From January to September, manufacturers in China sold around 17 million new cars. Around 22 percent of them are purely battery-electric, and the trend is rising. In September alone, the Chinese registered 475,000 new cars. This means an increase of 62 percent compared to the same month last year and the fifth record month in a row for this vehicle class.
This is bad news for German manufacturers. Because the market for electric vehicles is dominated by Chinese brands – along the entire value chain.
Ten months test drive
There are around 500 manufacturers of purely electric vehicles in China. Some are already known in Europe, such as BYD or Nio. Other brands or models serve very small markets. An example would be the Baojun E100 from the joint venture SAIC GM Wuling. The local government of the city of Liuzhou had promoted the vehicle enormously from 2017. For example, customers could take a ten-month free test drive before deciding to own the car.
E-small car for 4500 euros
The aim was to locate the relevant suppliers in addition to the vehicle production facility in the city. Thanks to bonuses and subsidies, the small electric car was available for the equivalent of 4500 euros. The Baojun now shapes the streetscape in the city. In the first two years, the brand sold around 30,000 units. Similar vehicles – such as the Wuling Hongguang Mini EV – appeared a short time later. Also because electric cars can park there for free and can even use bus lanes. Liuzhou is considered the electric capital of the world.
The German manufacturers are still struggling. The more popular electric cars become, the more their market share falls.
Hardly any space for foreign manufacturers
There is hardly any room for foreign manufacturers in this market. It is dominated by local companies. Only two companies that are majority-owned by foreign companies make it into the list of the 15 most successful EV brands (sales January to August 2022). Namely SAIC GM Wuling and Tesla. With SAIC-VW and FAW-VW, at least two constructs with German participation make it onto the list.
The top 15 EV manufacturers in China by market share in new registrations between January and August 2022 according to the China Passenger Car Association (CAPCA).
- BYD (29.3 percent)
- SAIC-GM-Wuling (9.6 percent)
- Tesla (7.0 percent)
- Cherry (5.0 percent)
- GAC Aion (4.6 percent)
- Geely (4.3 percent)
- Xpeng (3.1 percent)
- Chang’an (3.0 percent)
- Nezha (2.9 percent)
- Great Wall Motors (2.9 percent)
- Li Auto (2.8 percent)
- Leap Engine (2.4 percent)
- Nio (2.2 percent)
- SAIC-VW (1.8 percent)
- FAW-VW (1.2 percent)
Problems of German manufacturers in China
Electric cars are not the great strength of German manufacturers. Although Volkswagen has a market share of 11.3 percent in China, it is only 3.7 percent for electrified vehicles (including hybrid models), according to the Mercator Institute for China Studies (“MERICS”). BMW has a 3.9 percent share of the total market, but only captured 1.4 percent of this niche. At Mercedes, the proportion of 3.5 to 0.3 percent is also devastating. If the trend towards electric cars in China continues, the problem will worsen.
The problem is homegrown. On the one hand, because they simply slept through the progress in the areas of artificial intelligence (AI) and system software. They entered the electric car market in China late and with the wrong vehicles. On the other hand, because they paid too much attention to profits during the corona crisis. German manufacturers have used the lack of semiconductors to boost margins. They put the chips they had in high-priced models.
The sweet poison of high margins
At the same time, Chinese electronics brands have been pursuing a strategy designed to gain market share for years. While Volkswagen with 7.7, BMW with 12 and Mercedes with 12 percent EBIT margin in the 2021 financial year no longer fit through a door with self-confidence thanks to expensive combustion engines, manufacturers from China sold fully equipped electric cars with mini margins. With a margin of just five percent, Geely is still one of the most successful. The money should be earned in the long term by monetizing the data, for example with entertainment offers, insurance and subscription systems for individual functions. The latter are met with a much more positive response in China than in Germany.
Chinese manufacturers were able to take advantage of economies of scale much earlier. Even with e-cars, which cost just 12,000 to 15,000 euros, they are now making a profit, the consulting firm McKinsey calculates. Something that seemed unthinkable three years ago.
The German car manufacturers are trying to catch up. For example through joint ventures and investments in the People’s Republic. This not only applies to the actual vehicle construction, but also along the value chain and through the expansion of the research and development departments in China.
The global sales of manufacturers should benefit from this. However, MERICS has doubts about the strategy. The market observers point out that the Chinese economy is benefiting from this much more than the German economy. It is at least uncertain whether jobs in Germany can be secured with engineering positions, suppliers and vehicle production (including global export) in China.
(fpi)
