With 25.76 million passenger and commercial vehicles, more than 400 operating carmakers, and a single market accounting for 45% of all vehicles sold by the five most successful international carmakers, China is the world’s biggest car market. Even more impressive: it achieved all this with a penetration rate of only 19% in terms of car ownership—one-third that of Germany (59%) and less than one-quarter that of the US (84%).
When the COVID-19 pandemic hit China a year ago, all industries were affected, and automotive was no exception. By the time the pandemic peaked in China in February 2020, car sales had dropped 79% from the prior-year period and 88% from just two months earlier, in December 2019—the start of the pandemic. Yet by slowing the pandemic within its borders, China was the first automotive market that rebounded.[i] In fact, April’s sales numbers marked the first year-over-year growth in automotive sales in China since a rollback of tax breaks in July 2018 ended decades of uninterrupted growth.[ii] A key driver of the rebound was the 30% rise in sales of commercial vehicles due to an increased demand for postal and delivery services.
In addition to investing every imaginable effort in developing a COVID-19 vaccine, governments and companies around the world have been faced with another Herculean challenge: jump-starting their economies. In China, the government has extended incentives such as subsidies and tax exemptions for NEVs (new electric vehicles) until 2022. The government also lowered the VAT on used cars to just 0.5% and encouraged the finance sector to offer consumers more attractive credit services. Furthermore, municipalities granted a cash subsidy to car buyers of as much as US$1,400 per vehicle.
Fierce competition
Clearly, no carmaker can afford to stay away from the Chinese market. The flip side, of course, is that the circumstances that make China such an important market are causing unprecedented competition—with more than 400 vehicle manufacturers active in China, two to three new models are being launched every day.
However, the potential is still huge, especially when it comes to EVs—an area in which the government is putting its full support, with a variety of domestic players such as Nio, Weltmeister, and Xpeng. In fact, sales of EVs in China have increased by more than 1,000% since 2015 and now account for 4.7% of car sales there. Notably, China has become the most important market globally, accounting for more than 50% of all EVs sold worldwide in 2019.
It’s not surprising that competition in the EV market in China is fierce, with more than 500 EV start-ups in the country. Of course, most are in the early development stages and haven’t shown anything more than concept cars yet. In fact, only 12 EV start-ups had actually started selling vehicles by the end of 2019, and only ten were present at the Beijing Motor Show this past September. But those players fortunate enough to be backed by financially strong and confident investors are moving forward: Polestar opened 20 new stores, and Nio has been ramping up sales of its ES8 and ES6 SUVs and completed a Yuan 7bn (US$1.07bn) funding round from state-controlled investors. Nio has ambitious plans to extend its battery-replacement stations, which eliminate the need for EV owners to charge their vehicles. Alibaba-backed Xpeng also continues to make headlines by launching its P7 sports sedan, an EV with a 706-kilometer range—the longest currently available in China.
And the growth of the EV segment in China is only going to accelerate. In fact, we expect that total sales for EVs as well as plug-in hybrid electric vehicles (PHEVs) will hit the 5 million mark in 2025, with sales of fuel-cell EVs projected to reach 50,000 units or about 1% of the total NEVs market, according to the upcoming Accenture report “The Future of Automotive Sales in China”. Furthermore, China is focusing on creating the world’s leading market for hydrogen fuel cell EVs, with plans to put 1 million on Chinese roads by 2030. This ambitious goal matches that of California and lags only South Korea’s target to have 1.8 million FCEVs on their roads.[iii] As the world’s leading producer of hydrogen, China has a big advantage in the race to fuel cell supremacy.
Digital behemoths
Another strength of the Chinese market—besides its size, policies, and competitive landscape—is the vast footprint of digital behemoths like Baidu, Alibaba, and Tencent, which seek to connect and integrate vehicles with their respective ecosystems.[iv] In addition to actively promoting the development of autonomous driving, Baidu also provides the operating system for several Chinese brands’ connected vehicles. Meanwhile, Alibaba has introduced an in-car mini-app platform in cooperation with Xpeng, and Tencent provides its own in-vehicle infotainment system focused on voice-operated communication, social media and shopping.
But China’s tech giants have even greater ambitions. Major third-party platforms such as AutoHome, BitAuto, DouYin (TikTok), and DongCheDi, as well as Alibaba’s Tmall, have answered customers’ calls for convenience and digitisation, seeking to establish themselves as the go-to-place for used- and new-car buyers. As internet businesses, these platforms have been thriving during the COVID-19 pandemic. And OEMs have taken notice, with many starting to livestream car sales events on social platforms to connect with consumers; in addition, more than 50 brands participated in Tmall’s Double 11 shopping campaign in 2020, securing a total of 330,000 orders. BMW is even entering into a large-scale strategic partnership with Alibaba to accelerate its digital transformation.
While these examples prove that third-party platforms can be invaluable tools to enhance sales activities and the digital sales journeys, they also highlight OEMs’ dependency on the third-parties’ large audiences and technological know-how—the latter of which is particularly critical in the light of the pandemic. If people choose not to return to offices, even after the pandemic, they might not feel the need to own a vehicle. And if consumers believe that electric cars and autonomous driving aren’t making significant changes quickly enough to address growing concerns about environmental impacts, they might also choose not to purchase a vehicle.
The more the automotive industry recognises these trends and becomes embedded into the new models, the better poised it is to thrive in the new mobility landscape.
[i] CAAM (2019-2020): Economic operation of the auto industry in August 2019 – August 2020, http://www.caam.org.cn/chn/1/cate_3/con_5231797.html
[ii] Financial Times (2020): China car sales notch first rise in almost 2 years, https://www.ft.com/content/34e5759f-107c-4e8b-a372-7096d599c9fd
[iii] Green Tech Media (2019): China to Eliminate Subsidies for Hydrogen Fuel-Cell Cars: Report, https://www.greentechmedia.com/articles/read/china-to-eliminate-subsidies-for-fuel-cell-cars
[iv] Technode (2019): Tencent joins the race and creates dedicated auto intelligence team, https://technode.com/2019/06/10/tencent-new-mobility-department-iov/
Axel Schmidt and Koen Deryckere are senior managing directors at Accenture; Schmidt leads its Automotive group globally and Deryckere leads its Industry Networks and Programs group.