Where is the Chinese market headed?

Prepare for bloodPrepare for blood…

Discover the Top 8 trends currently affecting the Chinese market below.

China’s new vehicle market growth is smoothing out. The perception out there is that the entire market is slowing down, whereas only its growth is for now – a big difference. Some analysts say this is the beginning of the end, I say the Chinese new vehicle market remains the most dynamic and the fastest evolving in the world and will continue to be so for many years to come. Even if its growth did stop forever, we would still be left with a 25 million annual units Chinese market in our hands vs. 17 million for the U.S. and 15 million for Europe currently – including commercials.

But the growth hasn’t stopped and Chinese sales trends are evolving faster than ever, with segments like microvans rapidly losing ground while others like MPVs and SUVs outperforming the market 6-fold… A record 75 new nameplates have kick-started local production in the past year and new factories are opening on a monthly basis. General Motors for example is investing $14 billion to add 5 million annual units of production capacity by 2018 through five additional assembly plants here. A more timid growth with ever more competitors in the market: prepare for blood and aggressive price wars. Where is China headed in the next 15 years? We will explore the Top 8 trends currently at play in the Chinese new vehicle market in order to decipher its mid-term evolution.

Kashgari farmer Jonway UFO A380Kashgar, Western China: the region has the greatest sales potential.

1. All eyes on the lower Tier cities prize

China grew 14% in 2013 to 22 million units, becoming the first ever new vehicle market above 20m annual units, another 7% in 2014 to 23.5 million and should improve by 5% in 2015 to just under 25 million deliveries. Analysts diverge in their view of the mid-term future for China. I remain highly optimistic, and it would appear Renault-Nissan CEO Carlos Ghosn agrees: “From time to time we have slowdowns, but fundamentally I’m still very optimistic on the fact that the long-term trend in China is up and carmakers should be prepared for that,” he said recently, pointing to the country’s low car ownership level compared with other major markets. If the big eastern cities along the coast like Beijing, Shanghai and Guangzhou are starting to peak out due to saturated ownership and stringent new registration restrictions put in place to curb pollution, there is still an enormous reservoir of growth lying in lower Tier cities.

Total vehicle sales – Big 3:

2000 2015 (p) 2030 (e)
China 1.8m 24.7m 40.2m
U.S. 17.8m 16.9m 18.5m
Europe 18.5m 15.8m 16.8m

(p): projection (e): BSCB estimate

Before we go into any further regional detail, it’s worth establishing where the long term potential for Chinese sales stands. Last year, American car buyers bought 52 new vehicles per 1.000 residents in a saturated market. It seems difficult for any mature market to significantly outpace that rate in the short to mid-term. China stood at 17 new vehicles per thousand in 2014, and were it to reach the same buying rate as the U.S., it would push its total new vehicle market to a mind-blowing 70 million annual units. A level it will probably never hit, but progressively lifting the buying rate to 30 new vehicles per thousand in the next 15 years is a totally reasonable if a little conservative prospect. That would place China just over 40 million annual new vehicle sales by 2030, way above the U.S. and European markets combined – themselves for the most part stagnating over the period.

Geely Vision China 2015. Picture courtesy 91aiche.comThe Geely Vision is a hit in lower Tier cities.

As I detailed in my article STRATEGY: China light-vehicle market to reach 30 million units by 2020, a large part of China’s future growth will come from both the less developed regions of the country located in the hinterland and lower Tier cities that are now starting to benefit from denser dealership networks. By 2020, Western China’s share of total sales is expected to rise to 26%, up from 18% in 2011. In the meantime, the coastal region’s market share will drop from 60% to 43%, according to predictions from IHS Automotive. Up until now, the bulk of the Chinese car market has resided up until now in Tier 1 and 2 cities – the largest and most developed ones. As a result, there are now 128 vehicles per 1,000 residents in Tier 1 cities. This ratio falls to 54 in Tier 3 cities and 28 in Tier 4 cities, and these cities are now starting to have a significant impact on national auto sales as we will detail in the SUV section of this article. Note these Tier 3 and 4 cities are not all located in the hinterland, they are sometimes very close to Tier 1 and 2 cities, so the growth regions are not completely geographical but mostly demographic.

