Global automakers face electric shock in China

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BEIJING, May 26 (Reuters) – If global automakers think they can extend their dominance in China in the age of electricity, they may be shocked.

Combustion-era kings such as General Motors and Volkswagen are falling behind local players in the booming electric vehicle (EV) market in China, a key country for funding and growing their electric and self-driving ambitions.

For office worker Tianna Cheng in Beijing, the main dilemma when buying a 180,000 yuan ($27,000) Xpeng electric crossover was whether to opt for a BYD car or a Nio instead; she did not seriously consider foreign brands.

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“If I was buying a gasoline-powered car, I might have considered foreign brands,” the 29-year-old said on her way home from work. “But I wanted an electric vehicle, and apart from Tesla, I’ve seen few foreign brands applying advanced smart technology properly.”

Driven by demand from consumers like Cheng, electric car sales are exploding in China’s roughly $500 billion auto market, the largest in the world.

In the first four months of 2022, the number of new energy passenger cars – pure EVs and plug-in hybrids – more than doubled from a year earlier to 1.49 million cars, according to data from the China Automobile Manufacturers Association.

Cleaner technology accounted for 23% of China’s passenger car market, where overall vehicle sales fell 12%, reflecting a sharp drop in demand for gasoline-powered cars.

There are no foreign brands among the top 10 automakers in the New Energy Vehicle (NEV) segment this year, with the notable exception of U.S. electric pioneer Tesla, in third place, according to data from the China Passenger Car Association.

All the others are Chinese brands, from BYD and Wuling to Chery and Xpeng. Chinese leader BYD has sold around 390,000 electric vehicles in the country this year, more than three times as many as world leader Tesla has sold there. The top-ranked traditional automaker is Volkswagen’s business with FAW Group, in 15th place for electric vehicle sales.

Cheng said foreign brands, whether Buick Velite 7 or Volkswagen ID. series, failed to provide her with what she was looking for: an electric vehicle capable of giving her the “comfort” of having a smartphone-like experience in her vehicle.

“Foreign brands are so far from my life and lifestyle,” said Cheng, whose digital assistant handles logins to apps like Alipay and Taobao and “does everything for me, from opening windows to music on”, while its in-car software provides over-the-air updates.

It’s quite a reversal. Global brands have dominated in China since the 1990s, typically winning a collective 60-70% share of passenger car sales in recent years. In the first four months of 2022, they captured 52%, with their April monthly share at 43%.

Signaling the scale of the challenge facing traditional automakers, Nissan CEO Makoto Uchida told Reuters that some brands “could disappear within three to five years” in China.

“Local brands are getting stronger,” said Uchida, who was formerly Nissan’s China chief, adding that the quality of electric vehicles from Chinese manufacturers had improved rapidly, with progress being made in the space of some months.

“There will be a lot of transformations in China and we need to watch the situation carefully,” the CEO said, adding that automakers need to be nimble in designing, developing and launching new models.

“In those aspects, if we were slow, we would be left behind.”

‘NATIVES OF HIGH TECHNOLOGY’

Bill Russo, a former Chrysler executive who now runs Shanghai-based consultancy Automobility, said global brands needed to turn things around quickly because they controlled less than 20% of China’s growing auto market alone.

“Chinese brands are winning the EV race,” Russo said, adding that consumers’ shift to cars that are essentially smartphones on four wheels seemed irreversible and one that traditional automakers were struggling to keep up with.

“I think it’s a secular shift towards high tech,” he said of consumer demand for a “user-centric digital service experience” with a focus on interface, connectivity and applications.

“Traditional businesses are not high-tech natives.”

Volkswagen Group (VOWG_p.DE) brands, including Volkswagen, Audi, Bentley, Lamborghini, Porsche and Skoda, have dominated the market for much of the past two decades, alongside General Motors (GM.N) brands such as than Buick, Chevrolet and Cadillac. .

The two global groups held global auto market shares of nearly 13% and 12% respectively in China last year, according to LMC Automotive. Detroit giant GM also has a 44% stake in locally controlled SAIC-GM-Wuling Auto (SGMW) and includes its sales in the group’s figures, although SGMW does not manufacture American brands, only cars Wuling and Baojun.

GM is now focusing on winning over younger buyers in big cities who have so far largely snubbed its models, according to two people familiar with the automaker’s business in China.

The group has announced electrification plans to spend more than $35 billion globally by 2025, including more than 30 new electric vehicles, including more than 20 in China, starting this year with the launch of the Cadillac Lyriq fully electric crossover SUV.

The two sources said the Lyriq launch would be followed by an electric Buick SUV and a smaller, sportier electric crossover, both also slated for this year.

Buick sales have fallen 32% over the past five years to 828,600 vehicles in 2021, while Chevrolet has more than halved to 269,000 vehicles, according to LMC Automotive.

GM told Reuters it aims to install a production capacity of one million electric vehicles per year by 2025 in China, adding that demand for the Buick Velite NEV family and Chevrolet Menlo EV “both increased significantly” in 2021 and the first three months of this year.

It said it was rolling out smart technologies including hands-free highway driving assistance, “aircraft-grade” cybersecurity and over-the-air software updates.

AUTOBAHN SPEED?

Volkswagen, which is spending around $55 billion globally on electric vehicles by 2026, has launched its new generation of IDs. series in China early last year, but missed its target of selling 80,000 to 100,000 cars last year. It aims to sell 160,000 to 200,000 IDs. cars this year, despite only selling 33,300 through April.

According to one of the people close to GM and a Volkswagen insider, one of the main concerns of foreign brands is that their new electric vehicles are designed more for the American and European markets, with more emphasis on performance and durability.

“Freeway speeds? In most major cities in China, the traffic is so congested that people can’t even drive faster than 60 km/h most days,” said the source close to GM, who knows the product plans and product development processes of the automaker. .

Volkswagen said demand for NEVs in China is strongly tied to the “smart car” theme, adding that it is investing in local R&D, especially in software.

“Our strategy will allow us to achieve our ambitious goals in China. By 2030, we also want to be the market leader in electric vehicles and thus ensure that Volkswagen remains number one in China in the future,” he said. he added.

The challenge for global brands is to find the formula to appeal to consumers in major cities with disposable income, like Cheng in Beijing and Li Huayuan, a civil engineer from Shanghai.

Li only reluctantly considered Japanese and German brands when he bought his BYD electric sedan last year for 290,000 yuan including insurance.

“It seems to me that only Tesla stands out from American brands,” he said from his BYD car parked in the city of Mianyang, Sichuan province, where he is working on a project. “The other brands don’t even seem competitive to me.”

($1 = 6.6499 Chinese yuan renminbi)

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Reporting by Norihiko Shirouzu; Additional reporting by Zoey Zhang in Shanghai, Kevin Krolicki in Singapore and David Dolan in Tokyo; Assembly Pravin Char

Our standards: The Thomson Reuters Trust Principles.

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