The Chinese automotive industry: Challenger or partner?

Earlier this year we sent a team to China to better understand the Chinese automotive market and what impact the burgeoning industry is set to have on our home market and indeed across the globe. They spent weeks travelling to auto shows, meeting with the government and visiting manufacturers and returned with some newfound insight into the Chinese market and where it’s headed.  Along the way our team aimed to find out what opportunities the industry presents and how they could shape the established order. So what did they find?

A story of growth

China has seen astonishing growth in its automotive industry. At the start of the millennium, the country produced just two million vehicles domestically with no export market. But since then, the industry has seen staggering growth with Chinese vehicle production increasing over 37% since 2013 and 2023 seeing the country produce 30 million cars, more than the next three largest car-producing countries combined.

This growth in the industry, and indeed the Chinese domestic market, has seen brands flock to Chinese shores with the number of brands selling new vehicles in China increasing 26% since 2015 to 150. The new vehicle market in China then is in a state of hyper-competitivity as 140 brands fight for 42.5% of the market. Of these brands, 100 are selling electric vehicles (EVs).

The Chinese EV market is now well into mass adoption with some cities reaching over 50% mix of new EV sales, due to a mix of incentives, product and tech quality and charging infrastructure buying an EV in China is a no-brainer for consumers. China has essentially leapfrogged the early majority chasm that most other markets, including the UK, are struggling to address, making EVs mainstream.

But, there are also a significant number of brands selling electric vehicles in China, leading to heightened competition and oversupply. BYD now takes a dominant EV market share position in China with the 100 other EV-producing brands fighting for the remaining 28% market share and putting pressure on Western brands importing to the market.

Such is the growth of China’s domestic EV production that they are now experiencing production overcapacity relative to domestic sales means more exports to Europe & other markets. But how have they attained such growth?

Supply chain means China is well ahead of the competition when it comes to EVs

Battery costs have fallen dramatically in the last decade.

China now produces 77% of all EV batteries, with five of the ten biggest battery producers being Chinese, with the top two produces, CATL and BYD taking a 50% market share.

This dominance of the battery supply chain means that costs can be reduced and this is one of the reasons why, on average, an EV in China is now 14% cheaper than an ICE equivalent, in stark contrast to the UK where EVs command a 35% premium over ICE equivalents. Chinese brands are actively seeking to reduce battery costs even further, with the cost of a battery now 30x less than it was ten years ago and set to fall further. This will reduce the costs of new EVs globally but with such a dominance over the battery supply chain it will have more of an impact on Chinese models.

The reduction in battery and labour costs means that brands like BYD, Leapmotor and NETA can now offer products at low prices, without compromising quality. Our tea noted that many Chinese vehicles have levels of interior and exterior quality that can rival the offerings of more established with the likes of the BYD Seagull, Leapmotor C10 and NETA Aya being standouts.

But it's not all about being cheap, the interior / exterior fit and finish combined with market leading technology of Chinese built electric vehicles is hugely impressive at both ends of the market leaving some western rivals with a significant challenge.

Chinese manufacturers are able to develop and release new EVs faster than legacy OEMS.

Things don’t stay still for long

 A phrase that our team regularly encountered on their trip was “China speed’. As we’ve already highlighted the industry has grown far quicker than many external analysts may have predicted. But it's not just the speed at which the industry has grown, but also the speed at which new products are developed and launched.

Chinese manufacturers can deliver new technology and models to the market significantly faster than more established western brands. This is largely due to many manufacturers leapfrogging ICE production and going straight to EV, a decision Chinese manufacturers take pride in, whilst the more established ICE players are having to go on a lengthy transition. Product lifecycles for Chinese-made EVs can be half that of legacy manufacturers enabling Chinese brands to get new products with the latest technology to market far faster. And it's not just the speed at which they can launch new models, but also the volume of new models Chinese brands can get to market each year which again eclipses legacy manufacturers.

Challenger or partner?

There are both challenges and opportunities presented by the emergence of Chinese brands.

Chinese expertise in EVs is now being utilized by more established brands to accelerate their own EV development. New joint ventures between Volkswagen and Xpeng and between Stellantis and Leapmotor are just some such partnerships that are reshaping the global automotive space.

Closer to home, whilst there has been little immediate impact, the rise of new entrants will impact our own market as an increasing number of brands seek to take a share of the UK new car market.

We are seeing interest in Chinese brands on our marketplace, notably BYD and GWM, on the rise and activities such as BYD’s sponsorship of the Euros helping to drive awareness among UK consumers, with advert views of BYD models on Auto Trader up 69% since the Euros began.

The surge of new Chinese entrants will see winners and losers. They present buyers with more choice in affordable EVs. But they do put pressure on more established OEMs with their rapid advancements and competitive prices. They also present retailers an opportunity to bet on new brands. Some will fail of course but so to may legacy brands.

One thing is for certain though and that is that we are entering a pivotal time in our industry, one that will see significant change, but also significant opportunity.

 If you want to hear more about the impact of new Chinese entrants and what our team found on their visit to China, then check out our recent webinar on this topic here.