In less populated areas, car buyers tastes are skewed more strongly towards Chinese manufacturers. If last year the prospects for domestic carmakers seemed cloudy, they have managed a complete turnaround thanks to a flurry of new affordable SUVs, and whereas it seemed like hinterland Chinese buyers would inexorably follow their eastern counterparts’ taste shift towards foreign brands, this is now less certain. The race for the lower-Tier cities first time car buyers is now wide open and competition will gradually intensify over the next two decades to woo rural populations getting a new access to car ownership. There are an estimated 100+ Chinese vehicle brands in activity today, when including truck and new energy manufacturers serving only limited parts of the country. This number will plunge rapidly to reach about 25 to 30 by 2030, and we will witness numerous price wars that will progressively shed the industry of the less-efficient manufacturers.

In this context, who will trigger and benefit from future Chinese growth?

24. Brilliance V3Brilliance V3 at Auto Shanghai 2015

2. Domestic brands on the brink of breakthrough

After a tough five years that saw their share market at home recede to roughly one-third of overall sales, Chinese manufacturers have seen their importance in their domestic market take a turn for the better in the past 12 months, rising to 43.1% of Chinese sales over the first 3 months of 2015, up 4.2 percentage points from a year earlier. As evidenced by my coverage of domestic carmakers at Auto Shanghai 2015, Chinese carmakers are constantly reinventing themselves with various degrees of dynamism, making the Chinese market the fastest-evolving in the world. However their progress is taking a different route than the one the government was hoping for two decades ago.

Starting in the eighties with Volkswagen, the barrier to entry for foreign carmakers in the Chinese market is a requirement to form joint-ventures with local partners in order to gain the right to manufacture locally, in essence the right to ‘unlock China’. By doing this, the Chinese government was hoping for a technology transfer towards local brands. It didn’t happen. In fact, the domestic brands faring the best at the moment are ones that are for the most part privately owned and not embroiled in partnerships with foreign carmakers.

Geely GC9 China April 2015Geely GC9

Thanks to a new focus on strong branding and streamlined lineups, a few domestic actors are now enjoying surging sales at home. Great Wall spun off the Haval SUV brand to tremendous success in July 2013 and has seen its SUV lineup sales soar 71% year-on-year in April to 63.921 units. The Haval H6 is now among the three overall best-selling vehicles in the country. In January 2014 Geely got rid of the Emgrand, Gleagle and Englon brands to market its vehicles exclusively under its namesake brand and, going hand-in-hand with an extremely impressive quality overhaul that is finally showing the benefits of its 2010 purchase of Swedish manufacturer Volvo, has managed to push domestic sales 45% in April to 38.648. The EC7 sedan remains the best-seller of its kind among domestic nameplates with 75.189 deliveries so far in 2015.

Another example is Chery, deleting the Rely and Riich brands in September 2012 to concentrate on its namesake brand for passenger cars and Karry for commercial vehicles. However they have disappointingly spawned two sub-brands – Tiggo and Arrizo – since. Baby steps, as habits die hard in China. Even though it is evolving at dangerously breakneck speed, ChangAn is another success story, placing three models among the 10 best-selling domestic vehicles so far this year: the Eado sedan (70.231), CS35 SUV (62.110) and CS75 SUV (56.116). Led by Great Wall’s Haval, Geely and BYD, all relatively unscathed by joint-ventures with foreign actors and – most significantly – all privately owned, Chinese manufacturers have never been as close to world standards as now. And their improvements are set to continue at the same rate, shaping into a true threat for carmakers the world around by 2020.

4. VW Santana Karakul LakeVW Santana on the Karakoram Highway, Western China.

3. Foreign manufacturers caught in a race to luxury

In a context where some domestic carmakers are finally finding their way to profitable sales volumes, clearer brand identities and ever-improving quality coupled with aggressive pricing, foreign manufacturers may see their time under the sun reduce drastically over the next decade. Their capacity to compete with domestic actors relies on almost instant reactivity to fast-moving trends, as demonstrated in their sales behaviour in 2015. The SUV explosion has caught both Volkswagen and Toyota by surprise, resulting in significant market share loss this year. Hyundai and Kia are safe with their ix25 and KX3 tapping right into the small SUV craze and becoming instant blockbusters. Nissan is following at a distance.

