China already sells more electric vehicles than the rest of the world combined. Western automakers struggle to compete in China and will soon struggle in their home markets. A new direction is needed. Quickly.
In late 2023 during a CNBC interview, Tesla CEO Elon Musk famously said he believes the top 10 car brands in the world will be Tesla followed by 9 Chinese ones. A bold prediction, or already a reality?
On the 4th of July 2024, the European Union announced a wall of tariffs for electric cars imported from China, ranging from between 17.4% to 37.6%.
By imposing these tariffs, the EU is attempting to correct what it sees as an unfair market, where Chinese EV makers receive large subsidies and outcompete European brands. Much of this holds true. However, many think China is so far ahead today, that Western automakers might not have any chance of catching up anymore.
We therefore decided to explore what’s been coming for a long time: The rise of China’s era of automotive dominance.
Western automotive brands have historically enjoyed a competitive advantage selling in China compared to Western markets:
However, in recent years, Western auto-sales have significantly declined in China, as China’s own automotive companies have come up to speed, with domestically produced and subsidized electric vehicles.
Let’s examine the sales numbers of the top Western brands in China during the past 6 years:
Volkswagen: Volkswagen once enjoyed a 50% market share of vehicles sold in China, but is losing the edge very quickly compared to its Chinese competitors
General Motors: GM CEO Mary Barra already says the situation of General Motors in China is “unsustainable”. American competitor Ford’s sales on the other hand is already down 70% in China.
General Motors profitability for the Chinese market
Hyundai / Kia: The South Korean manufacturer is falling behind just as quickly as the Western brands in China, showcasing that it’s not just the West’s inability to adapt, but also Chinese brands offering better vehicles at better prices compared to other Asian manufacturers.
Forerunner BYD which started out as a contract manufacturer for Western automotive brands are now launching their own models, which are often up to 30% cheaper to manufacture compared to Western brands.
While Western brands’ sales are plummeting, BYD’s are skyrocketing.
Other Chinese players are also stamping on the accelerator. Huawei, a Chinese tech giant, launched their first vehicle in 2023, and aims to sell more than 600,000 vehicles in 2024, after only 2 years in production. Volvo, previously a Western brand now owned by Chinese Geely deliver more than 700,000 vehicles in 2023. XPENG, SAIC, and the other brands are at similar numbers.
It’s not anymore only a question of price. Chinese consumers are increasingly choosing Chinese car brands thanks to better quality and software.
While the preference for Chinese vehicles in China is a shock for Western automakers, it’s only the beginning. Right now, Chinese automakers are quickly eating market share, also in the West.
Today, China has the capacity to manufacture roughly 50% of the world’s 80 million vehicles. By 2030 it will be closer to 75%.
This will mean that the Chinese are not only leading by selling their own brands but also earning profits by selling Western brands in the West.
Out of 15M electric vehicles sold in 2023, 8.5M were sold in China, 2.5M in the EU, 1.5M in the US, and 2.5 in the rest of the world.
In the coming years, China will sell more EVs & hybrids than the rest of the world combined.
When Tesla CEO Elon Musk predicted that the top 10 automotive brands would be Tesla followed by 9 Chinese ones, he wasn’t entirely guessing. Already today, 18 of the top 20 best selling electric vehicle models are Chinese. The other 2 are Tesla.
With the world’s manufacturing power, inexpensive workforce, and a rapid shift towards EVs, it’s clear that China will be the world’s most important country for the automotive industry. Not only from a manufacturing perspective, but soon also from a brand perspective.
Most Western automotive brands will probably be forced out of the Chinese market due to declining sales within the next 5-10 years, and some sooner than that.
Tariffs are an option to prevent Chinese automotive companies from winning in the West. They will temporarily slow down Chinese EV imports but also hurt them as China responds with counter-tariffs. At the same time, Chinese manufacturers are finding their way into the EU and the US by building local plants to avoid tariffs.
Western brands can’t possibly compete on price, as it’s already 30% cheaper to produce the same vehicle in China, and China also has the world’s most advanced supply chain for building electric vehicles.
The final frontier is competing by building better quality vehicles, technology, and software. Increasing R&D spending, becoming software-defined faster, and letting go of legacy principles might be the last remaining option.
Since Chinese consumers already prefer Chinese EVs to Western ones, both on price and quality, the West will need superior features such as autonomous driving capabilities which could fundamentally change the landscape.
However, without significant R&D investment and government subsidies, Chinese brands will reach this milestone faster, too.
