China’s car buyers have fallen out of love with foreign brands

More than 80% of the electric cars sold in China last year were made by domestic automakers

Shanghai: For years, foreign automakers in China had a bead on customers drawn to luxury brands, like the Cao family in Shanghai. Not anymore.

Ben Cao and his wife, Rachel, both 36, are trading down from two Porsches to one, a gasoline-fuelled $290,000 Porsche 911 sports car, and buying their first electric vehicle, a $70,000 SUV designed and manufactured in China by a company called Li Auto.

“If you’re sitting in a Li Auto, the first feeling is of luxury,” said Ben Cao, a business consultant.

The rapid rise of Chinese electric carmakers like Li Auto, BYD, Nio and Xpeng Motors was the main preoccupation of the executives, engineers and designers arriving in Shanghai for the city’s auto show that started Tuesday. The country is now the world’s largest car market, and the home teams are routing multinational competitors that had until now mined the riches of China’s giant pool of customers. Buyers like the Caos, and China’s car companies, have embraced electric vehicles much more rapidly than almost anyone anticipated.

The rise of Chinese auto 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 manufactures and sells — at home and abroad — most of the world’s electric cars. Its prowess extends to the entire value chain for electric cars: It makes almost all of the cars’ electric motors and refines most of the chemicals used for lithium batteries. China even leads in developing what could be the next generation of technology, sodium batteries.

More than 80 per cent of the electric cars sold in China last year were made by domestic automakers. Last autumn, they overtook multinational companies in the total number of gasoline-powered or electric cars sold each month.

“Multinationals’ market share in China will likely continue to decrease due to the continuous development of Chinese automakers, especially in the electric car segment,” said Stephen W Dyer, a managing director in the Shanghai office of Alix Partners, a consulting firm.

As foreign automakers encounter problems in China, they are being pushed to shift more quickly to electric cars in Europe and the United States. The European Union and California want automakers 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 stringent.

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

Today the number of cars sold by the foreign companies’ joint ventures has plummeted as sales of gasoline-powered vehicles have shrunk and EVs have soared. Electric cars were almost a quarter of China’s market last year, compared with less than 6 per cent in the United States, and are expected to be over a third by the end of this year.

Ford Motor sold 1 million cars and light trucks in China in 2016 and in 2017 but barely 400,000 last year. Hyundai Motor, the South Korean giant, sold 1.8 million cars in China in 2016 and only 385,000 last year.

General Motors, which once vied with Germany’s Volkswagen for market leadership, has lost nearly half its sales in China. GM would be faring even worse if not for Wuling, a joint venture in which GM has a 44 per cent stake. Wuling sells ultra-cheap pickup trucks and microvans that cost $4,800 to $21,800 and have slender profit margins.

The market share of China’s domestic car companies rose to 52 per cent in the last quarter of 2022, from 47 per cent the year before, largely on a huge rise in electric vehicle sales. The best-selling brand is BYD, in which Warren Buffett was an early investor. It now holds 10.3 per cent of the car market, up from 2.1 per cent four years ago and supplanting the Volkswagen brand as China’s leader.

Electric vehicle sales have grown more slowly this year after national subsidies for purchases expired at the end of December. Sales of gasoline-powered cars have plunged as a purchase tax on them has been restored after a suspension during the pandemic.

Tesla has had slower growth lately than Chinese electric car makers, prompting the company to cut prices. That has set off a wave of discounting. Many consumers have waited to buy cars while watching whether electric car subsidies or purchase tax reductions will be restored. “The weakness should be short term, because the weak sales were caused by the price chaos in March,” said Cui Dongshu, secretary-general of the China Passenger Car Association.

Multinational companies including Volkswagen and GM had introduced electric cars that looked like their gasoline-powered models, with the hope of achieving a gradual transition. But Chinese consumers have gravitated instead toward the flashiest electric car exteriors and interiors available.

Cao, the Porsche enthusiast, dismisses most designs of multinational automakers as dull.“They are far behind, no matter whether it is the US ones and even the German ones,” he said. “They don’t even seem to be in the same age.”

Car fashions change quickly in China. Cao said that 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 of at least 50 others who, like him, were buying the Li Auto L9 SUV.

Unlike most large SUVs on the global market, the L9 is electric. It has a small gasoline engine as a backup that can recharge the vehicle’s hefty battery pack. But the engine does not provide power to move the vehicle itself. Cao said he doubted he would need the backup engine. He plans to drive the SUV for day trips to large parks on the outskirts of Shanghai, recharging it at home each night. Such outings have become popular in China with the end of “zero Covid” quarantines and municipal lockdowns. For longer travel to other cities, he said, he would fly or take one of China’s many
bullet trains.

Even the manoeuvring for choice display locations at auto shows like the one in Shanghai has changed. Until the last several years, Chinese automakers vied to put their displays close to multinational brands like Mercedes-Benz, in the expectation that Chinese car buyers would flock to the multinational brands and might see the local brands along the way.

But now, it’s Chinese electric car brands that other companies want to surround 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 hottest battery electric vehicles,” he said. “Foreign automakers don’t have the same halo now.”

The New York Times