If this article had been published 6 months ago, Volkswagen would have been best positioned to benefit from the future growth expected in China’s less developed areas. However their failure to launch a small SUV lineup is worrying, at a time where Tier 3 and 4 cities are lapping up bargain-priced JAC, ChangAn and Zotye fares. Granted, Volkswagen is still and by far the most popular/aspirational brand in China. During the first half of 2014 when sedan sales growth was still around 15%, the market share lost by Chinese manufacturers in the compact segment was almost exactly matched by market share gains at Volkswagen while Japanese, U.S. and Korean makers were flat. So Volkswagen is the best armed to compete with domestic brands in the sedan segment, but also the most vulnerable when and if Chinese carmakers reclaim lost ground in that area.

Hyundai Mistra China 2014. Picture courtesy of auto.sohu.comHyundai Mistra

Two years ago, Volkswagen launched its New Santana with a starting price of 84.900 yuan ($13.700), only slightly more than the Geely EC7’s 69.800 yuan. Automotive News China quotes Zhang Lei, a 35-year-old office worker in Beijing who bought a New Santana last year: “People say German cars are of good quality, so why not buy a German car if it’s not expensive?” However since then Geely launched the new Vision at 52.900 yuan ($8.500), cutting the Santana by almost 40% and displaying some interior elements of a higher quality than a Santana. As a result, Volkswagen has launched a price war in recent months to keep its lower-end lineup competitive in the face of vastly improved domestic entries, at the risk of significantly eroding its profits in the region. Volkswagen is now caught between lowering their prices to better compete with domestic carmakers and maintaining its premium reputation.

Brand loyalty is low in China and more than 90 million car owners will replace their first vehicle in the next few years. Cut-throat competition is a new element in the market and Korean Hyundai and Kia could see a much larger increase of their Chinese sales than Toyota and Volkswagen over the next decade. Not just because of a better reactivity to changing trends: Toyota and Volkswagen with undoubtedly launch affordable small SUVs to keep a foot in the market – albeit a couple of years late. Two more political and attitudinal elements may come into play. Firstly, Nippon manufacturers aren’t immune to future bursts of anti-Japanese sentiment, like the one that severely handicapped them a couple of years ago. 2015 marks the 70th anniversary of the end of WW2 and the rest of the year will be another sensitive period for them. Secondly, having launched in China less than a decade ago, Korean carmakers Hyundai and Kia are free of any poor quality perceptions dating from the nineties that are still plaguing them in some other countries and can grow unabated in the next decade.

Mercedes GLA China April 2015. Picture courtesy wolfexp.netMercedes started local GLA production and is best placed for explosive growth in China.

The Chinese luxury segment has already become the largest in the world and its influence will further increase over the next two decades, lifting Audi, BMW and Mercedes-Benz to a likely continuous string of worldwide sales records. The Top 3 German luxury carmakers, already ultra-dominant in the Chinese luxury aisle, are poised to continue improving their Chinese sales drastically, with Mercedes displaying the highest potential for explosive growth. In 2014, Audi sold 579.000 cars in China (+18%), with BMW at 456.000 (+17%) and Mercedes at 282.000 (+29%). Growth was cut in 2015 but should resume in the coming years. It is a realistic prospect to see Mercedes leapfrog both Audi and BMW to become China’s #1 luxury brand by 2025, simply because the Stuttgart manufacturer has completely refocused its attention onto the Chinese market, now front and centre in its worldwide operations as its impressive display at Auto Shanghai hinted at. Our forecast for 2015: Audi at 606.000 sales (+5%), BMW at 478.000 (+5%) and Mercedes at 335.000 (+18%).

Audi started manufacturing cars in China as early as 1991 while both BMW and Mercedes have been doing so for just a decade, earning the 3 German carmakers a credibility in the luxury segment that will be near-impossible to erode in the next decade or so. At this stage only Infiniti, Volvo and Cadillac are also manufacturing locally to avoid China’s 25% import tariff, but their sales remain modest: Volvo sold under 80.000 vehicles in 2014 (47% locally produced) while Cadillac delivered under 70.000 (57%) and Infiniti just 30.000 (8%). Acura recently announced it will start building locally soon, leaving the odd one out, Lexus, with no plans for local manufacturing despite a decade-long presence in the country and 75.000 sales in 2014. Lincoln for its part is enjoying a fast and furious all-imported start with 3 of its Top 10 dealers globally by sales now located in China only 12 months after landing in the country.

