China’s car buyers have fallen in love with foreign brands

For years, foreign automakers in China had a bead on customers attracted by luxury brands, such as the Cao family in Shanghai. Not anymore.

Ben Cao and his wife Rachel, both 36, trade two Porsches for one, a $290,000 gasoline-powered Porsche 911 sports car, and purchase their first electric vehicle, a $70,000 SUV designed and manufactured in China by a company called Li Auto.

“When you sit in a Li Auto, the first feeling is luxury,” says Mr. Cao, a business consultant.

The meteoric rise of Chinese electric car manufacturers such as Li Auto, BYD, Nio and Xpeng Motors is the main concern of executives, engineers and designers arriving in Shanghai for the start of the city’s auto show next Tuesday. The country is now the world’s largest auto market and its home teams are leading multinational competitors to the run that had hitherto been mining the riches of China’s gargantuan pool of customers. Buyers like the Caos and the Chinese car companies have embraced electric vehicles much faster than almost anyone expected.

The rise of Chinese car companies, often subsidized by local governments in cities where they have factories, is another illustration of the country’s dominance in electric cars. China now produces and sells the most electric cars in the world – domestically and abroad. Its competence extends to the entire electric car value chain: it makes almost all of the electric motors of the cars and refines most of the chemicals used for lithium batteries. In fact, China is at the forefront of developing what could be the next generation of technology, sodium batteries.

More than 80 percent of electric cars sold in China last year were made by domestic automakers. Last fall, they overtook multinationals in terms of the total number of petrol or electric cars sold per month.

“The market share of multinational companies in China is likely to continue to decline due to the continued development of Chinese automakers, especially in the electric car segment,” said Stephen W. Dyer, a general manager in the Shanghai office of Alix Partners, a consulting firm. .

As foreign automakers face difficulties in China, they are being forced to transition to EVs more quickly in Europe and the United States. The European Union and California want car manufacturers to sell only zero-emission vehicles by 2035. And the Biden administration this week proposed emissions rules that would effectively require about two-thirds of new passenger cars sold in the United States to be electric by 2032 — standards that some automakers have complained are too strict.

With a few exceptions, such as Tesla, which welcomed China for its technology in 2018, Beijing has forced foreign companies to operate through joint ventures with Chinese automakers. Over the past four decades, multinational corporations have trained an entire generation of Chinese automotive engineers, many of whom now work for highly competitive domestic rivals.

Today, the number of cars sold by the joint ventures of foreign companies has plummeted as sales of gasoline cars have shrunk and the number of electric cars has skyrocketed. Electric cars accounted for nearly a quarter of the Chinese market last year, compared to less than 6 percent in the United States, and are expected to exceed a third by the end of this year.

Ford Motor sold a million cars and light trucks in China in 2016 and 2017, but barely 400,000 last year. Hyundai Motor, the South Korean giant, sold 1.8 million cars in China in 2016 and just 385,000 last year.

General Motors, which once rivaled Germany’s Volkswagen for market leadership, has lost nearly half of its sales in China. GM would be in even worse shape if it weren’t for Wuling, a joint venture in which GM has a 44 percent stake. Wuling sells ultra-cheap pickups and microvans that cost $4,800 to $21,800 and have slim profit margins.

The market share of China’s domestic auto companies rose to 52 percent in the last quarter of 2022, from 47 percent the year before, thanks in large part to a huge surge in electric vehicle sales. The top-selling brand is BYD, in which Warren E. Buffett was an early investor. It now controls 10.3 percent of the car market, up from 2.1 percent four years ago, replacing the Volkswagen brand as the leader in China.

Volkswagen has also lost market share, albeit less than most foreign automakers. It plans to hold the global launch of its new ID.7 electric sedan in Shanghai on Monday.

A Volkswagen spokesman said the company had already doubled sales of its ID. series of electric cars last year, and refused to lower prices, like some competitors, just to keep up the number of cars sold. GM plans to introduce four new electric vehicles in China this year for its Buick, Cadillac and Chevrolet brands, and plans to convert more than half of its factory capacity in China to electric cars by 2030.

Volkswagen is so concerned about the Chinese market that it has chartered two flights from Germany to Shanghai to bring board members of the Volkswagen group and its VW, Audi and Porsche brands to the auto show, a person familiar with the plans of the company and spoke on the condition of anonymity because the plans were not public. Volkswagen declined to comment on its travel arrangements for the auto show.

Electric vehicle sales have grown more slowly this year after national purchase subsidies expired at the end of December. Gasoline car sales are down as the purchase tax on them has been reinstated after being suspended during the pandemic.

Tesla, which only sells electric cars, has recently experienced slower growth than Chinese electric car makers, prompting the company to lower prices. That has caused a wave of discounts. Many consumers have waited to buy cars while looking to see whether electric car subsidies or purchase tax rebates are reinstated.

“The weakness should be short-lived, as the weak sales were caused by the price chaos in March,” said Cui Dongshu, the secretary general of the China Passenger Car Association.

Multinationals, including Volkswagen and GM, had introduced electric cars that looked like their gasoline models, hoping to achieve a gradual transition. But Chinese consumers have instead gravitated towards the flashiest electric car exteriors and interiors available.

Mr. Cao, the Porsche aficionado, dismisses most designs from multinational automakers as boring.

“They are way behind, whether it’s the US or even the Germans,” he said. “They don’t even seem to be the same age.”

Automotive fashion is changing rapidly in China. Mr Cao said he was active in a 350-member club of Chinese buyers of the Sport Turismo version of the Porsche Panamera sedan, and that he knew at least 50 others who, like him, bought the Li Auto L9 sport utility. vehicle.

Unlike most large SUVs on the global market, the L9 is electric. It has a small petrol engine as backup that can charge the vehicle’s hefty battery pack. But the engine does not provide any power to move the vehicle itself.

Mr. Cao said he doubted he would need the backup engine. He plans to drive the SUV for day trips to major parks on the outskirts of Shanghai and charge it at home each night. Such outings have become popular in China with the end of the “zero Covid” quarantine and municipal lockdowns. For longer trips to other cities, he said, he would fly or take one of China’s many bullet trains.

Even maneuvering for choice display locations at auto shows like the one in Shanghai has changed. Until recent years, Chinese automakers competed to place their displays close to multinational brands such as Mercedes-Benz, expecting Chinese car buyers to flock to the multinational brands and perhaps see the local brands along the way.

But now it’s Chinese electric car brands looking to encircle other companies on the showroom floor, said Bill Russo, a former CEO of Chrysler China. “You want to be closer to them – the Chinese companies have the most popular battery electric vehicles,” he said. “Foreign automakers don’t have the same halo now.”

Li you contributed research.