04 May State of China’s Auto Market – April 2024

Comments from Bill Russo, Founder & CEO of Automobility Ltd.

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1st QUARTER HIGHLIGHTS

• NEV continues to expand in share of domestic PV sales
• Vehicle exports from China surpassed 500k units in a single month for the first time
• 77% of vehicle exports from China are powered by gasoline engines
• Aggressive pricing moves have allowed BYD to expand its share of New Energy Vehicle [NEV] sales and grow the overall segment in March
• BYD surpassed Tesla as the leading Made-in China NEV exporter for the first time

We are looking forward to the return of the Beijing Auto Show this week, kicking off with Media Days April 25 – 26. The Auto China exhibition is held annually, with Beijing and Shanghai alternating as the host city. The last time this show was held in Beijing was in 2020, as the 2022 exhibition was cancelled due to continuing concerns of Coronavirus.

NEV includes Battery Electric Vehicles (BEV), Plug-in Hybrid Electric Vehicles (PHEV), and Fuel Cell Electric Vehicles (FCEV)

Viewed on a monthly basis, we saw a solid bounce in March shipments, which is a typical pattern after the lunar new year. This year’s bounce was significantly aided by a re-ignition of the price war by BYD, who as we reported in last month’s newsletter took an aggressive pricing reduction for several of their high volume models. This helped to expand the overall NEV share of PV sales.

Its is also noteworthy that the commercial vehicle segment recorded its best single month in over 2 years.

March shipments were up nearly 10% over the prior March, with 2.69 million units produced. New Energy Vehicle shipments in March were 883,000 of this total, along with more than a half million vehicles destined for sales outside of China.

1.32 million vehicles were exported from China in the 1st quarter, nearly 77% of which are powered by an Internal Combustion Engine (ICE). As we have reported in prior months, this is a reflection of the significant overhang in ICE capacity that exists in China, as NEV sales have cannibalized retail consumer demand for gasoline powered cars. As a result, carmakers have pivoted to prioritizing sales of these vehicles in other markets. Leading ICE exporters are Chery, SAIC, Chang’an and Geely.For the first time since the launch of Tesla’s Gigafactory, Tesla is no longer the leading exporter of NEVs from China. BYD exported 99,000 electric vehicles from China in the 1st quarter, overtaking Tesla as the largest exporter of Made-in-China EVs. Both companies combine for about 60% of EV exports from China.

Hyper-Competitive Domestic NEV Segment

As the main growth segment for the China auto industry, leading players continue to wage an unconventional war by offering more-and-more technology features at lower-and-lower prices. This has helped the NEV segment to rapidly cannibalize domestic share, forcing ICE production to be redirected overseas, as noted earlier.

The NEV market is dominated by Chinese brands and now represents over one-third of sales in the China market. 2.09 million NEVs were produced in the 1st quarter, an increase of 6.7% over the 1st quarter of last year.

With aggressive pricing moves made after the lunar new year, the NEV segment continues to eat into the ICE lane, as illustrated by the flat monthly performance of ICE shipments over the extended time period shown below, and the consistent rise in NEV share of vehicles produced.

NEV Sales Leaderboard and BYD’s Price-Led Resurgence

Last month, we reported that when faced with rising competition from Geely, Chang’an, AITO and Great Wall (especially in the PHEV/EREV segment), BYD share of sales had fallen from 35% to 30.8% in the opening 2 months of 2024.  After their recent pricing moves, BYD has recovered to 33.1% in year-to-date sales. Notable weakness can be seen in the performance of Tesla and Guangzhou Auto Company (GAC) so far this year.

Affordably priced vehicles dominate the top 10 list of best-selling NEVs.  At current exchange rates [1 USD = 7.24 CNY], Chinese branded NEVs are competing favorably on price versus ICE vehicles while offering far more technology. Well-equipped BEVs like the BYD Seagull are now under US$10k, so it is no wonder why Tesla has reportedly shelved its plans for a US$25k Model 2.

For the month of March, which follows the recent pricing reductions, BYD now has 6 of the top 7 best-selling NEV models in China, adding the Frigate 05 to their already impressive list of top-selling models.

The continuing strength of Huawei’s AITO brand is also noteworthy, having taken significant share of the Smart EV sub-segment with their hot-selling M7 extended range EV offering. We believe this is in part due to the relevance of “smart device” makers to the Chinese EV consumer.

This consumer relevance can also be observed in the market response to the launch of the Xiaomi SU7 in late March. Weekly sales of the SU7 surpassed its facing competitors (Zeekr 001, Tesla Model 3, Xpeng P7, etc.) in the second week after its start of delivery.

A New Competitive Reality

The list of top 10 passenger vehicle NEV brands only has 2 foreign players: Tesla and Volkswagen. Both of them are struggling to sustain performance in China, in spite of great efforts. With 20% share of the ICE market, Volkswagen has learned that their 40 years of brand equity translates to an order-of-magnitude (10X) lower share in the NEV segment, in spite of having very competitively priced offerings in China.

At the EV global pioneer, Tesla is largely responsible for having sparked the wave of passenger vehicle EV interest in China, which began in 2020 – the year Tesla launched their Shanghai jjjgigafactory. However, Tesla sales have stagnated in the face of Chinese domestic competition, as seen in the chart below. As Chinese EV makers expand internationally, this will likely put additional pressure on their growth prospects.

With their dominance of the expanding NEV segment, Chinese brands now command 60% share of passenger vehicles market in China, forcing foreign mass-market brands to search for a countermove to regain relevancy in the world’s largest car market.

Let’s see what they have to say at the Beijing Auto Show this week!

Webinar | State of China Auto Market Monthly Briefing (April)