‘Bloody’ domestic market driving Chinese EV exports – PWC
Firms are losing money giving customers more for less in a brutal battle for market share
A “competitive or, I would say, bloody local market” has been a major driver for Chinese companies “very aggressively looking at exports,” Jun Jin, China and Hong Kong automotive industry leader at consultancy PWC told the IAA Mobility event in Munich earlier this month. Most firms, in Jin’s view, are running at a loss on domestic sales, meaning international markets with potentially less pricing pressure look increasingly attractive.
PWC is forecasting Chinese EV domestic sales will reach 30mn/yr by end of the 2030. But Jin foresees that production will be more than able to outstrip that figure, leaving room for exports to grow too.
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One megatrend will be consolidation from currently 100+ Chinese OEMs. But even as that plays out, it will potentially push up the volume of vehicle available for export as firms keep production high to be among the China market share winners in the likely shakeout.
“Now we have over 100 brands and companies in the vehicle business. Going forward, the market will definitely be consolidated,” says Jin.
“Given the kind of competitiveness, we do see there will be c.10 companies who will take a leading position. We still think some traditional OEMs will take these leading positions, but new forces will also be stronger than before.”
Another 20-40 OEMs can still exist in a tier slightly below these 10 major players, in Jin’s view. But he thinks the shakedown will reduce the overall number of competitors in the Chinese market to less than 50.
And the analyst also sees a “critical role” for tech and software players, such as Huawei, Baidu, Didi and Xiaomi, partnering with OEMs to give the edge to those that prove to be the winners. “We will see more collaboration between the OEMs and the technology companies. And this will give you a good idea for the future competitive landscape,” he predicts.
“The funny thing is, although the average price dropped a lot in China, that does not mean you are trying to launch a simpler car,” Jin continues. “You still need to add more functions to the car, which requires you to have more efficient R&D capability and also to better manage the procurement cost.
“I would say, if you are looking at the current market, there may be less than five companies that can really make money. But this is the stage of volume gain, meaning you are still trying to grab more volume to make sure you can be potentially one of 10, to create a leading position in the longer term,” the analyst suggests.
And he foresees this cut-throat race to the bottom on price even while making c.$20,000 BEVs smarter continuing for at least the next couple of years. This is likely to lead to more ambition to export.
Chinese OEMs are feeling “more confident” about exporting to Europe, in Jin’s view, because of these increasingly advanced vehicles. “There is no doubt the Chinese companies want to promote their leading advantage, which means two things — technology and pricing,” says Jin.
But there are also challenges, not least about better understanding European sales channels and service network expectations. He also thinks they will be aware of the threat of regulatory change, which may lead them to exploring making cars in Europe to insulate them better against any shift in tariff policy.
“There will be more Chinese companies trying to localise their products — trying to set up manufacturing and supply bases in the countries,” Jin predicts. “This also leads to a great chance about how you work with Chinese companies to jointly launch a product which is fit for a local market.”
This sounds very much like a suggestion that some of JVs between Western and Chinese OEMs that had previously concentrated on making models in China for the domestic market might want to pivot to consider what they could instead do in Europe or elsewhere. “We also see the joint ventures — when they take more control from the foreign side —will consider exporting more cars to European areas,” Jin says.
In contrast, strong Chinese entry into the US market may be a longer-term game, with Jin judging that Chinese OEMs “understand the US market is challenging” compared to Europe. “But the first step is they are trying to build up a supply chain.
“If you are looking at local supply for Tesla, there will be more Chinese companies going to Mexico. They are trying to build up the manufacturing base in Mexico to better serve Tesla,” he forecasts.
“But I will say this is not the only step. The steps will be first trying to have the supply chain, better understand about situation, what will be the regulatory environment in US, and then you will go there step-by-step. I am not surprised that, for Chinese companies, probably they will [be] more flexible, which means you work with local companies in the US, or try to be a real US company.
“From our observation, you do have a couple of leading Chinese companies very interested in the US. They know it is not an easy job, but they want to do it,” Jin concludes.