Haval-H1-China-November-2014.-Picture-courtesy-of-auto.qq_.com_The Haval H1 is one of dozens of new Chinese SUVs launched in the past 12 months.

4. The entire market is now ditching sedans for SUVs…

Disposable income is on a steep rise for the majority of Chinese and their car purchase patterns are changing accordingly, with urban and rural buyers each displaying widely different tastes than they were just two years ago. Last October, sedan sales dropped 1% from a year earlier for the first time in 7 years, marking the start of a shaky period for this once-thriving segment in China. In urban areas, more than one-third of buyers now opt for an SUV when the time comes to replace their first vehicle vs. 25% for China overall. After soaring by 36% in 2014 to 4.1 million units, SUV sales are accelerating further this year with a 49% year-on-year surge over the first 4 months of 2015 to 1.79 million units, hinting at an annual rate of over 6 million sales…

China – Top 10 SUVs and sedans 2015 year-to-date:

Pos SUV model 2015 /14 Sedan model 2015 /14
1 Haval H6 118,516 26% VW Lavida 170,168 -12%
2 VW Tiguan 88,609 1% VW Santana 114,479 7%
3 JAC Refine S3 66,295 new VW Jetta 107,680 7%
4 ChangAn CS35 62,110 71% Ford Focus 99,675 -26%
5 ChangAn CS75 56,116 new Hyundai Elantra 96,713 30%
6 Haval H2 56,074 new VW Sagitar 96,173 -6%
7 BAIC Huansu S3 49,738 new Nissan Sylphy 89,995 -8%
8 Ford Kuga 42,593 -3% Hyundai Verna 84,821 14%
9 Nissan X-Trail 41,942 182% VW Passat 84,275 -15%
10 Zotye T600 39,307 302% Chevrolet Cruze 80,170 -6%

Seven of the Top 10 best-selling SUVs in China so far in 2015 are Chinese, four are all-new and only one (the Ford Kuga) sees its sales decline year-on-year. Reversely, the Top 10 best-selling sedans in the country are all foreign but 6 out of 10 are in decline, including the #1 seller – the VW Lavida (-12%) – with the Ford Focus losing the most ground at -26%. In what may be the most interesting reversal of fortunes in the past few years, thanks to a flurry of affordable models all launched in the past 24 months, domestic manufacturers are now dominating the SUV segment with a record 56% share, evolving at double the sales level compared to a year ago.

ChangAn CS75 China July 2014. Picture courtesy of auto.sohu.comThe ChangAn CS75 has found 109.000 buyers since launching exactly a year ago.

According to LMC Automotive, SUV buyers are mostly residents of Tier 3 and Tier 4 cities, traditionally more fond of Chinese car brands because of more affordable prices and less dense foreign manufacturers dealer networks. When their sedan sales got bogged down by higher-status Volkswagen, Chevrolet and Kia, domestic carmakers found salvation in designing attractive-looking SUVs with prices contained below 100.000 yuan (US$16.000). These Chinese vehicles only are Sports Utility Vehicles by name, in no way true four-wheel drives capable of stepping out of urban areas, but they are high enough on the road for Chinese customers in Tier 3 and Tier 4 cities. Mission accomplished.

Wuling Hongguang China September 2014. Picture courtesy of cheshi.com2The Wuling Hongguang has transformed the Chinese car market forever.

5. … while rural buyers switch from microvans to MPVs

If urban dwellers are abandoning their entry-level sedans to lap up an increasing variety of Chinese-branded SUVs, their newly prosperous rural counterparts are also moving upwards, ditching microvans for low-cost MPVs. In 2014, the MPV segment was the fastest-growing in the country with sales surging 47% to 1.91 million units just as microvan were losing 17% to 1.33 million deliveries. In 2015, MPVs are up by a further 28% so far and should end the year just under 2.5 million units. The good news for Chinese manufacturers is that 85% of all MPVs sales go to domestic brands, being a segment mostly popular in rural areas.

