China’s auto market has its foot hard on the gas as it accelerates towards an electric future and is leaving established global brands in its wake.
That’s the view of many industry analysts as auto executives convene in Shanghai for the city’s auto show starting on Tuesday.
They will be returning to a sharply different market from the one they left in 2021 when the industry gathered for a limited event under strict Covid-19 controls.
The biggest change is that China-made brands now lead the way in key segments and their rise has been powered by new electric-drive models that are gaining market share at home and overseas.
The biggest winner has been BYD, which will use the Shanghai show to unveil a new hatchback electric vehicle (EV) for value-seeking buyers and a pricier EV styled as an SUV.
BYD’s sales in China are up almost 69% this year, giving it an 11% share of the overall car market, more than Volkswagen or Toyota, according to an analysis of sales data.
“The stratification of this market into clear winners and losers is becoming clear,” Bill Russo, founder of consultancy Automobility said in a note issued on Tuesday. “And there are very few winners and a whole lot of losers.”
China’s passenger car sales were down 13% in the first quarter, data from the China Passenger Car Association show.
But sales of EVs and plug-in hybrids – an area where Chinese automakers led by BYD now dominate – were up 22%. Sales of internal-combustion vehicles were down by an almost equal margin.
VW, GM, Honda, Nissan Suffering
The result has been a double whammy for the likes of Volkswagen, General Motors, Honda and Nissan. Sales are down and so is market share.
More than 40 auto brands have followed Tesla in cutting prices on EVs since January in a price war that has supported sales of EVs and plug-in hybrid electric vehicles (PHEVs), both of which are classed as “new energy vehicles” in China. It has also cut into industry-wide profitability, analysts say.
BYD dominates China’s market for plug-in hybrids, cars that have a combustion engine but are capable of being charged and running for shorter distances on electric power.
Plug-ins represent more than half of BYD sales this year, giving the company scale to compete on price across its line-up, analysts say.
Tesla saw a 27% increase in Chinese sales in the first quarter to just over 137,000 of its Model 3 sedans and Model Y crossovers. Tesla also increased share after cutting prices in China by between 6% and almost 14% in January.
That put starting prices for Teslas in China between $7,500 and about $10,700 lower than current US prices, which have also been discounted.
Tesla’s China Ambitions
Analysts and investors will focus on what that means for margins when Tesla announces first-quarter results on Wednesday.
“Gaining further share in the key China market will be the hearts and lungs of the Tesla growth story,” Wedbush analyst Daniel Ives said in a note on Monday.
In a further threat to established brands, China’s exports are growing fast, led by EVs and PHEVs. Industry-wide exports from China were up 83% last quarter from a year earlier.
BYD, which markets its cars in Europe and Southeast Asia, had a 13-fold increase in exports from China.
- Reuters with additional editing by Sean O’Meara