With Chinese automakers making headway on numerous markets, there’s a lot of speculation regarding what the industry might look like in a few years. Financial advisory and consulting firm AlixPartners has released a study exploring this, suggesting that China may represent one-third of the world’s vehicle production by 2030.
The report focuses on how Chinese brands have been making plans to move production outside the country as a possible vector for importation into the United States. Its progress on other markets is more overt, though some U.S. brands already have tie-ins that have resulted in what are technically Chinese models landing in America. AlixPartners seems to frame China’s industrial dominance as an inevitability, citing numerous reasons. .
From the study:
Supplier-OEM profit equation is flipped: Globally, automotive suppliers are reporting a 10.6 [percent] operating margin on average, trailing OEMs by nearly two percentage points, the analysis shows. In China, where OEMs are more focused on near-term market share growth, the 10.4 [percent] supplier margin outpaces OEMs by 3.3 percentage points.
Faster development, fresher showrooms: Chinese EV automakers have ripped up the playbook related to vehicle development time, creating new products in half the time (40 months vs. 20 months), mainly by designing and testing to sufficiently meet standards vs. overengineering. China-branded models, meanwhile, are 2-3 years fresher than non-China brands, averaging only 1.6 years in market.
“Made-in-China” advantage: The analysis finds Chinese brands enjoy a 35 [percent] cost advantage, affording flexibility (in Europe and elsewhere) to lower prices to offset tariffs. This advantage is built on lower labor costs and higher vertical integration from raw materials to component suppliers to final assembly to selling to other automakers. Further smoothing the path for export is the quick ramp up of overseas shipping capacity, prompting Chinese automakers to secure their own transport capacity.
Higher sales-lead conversion: Many Chinese automakers utilize a direct-to-consumer sales approach, enabling a unified and transparent customer experience. These automakers use multiple channels for marketing and sales, resulting in higher consumer engagement.
One of the most relevant factors is undoubtedly the forced transition to all-electric vehicles. With China being responsible for a majority of the world’s battery production, and having launched more EV startups than any other nation, it seems to have the most to gain by the world embracing all-electric vehicles. This also ensures that the region can field these models at a lower price point. Non-Chinese brands that are shifting to EVs likewise need to source batteries for their vehicles and this has resulted in many selecting suppliers like China’s Contemporary Amperex Technology Co.
We’ve said this for a while. But worldwide electrification seems to overwhelmingly benefit China. It’s best positioned to provide the batteries and doesn’t need to adhere to the same environmental standards that Western nations have imposed on themselves to produce them — allowing the country to allegedly support the green agenda without actually having to adhere to the same benchmarks as its economic rivals.
The above could be undone by the United States placing extremely high tariffs on Chinese-made automobiles. Donald Trump has even floated this as one of his platforms in the presidential race. However, Chinese brands may be able to circumvent this by shifting production elsewhere and ingratiating with those countries by creating jobs. As an example, BYD, Chery and Great Wall Motor have all announced plans to set up factories in Mexico.
Another thing that might curtail a swelling Chinese market share would be the broader industry moving away from electrified vehicles. But AlixPartners does not see this as particularly likely. It claimed that, by 2030, the United States would see only 35 percent of new vehicles being purely reliant on combustion. Meanwhile, it predicted plug-in hybrids and purely electric cars would represent 41 percent of the market — with other Western markets seeing an even higher share of EVs.
“The trends we studied point to a world where [new energy vehicles] are increasingly dominant, Chinese brands are increasingly prevalent, and traditional automakers, suppliers, fleets, dealers, and others are increasingly pressured to reinvent,” Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners. “While we’ve long heralded the virtues of being more nimble, flexible, and adaptable, now is the time to approach those priorities with a greater sense of urgency and openness to new partnerships, operating principles, and expectations.”
The Associated Press speculated that Chinese brands could exploit existing U.S. trade agreements by shifting production to Mexico. It likewise floated tariffs or outright vehicle bans as possible solutions — noting that politicians had begun doing the same.
“Time and again, we have seen the Chinese government dump highly subsidized goods into markets for the purpose of undermining domestic manufacturing,’’ Sen. Sherrod Brown, an Ohio Democrat, wrote in a letter addressed to President Joe Biden in April. “We cannot let the same occur when it comes to EVs.’’
Brown wants an outright ban of Chinese EVs, perhaps not realizing that electrification itself overwhelmingly benefits the Asian country. It also seems to be critical of how heavily Chinese EVs are subsidized by the government, ignoring the fact that the United States has been doing the exact same thing.
[Image: BYD]
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