China’s ‘consumption downgrade’ challenges foreign auto brands

Consumers’ economic concerns are inevitably hitting China’s huge car market, and foreign models face new challenges as buyers increasingly opt for cheaper, domestic brands, especially in the fast-growing electric vehicle sector. 

Context 

Car sales picked up in 2022 following a period of slower growth as a result of lockdowns and the government’s zero-Covid policy. Electric vehicles in particular were given a boost by a government subsidy for buyers, but that ended in December. The outlook for 2023 appears more difficult as consumers, wary of the gloomy economic outlook, rein in their spending. 

In a weaker economy, buyers are more likely to turn to cheaper mass-market models at the expense of the pricier foreign brands which dominated the market for many years. EVs from BYD, for example, sell for below 200,000 yuan – still less than a Tesla even after the latter’s two price cuts in recent months (which produced angry protests from earlier buyers who felt they’d overpaid).

Key stats 

• Sales of passenger EVs doubled in the first 11 months of 2022 compared to the same period in 2021 (sales of fossil fuel passenger cars were up 7.1% during that time).
• From Jan to Nov 2022, foreign brands held a 50.8% share of the mainland Chinese car market, according to data from the China Association of Automobile Manufacturers.
• Over the same period, Chinese brands commanded an 84.7% share of the EV market.

Key quote

“About half of the consumers in China believe that they do not have to pay more for a foreign-branded electric car because of their high quality and performance. They are rooting for emerging Chinese start-ups that produce smart EVs” – Guan Mingyu, partner at McKinsey.

Sourced from South China Morning Post