Price comparison – Wuling MPVs and microvans:

Model Cat April sales Price range (yuan) Price range (US$)
Wuling Journey MPV 4,011 66.000 – 77.000 10.600 – 12.400
Wuling Hongguang MPV 53,086 44.800 – 69.800 7.200 – 11.250
Wuling Hongguang V Micro 25,506 42.800 – 51.800 6.900 – 8.300
Wuling Rongguang Micro 17,475 41.800 – 46.800 6.700 – 7.500
Wuling Sunshine Micro 21,005 29.800 – 46.000 4.800 – 7.400

Wuling Sunshine microvan – Hongguang MPV sales comparison:

Model 2009 2010 2011 2012 2013 2014 2015(e)
Wuling Sunshine 699,037 754,961 731,749 523,841 455,718 308,668 269,000
Wuling Hongguang 0 5,000 177,000 316,217 530,050 750,019 660,000

(e): BSCB estimate

The sole instigator of this momentous sales trend is the Wuling Hongguang, originally introduced in September 2010 and at first classified as a light commercial vehicle – it was then considered as a larger microvan. The Hongguang didn’t appear inside the Top 5 LCV best-sellers until February 2012 (24.694 sales – see China LCV February 2012: Wuling Hongguang’s entrance) but topped the overall Chinese charts for the first time in January 2013 and the following month was selling almost 30.000 more units than any other nameplate in the country. It went on to be the best-selling vehicle in the country in both 2013 and 2014, with its monthly sales record standing at an out-of-this-world 81.153 units in January 2014.

Baojun 730 China September 2014. Picture courtesy of auto.sina.com.cn230.000 Baojun 730 have hit Chinese roads in just 9 months.

As I detailed in my article China April 2015: Wuling Hongguang V takes control, the leap from microvan to MPV is very significant, representing a 50% price hike even though the rates remain minuscule by Western standards: the Hongguang starts at 42.800 yuan (US$7.200) vs. 29.800 ($4.800) for the Wuling Sunshine, the all-categories best-seller in China until 2012. Who purchases microvans? Traditionally, families, small companies and taxi operators in rural areas and small towns to carry goods and/or passengers. While both the Sunshine and the Hongguang can carry five to eight people, with per capita disposable income in rural China leaping 12% to 8.900 yuan last year, rural buyers are snapping up Hongguangs like hot dumplings simply because they can now afford to.

What the Chinese market is experiencing right now with the Wuling Hongguang is similar to European car buyers suddenly switching from purchasing 600.000 annual VW Golf to as many annual VW Passat in a matter of three years, or American consumers completely ditching the Toyota Camry to replace it with 450.000 annual Toyota 4 Runner.

It took a lot longer for other domestic manufacturers to cotton on to the Hongguang success and what it meant for the microvan category (death) than it did for them to understand the SUV craze. In fact, SAIC-GM-Wuling is reinventing the category once again with the launch of the slightly more upmarket and extraordinarily successful Baojun 730, clocking an incredible 230.000 deliveries in its first 9 months on sale. Sales of Hongguang clones (Chana Honor, Dongfeng Fengguang and BAIC Weiwang M20), although dynamic, are still far below. The future of the MPV segment may be further upmarket: Wuling launched the much larger Journey a few months ago, and Brilliance unveiled the Huasong MPV-exclusive brand at Auto Shanghai 2015 to compete with Buick’s GL8. Expect Wuling to regularly revive the category to maintain its supremacy.

Dongfeng Rich 2015. Picture courtesy chinaautoweb.com2015 Dongfeng Rich

6. Pickup trucks: the largest untapped segment

Now that the SUV and MPV segments are truly taking off, mimicking many light vehicle markets around the world, the last frontier is the pick-up sector, currently plagued by outdated legislations but home of the greatest sales potential of all in China. Pending a legislative adjustment, we foresee Chinese pickup sales will reach 10% of overall sales by 2030 – or 4 million annual vehicles vs. just 1.9% and 200.000 now. Pickups are where Chinese manufacturers perform their best on the world stage, as demonstrated by their relative success in export markets. So what isn’t working at the moment?

In 2003, the Chinese government introduced the Road Traffic Safety Law which was giving free rein to city administrations on allowing pickups to drive on their streets. Most cities chose to classify pickups as commercial vehicles and banned them from entering. Yes you have read that right. Pickup trucks are not allowed within most Chinese cities, including Beijing and Shanghai. But it doesn’t stop there: Automotive News China reports that to ease congestion during holidays, Chinese traffic regulators let sedan drivers use highways toll free whereas pickup drivers must pay. This may have made sense a decade ago when pickup trucks were the only vehicles of such size on the road along with medium and heavy trucks. But it is no longer true now that large SUVs have invaded China’s four corners. Besides, under existing regulations, microvans – also used in rural and suburban areas to carry people and goods – are considered passenger vehicles, and therefore allowed into cities…

