SIXT, a German car rental company, and BYD, China's No. 1 carmaker (which has surpassed FAW-Volkswagen in monthly sales for the past three consecutive months), signed a partnership agreement in early October for SIXT to purchase 100,000 electric cars from BYD over the next six years. If we were to show this news to people outside the automotive industry, most of them would probably assume it is "fake news". How could German consumers ever rent Chinese cars and hit the road? Like the ICT industry, however, the Chinese auto industry gives us surprises on a monthly basis. If you consider the growth of China's car market in the past ten years to be amazing, then I would like to remind you that in the following three years, Chinese self-owned new energy car models will sweep the global car market and raise the status of the Chinese self-owned auto corps to such an extent that China will form the auto triumvirate with two current greats, Japan and Germany.
China, the ruling auto market worldwide, sold 14.87 million units in the first three quarters this year, representing a modest year-over-year increase of 2.4% that slightly outperformed the global decline. The most impressive feat was in the new energy vehicle market (BEVs and PHEVs). The total sales reached 3.87 million units, equal to a 113% year-over-year increase. Especially in September, China's new energy vehicle market exceeded the 600,000-unit mark for the first time, recording 610,000 units to be precise. Remember I just mentioned a month ago that the market had written a new page of 500,000 units in history for three consecutive months? Now the Chinese self-owned auto corps has taken the lead to write another new page! In September, the overall market penetration rate of new energy vehicles was 31.7%, also a record high, exceeding 30% for the first time. Plus, the number of exported vehicles (including complete vehicles and CKD packs, 85% of which were self-owned brands) reached 2.11 million units in the first three quarters, indicating a year-over-year increase of 55.5%. China has become the world's second largest auto exporter (second only to Japan), with a presence in Europe, Japan, and Southeast Asia. Having examined these incredible results, I'm giving a summary of the key trends here…
- China's self-owned brands are rising. The Chinese car market used to be dominated by international joint venture brands in the era of gasoline cars. Now in the era of electric cars, it is ruled by Chinese self-owned brands. Thanks to the independent R&D of new technologies and full control of the supply chain, new energy models are launched so frequently that the joint venture brands, slow in setting strategy and taking action, can barely cope. The self-owned brands accounted for 47% of the total car market (compared to 39.5% last year) in the first three quarters, whereas in the new energy car market, the share reached a whopping 81.6% in September. Apart from Tesla's 12.7%, the joint venture brands only claimed a meager 5.7%.
- The joint venture brands are at risk. They fared well for decades in China, but except for the minimal growth of German brands this year, Japanese, American and Korean brands have all fallen and underperformed the general market trend. If the new energy car market reaches 40% share next year (which I think is highly likely), and if the self-owned brands continue to hold a robust market share of 80% with the competitive ecology in the gasoline car market remaining unchanged, then the overall market share of the joint venture brands will drop from 53% in the first three quarters of the year to less than 46%; in other words, next year will be the first year when the self-owned brands overtake the joint venture brands. In the following years, it is expected that there will be joint venture brands exiting the China market one after another.
- The number of made-in-China cars will rank third. China is likely to overtake the U.S. to rank third in global sales of its own brands next year while gradually closing the gap with Germany, which ranks second. I figure 2025 should be another turning point, when China overtakes Germany to become the second largest auto manufacturer in the world, just behind Japan.
- The U.S. containment of China's auto industry will only backfire. The U.S. has recently banned the export of sub-14nm chip production equipment to China, and it has also banned Chinese companies from setting up factories to produce and sell EVs in the U.S. Such a move will undoubtedly cut off the exchange in the auto industries and markets between the two countries. For instance, Tesla Gigafactory Shanghai and other U.S.-branded joint ventures will be implicated at the same time. Therefore, the damage to U.S. auto manufacturers will be far greater than that to Chinese auto manufacturers. While China is honing smart EV technology rapidly, not only will consumers in the U.S. market be denied access to the latest technology and slowly lose touch with the global auto mainstream, but the U.S. auto industry will also see its competitiveness eroded over time due to the absence of challenges.
The Chinese government fully relaxed the shareholding control of foreign investors in the auto industry on January 1, 2022, and foreign investors can now take full ownership. After gaining a controlling position, foreign companies will prefer to establish factories in China as export bases for finished vehicles because they can take advantage of the relatively low manufacturing costs and abundant technical resources. It just goes to show that China has confidence in the strength of its own brands. They are not afraid of the tough battle with all the powerful multinationals in the market, and they will draw on their advantageous industrial environment to attract more large factories to increase investment in local production while creating employment opportunities and aligning with the international community along the way. Over the next three years, China will doubtless pen even more miraculous chapters in the new energy vehicle industry and retail market!