[ii] A important driver of the rebound was the 30% rise in revenue of commercial vehicles owing to an elevated need for postal and shipping expert services.
In addition to investing every single imaginable work in creating a COVID-19 vaccine, governments and corporations about the earth have been confronted with an additional Herculean problem: bounce-commencing their economies. In China, the authorities has extended incentives these kinds of as subsidies and tax exemptions for NEVs (new electric powered vehicles) right until 2022. The government also reduced the VAT on employed autos to just .5% and inspired the finance sector to give consumers much more attractive credit history products and services. In addition, municipalities granted a funds subsidy to car or truck buyers of as a lot as US$1,400 for every vehicle.
Fierce levels of competition
Clearly, no carmaker can pay for to stay away from the Chinese current market. The flip facet, of program, is that the conditions that make China these types of an essential industry are causing unprecedented competition—with a lot more than 400 auto suppliers lively in China, two to a few new models are getting introduced each individual day.
Having said that, the possible is continue to enormous, specially when it will come to EVs—an space in which the governing administration is putting its whole assist, with a wide range of domestic players these types of as Nio, Weltmeister, and Xpeng. In point, product sales of EVs in China have amplified by far more than 1,000% considering the fact that 2015 and now account for 4.7% of motor vehicle gross sales there. Notably, China has grow to be the most significant market globally, accounting for additional than 50% of all EVs offered around the globe in 2019.
It’s not astonishing that levels of competition in the EV market in China is fierce, with more than 500 EV begin-ups in the state. Of program, most are in the early growth levels and haven’t shown anything more than notion automobiles yet. In simple fact, only 12 EV commence-ups had really started off providing cars by the conclude of 2019, and only ten were existing at the Beijing Motor Display this previous September. But people players lucky more than enough to be backed by monetarily strong and self-assured buyers are going forward: Polestar opened 20 new suppliers, and Nio has been ramping up product sales of its ES8 and ES6 SUVs and concluded a Yuan 7bn (US$1.07bn) funding round from state-managed investors. Nio has formidable options to prolong its battery-substitution stations, which do away with the require for EV homeowners to charge their vehicles. Alibaba-backed Xpeng also proceeds to make headlines by launching its P7 sports activities sedan, an EV with a 706-kilometer range—the longest at the moment obtainable in China.
And the growth of the EV section in China is only likely to speed up. In fact, we be expecting that total profits for EVs as properly as plug-in hybrid electrical automobiles (PHEVs) will strike the 5 million mark in 2025, with revenue of fuel-cell EVs projected to achieve 50,000 units or about 1% of the total NEVs marketplace, according to the impending Accenture report “The Long run of Automotive Sales in China”. Also, China is focusing on making the world’s primary market place for hydrogen gas cell EVs, with designs to place 1 million on Chinese roadways by 2030. This bold objective matches that of California and lags only South Korea’s concentrate on to have 1.8 million FCEVs on their streets.[iii] As the world’s leading producer of hydrogen, China has a significant advantage in the race to gas mobile supremacy.
A different toughness of the Chinese market—besides its dimension, insurance policies, and aggressive landscape—is the vast footprint of digital behemoths like Baidu, Alibaba, and Tencent, which request to join and integrate autos with their respective ecosystems.[iv] In addition to actively promoting the improvement of autonomous driving, Baidu also delivers the working technique for various Chinese brands’ connected motor vehicles. In the meantime, Alibaba has launched an in-car or truck mini-app platform in cooperation with Xpeng, and Tencent presents its own in-car or truck infotainment program concentrated on voice-operated communication, social media and searching.
But China’s tech giants have even greater ambitions. Important third-bash platforms such as AutoHome, BitAuto, DouYin (TikTok), and DongCheDi, as very well as Alibaba’s Tmall, have answered customers’ phone calls for ease and digitisation, looking for to establish themselves as the go-to-location for used- and new-car or truck purchasers. As web firms, these platforms have been thriving during the COVID-19 pandemic. And OEMs have taken observe, with numerous starting to livestream auto revenue functions on social platforms to connect with buyers in addition, far more than 50 models participated in Tmall’s Double 11 shopping marketing campaign in 2020, securing a overall of 330,000 orders. BMW is even getting into into a massive-scale strategic partnership with Alibaba to speed up its electronic transformation.
Even though these illustrations verify that 3rd-occasion platforms can be invaluable tools to boost product sales actions and the electronic sales journeys, they also highlight OEMs’ dependency on the 3rd-parties’ huge audiences and technological know-how—the latter of which is especially significant in the mild of the pandemic. If persons choose not to return to workplaces, even soon after the pandemic, they may well not truly feel the have to have to own a vehicle. And if consumers believe that that electrical vehicles and autonomous driving aren’t producing significant changes promptly plenty of to address growing fears about environmental impacts, they might also pick not to obtain a vehicle.
The far more the automotive market recognises these tendencies and gets to be embedded into the new styles, the greater poised it is to thrive in the new mobility landscape.
[i] CAAM (2019-2020): Economic procedure of the vehicle sector in August 2019 – August 2020, http://www.caam.org.cn/chn/1/cate_3/con_5231797.html
[ii] Monetary Moments (2020): China vehicle sales notch very first increase in almost 2 years, https://www.ft.com/written content/34e5759f-107c-4e8b-a372-7096d599c9fd
[iii] Eco-friendly Tech Media (2019): China to Eliminate Subsidies for Hydrogen Gasoline-Mobile Cars: Report, https://www.greentechmedia.com/articles or blog posts/examine/china-to-get rid of-subsidies-for-gasoline-cell-cars and trucks
[iv] Technode (2019): Tencent joins the race and produces committed vehicle intelligence group, https://technode.com/2019/06/10/tencent-new-mobility-section-iov/
Axel Schmidt and Koen Deryckere are senior managing administrators at Accenture Schmidt leads its Automotive group globally and Deryckere qualified prospects its Market Networks and Packages group.