GAC Gonow GP150GAC Gonow GP 150 at Auto Shanghai 2015

This restrictive legislation has had a devastating effect on the Chinese pickup market. Roughly 435.000 new pickups were sold in China in 2014, or just 1.9% of the total vehicle market and with sales down 4% year-on-year their market share is also decreasing. Yet market leader Great Wall still sells 10,000 pickups each month in China on average. It is still a very dynamic segment despite the restrictions, with at least 16 Chinese manufacturers currently offering a pickup lineup. I spotted the all-new 2015 Dongfeng Rich in Mohe in far north China, while GAC Gonow unveiled a rather good-looking GP150 pickup at Auto Shanghai and Great Wall launched a new variant of its Wingle pickup late last year.

Paradoxically given the gagging they suffer at home, pickups are the one single segment where Chinese manufacturers can already compete with foreign automakers in mature export markets such as Italy, the UK, South Africa and Australia where the Great Wall Wingle ranked among the Top 50 best-selling nameplates in 2012. The same cannot be said yet about sedans, SUVs and MPVs. Understandably given the current restrictions, global automakers haven’t bothered venturing into the Chinese pickup market just yet. Only Isuzu and Nissan currently sell quickly facelifted versions of antediluvian models, but the potential for pickup sales in China is enormous, both for commercial and private uses.

Ford F-150 Raptor Kashgar ChinaFord F-150 Raptor in Kashgar, Western China

With Chinese car buyers progressively americanising their tastes, it is no real surprise to see at least one Ford F-150 Raptor and Toyota Tundra in each northern Chinese city I visited this year, big or small. Despite astronomical prices and driving restrictions, Chinese customers are still privately importing these monsters. The demand for pickup trucks is almost screaming at you when visiting the country. It is apparent in the commercial segment where a recent transfer from microvans to mini pickups can be seen – keep in mind the latter are considered passenger vehicles and therefore are able to grow sales freely. Result: the Wuling Mini Truck has topped the LCV sales charts a couple of times in the past 6 months.

But part of the SUVsation of the world car market also means a large part of pickup trucks are now purchased and used in the same way as SUVs, not just for commercial hauling. As Automotive News China points out, if municipal restrictions on pickups are abolished, farmers could drive their pickups to go shopping in cities, a much more chest-beating experience than in a microvan or low-cost MPV. Likewise, well-off inhabitants of coastal cities could tow boats or stow surfboards with their pickups. We believe it’s a matter of when rather than if, and once pickups can be driven freely across the country, expect a gold rush in the same vein as the one we are currently witnessing for SUVs and MPVs. Pickup sales are bound to grow exponentially from that moment on.

Used car market in China. Picture courtesy of 51auto.comThe notion of used car is a new concept in China.

7. Prepare for a used car explosion

Last March, China’s largest search engine Baidu – dominating a market where Google is banned – joined a U.S. private equity firm and hedge fund to invest $170 million in China’s largest used car auction website Uxin. It is the latest round of funding raised by Uxin to expand a new trading platform designed to allow auto retailers to sell used cars directly to individuals. Last year, China’s used car market generated $58 billion, a 26% growth from a year earlier while volumes are up 16% at 6.05 million units vs. +7% for the new vehicle market. Up until very recently, the very concept of a used car was a rather alien notion in China given how recent the uptake of cars in the country is. Moreover, in China there is a strong cultural preference for new items, rather than those tarnished by previous ownership. Without regulations, skepticism over the quality of used vehicles could be justified, reports Autotalk NZ. But this is all changing as the Chinese used car market matures.

China – New and used vehicle sales evolution:

2000 2015 2030 (e)
New vehicles 1.8m 24.7m 40.2m
Used vehicles 0.2m 7.0m 41.5m

(e): BSCB estimate

At the moment, one used vehicle is sold for every four new ones in China, a diametrically opposite situation as the one observed in mature markets such as the U.S. and Europe (three to four used cars for every new one). But at the current rate, the number of used cars changing hands annually in China will even up with new ones by 2030. Sedans still account for the majority of used cars currently sold in the country (57%) above buses (16%), trucks (14%), light commercials (9%) and SUV (3%), reflecting the dominant structure of the market during the past decade. This too will change, when SUVs and MPVs currently sold as new will start hitting the used car market in five years time.

