The EV sales boom in China over the past two years has not only changed the global car market landscape but also served as a training day to all foreign joint ventures. In the Chinese market, which has contributed more than half of the total global EV sales this year, EVs account for more than a quarter of all new vehicles. Furthermore, more than 85% of the newly licensed EVs come from independent Chinese brands. If wholly owned Tesla is ruled out, the other joint ventures totally account for less than 10% share of the EV sales. Alarmingly, the situation will continue to intensify. As the trend in monthly sales reports shows, EV penetration is believed to soar past 35% in China in 2023, heading for the 40% mark. Many joint ventures have been working hard in China for more than three decades, but now they are facing unprecedented subversive competition. The internal combustion engine technology and the chassis performance that they used to be proud of are no longer sought after and have been replaced by the three EV musts: electric powertrain, battery, and electric control. Despite the joint ventures with international automakers for up to 30 years, China's self-owned brands did not manage to secure key technologies for gasoline cars. Drawing on government support, profuse R&D energy, plentiful natural resources, and the huge demand of the domestic market, they underwent a metamorphosis to tackle the new technology of intelligent and connected EVs and rose to the top in just a few years. When the international car manufacturers woke up with a start to the adversity, there was little left to be done. The withdrawal of Stellantis a while ago and the latest news that Skoda will withdraw from the Chinese market and shift its focus to the growing Vietnamese and Indian markets are signs that again and again tell us structural changes have happened in China's car market, and that maybe more joint ventures will make new plans in the future.
In fact, the current ecology of China's car market, as I see it, will be like the landscape of advanced markets in Europe and the U.S. in three to five years. Although the market share of each brand varies depending on market background and demand, the overall trend is mostly the same...
- The penetration of EVs (BEVs and PHEVs) will continue to increase. The European market is not far behind the Chinese market in EV progress, so EV penetration is likely to rise to 40% by 2025 (especially in Western Europe). In the North American market, the progress is slower, and there are stringent regulations imposed on the localization of the EV industry, but with California leading the way to ban the sale of new gasoline cars in 2035, I think EV penetration will rise from 6% today to 20% in 2025. In other words, both Europe and the U.S. will be swept by the wave of EVs in three to five years.
- Challenges from China's own brands and startups will not end. Chinese independent brands have been expanding overseas, either by setting up factories or branches or cooperating with local dealerships since last year. Chinese brands can be found making strategic plans everywhere, from advanced regions such as Europe and Japan to Southeast Asia as well as Central and South America, except the U.S. In other words, auto giants based in Europe, the U.S., and Japan are not only suffering serious impact on their business in the Chinese market, but they will also have to face severe challenges from Chinese EVs in their home markets and even in overseas markets in the future.
If temporary withdrawal from the Chinese market is nothing but a stopgap to cut your losses while conserving your strength, then I more or less understand the reasons of the Chinese joint ventures for doing so. However, if they choose to relocate to an environment that is not yet intensively competitive because they fear the fight, without determination to accelerate technical upgrades and operational transformation, then I think these brands will eventually have nowhere to retreat to and end up being eliminated by fearless contestants from the new era.