Nowadays, used car sales are still a largely unregulated area, with a whopping 95% of used car transactions made privately and escaping sales taxes. Large manufacturers are however slowly looking to enter the used market by reselling their own products second-hand complete with quality guarantees: Peugeot already has 700 certification centres around the country while Nissan, Audi and Volvo are following. Stringent new anti-pollution laws limiting the number of new registrations in the main big cities have also helped fuel increasing used car sales: they already are licensed and therefore unrestricted – a clear oversight by governments as these used cars typically pollute more than new ones and should instead be replaced, the way Europe has done with numerous scrappage schemes.

DENZA wird in einem deutsch-chinesischen Gemeinschaftsunternehmen von Daimler und BYD in Shenzhen gefertigt. / DENZA is manufactured by a Sino-German joint venture of Daimler and BYD in Shenzhen.Denza EV

8. The electric vehicle question mark

I have said it and will say it again, the current success – or lack thereof – of new energy vehicles has nothing to do with consumers’ increased environmental consciousness and everything to do with government policies. Cue Japan, California and Norway, offering the most generous incentives for new energy vehicles and consequently displaying the highest hybrid and EV sales ratios in the world. China has a well-documented tradition of imposing stringent government mandates onto the car market (joint-ventures with local partners, pollution-curbing new registration limitations…) and could lead the world in terms of electric vehicle adoption, if it decides to. With significant air pollution problems plaguing most large cities and limited oil resources, the Chinese government considers the uptake of electric cars a priority. But is it doing enough to encourage new energy vehicle sales? Carlos Ghosn said “not really” at this year’s Shanghai Auto Show.

Chinese EV sales are quadrupling so far in 2015 compared to last year but at 26.581 units in 3 months they still only represent a minuscule 0.4% of the overall market. The BYD Qin hybrid sedan has been the best-selling new energy vehicle in China ever since its launch in December 2013, totalling 2.625 sales in April. This is to be compared with an estimated 200-300 monthly sales average for the Tesla Model S in China and roughly 1.500 in the U.S. Still, the question mark remains as to whether EVs will truly have an impact on the overall Chinese market in the short to mid-term. It all depends on the Chinese government. Chinese punters will buy electric if they are mandated to: a recent visit to Kashgar in Western China showed all scooters in circulation in town to be electric.

Tesla Model S ChinaTesla has been struggling in China so far.

Among the various Chinese government mandates in place to encourage sales of new energy vehicles:

– All EVs are excluded from the new registration plate quota applied in China’s eight largest cities.

– Subsidies of up to 55,000 yuan (about $9,000) per EV vehicle, elimination of a 10% sales tax on some EVs.

– Subsidies for the construction of battery charging stations in various cities proportioned to the EV and plug-in hybrid sales in these cities. The aim is to install 140.000 charging stations this year vs. just 20.000 in place last year. The government’s plan calls for covering 16,000 kilometers (10,000 miles) of highways with fast-charger stations every 50 kilometers (31 miles) by 2020.

– All manufacturers selling in China need to display a fleetwide average consumption of 5L/100km (47 mpg) by 2020.

– Foreign automakers are required to develop EVs with their Chinese joint venture partners. This has prompted Toyota, traditionally EV-weary, to launch one EV vehicle with each Chinese partner later this year. Toyota however conceded to Automotive News that these are purely compliance vehicles and their focus will remain on hybrid technology.

Most manufacturers had at least one EV model to show at Auto Shanghai, but these looked more like compliance vehicles than genuine best-sellers. Elmar Degenhart, CEO of supplier giant Continental AG told Automotive News China “We are convinced that China will turn into the biggest market for electrification technologies. With the support of the government and regulation, the speed in that direction is developing quite rapidly.” The ball is in your camp President Xi Jinping.

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This Post Has 5 Comments
  1. When it comes to coping with environmental problems, I agree that the central government, along with local governments, does a good deal of mandating industry policy. But I also see a good deal of laissez faire approach to other areas of the market. The much needed industry consolidation has for a long time been encouraged, and some pressure made to bear, but the government seems to be allowing the market to take it course in that regard. Its been hands off and let the market decide in other areas too.
    In the area of new energy, it surprises me that the central government hasn’t mandated a charging plug and charging station standard.

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