State of China’s Auto Market - February 2024 - Automobility
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11 Mar State of China’s Auto Market – February 2024

Posted at 22:34h in Newsletter by

Structural Overcapacity Drives Focus on Exports and Price Discounts

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

Vehicle shipments in January reached 2.4 million units, a 47.9 percent increase from the previous January, with NEV shipments up 78.8% and ICE shipments up 40.1%. It is important to note that there were 22% more selling days in 2024 versus last year due to the later Lunar New Year holiday.

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

While the results seem positive, it is important to dig a bit deeper to reveal that on a monthly basis, 443,000 of these shipments were vehicles exported from China, an increase of 47.2% over the previous January. Exports are a safety valve to relieve pressure from structural overcapacity in the Chinese domestic market.
The expanding challenge of oversupply has also forced carmakers in China to take aggressive pricing actions, with overall net revenues and profit margins falling dramatically in recent years. We take the balanced view that any positive news on the shipments must then be weighed against this aggressive price discounting and a sharp increase in exports.
Other factors to consider are that purchasing a new car is just one of many alternatives to serve consumer demand for personal mobility. Popularity of ride-hailing apps like Didi Chuxing, CaoCao and many others has curtailed demand for individually-owned cars for everyday commuting in densely populated Chinese cities.

For consumers who prefer hardware ownership, an expanding population of used cars are an affordable alternative to purchasing a new car, placing additional pressure on carmakers seeking to maximize capacity utilization. Used car purchases set an all-time monthly record in January at 1.69 million units.

Export Mix is Dominated by ICE, Fueled By Excess Capacity

As we covered in the January edition of this State of China Auto Market newsletter, domestic sales of ICE powered vehicles in China has fallen by 11 million units over the six-year period from 2017-2023. Over this same period, NEV sales rose by 7.5 million units. This rapid demand shift has created a tremendous supply imbalance for both local and foreign-branded carmakers who were slow in adjusting to the changes in consumer preference.

Chinese companies burdened with excess capacity have increasingly turned to the overseas markets to sell-down their capacity overhang, and the vast majority of these exports are of gasoline-powered ICE vehicles. Over 77% of exports in January were ICE powered vehicles, with Chery replacing SAIC as the top exporter. BYD had leaped past Tesla as the top NEV exporter, with both companies accounting for more than two-thirds of all electric vehicle exports from China.
Building Momentum and Expanding Competition in PHEV Segment

New Energy Vehicle (NEV) share of overall shipments in January fell below 30% for the first time in 6 months, owing to the higher (77.3%) ICE mix within the export volumes.
Overall NEV shipments were 729,000 units, a seasonal pull-back from the strong closing months in 2023. BYD’s share of the NEV market also fell to 31%, after peaking at 35% share in 2023.
The highest growth segment continues to be Plug-in Hybrid Electric Vehicles (PHEVs), which hit an all-time record of 39% of all NEVs shipped in January. BYD remains the dominant player in the PHEV segment, with 37% share of all PHEVs sold in January, however this is a significant reduction from the 51% share they held over the full 2023 calendar year.
In short, the PHEV segment is getting more crowded with new competitive products being recently launched such as the AITO M7 as well as an expanded set of PHEV offerings from Chang’an, Great Wall and Geely.

NEV Sales Leaderboard

With only one month so far in the 2024 books, it would not be appropriate to signal any new overarching trends, but we can highlight some indicative movements. Let’s start by showing where we ended the full year of 2023, where BYD dominated with 35% of all NEV sales and 6 of the top 10 selling nameplates.

The NEV retail sales leaderboard for January includes noteworthy movements. Very notable is the strength of the recently launched AITO M7 Plug-in hybrid SUV, with nearly 30,000 units sold at a price that competes very well segment leader Li Auto L7. Tesla Model Y fell to 4th place (down from 3rd), and BYD Qin-DMi lost market share within the PHEV category, perhaps prompting BYD to take a 20% price reduction on the base model of their top-selling sedan.

Chang’an’s very low-priced Lumin also was added to the leaderboard while BYD Han fell off the Top 10 list.

The January Top 10 NEV Group sales leaderboard includes some noteworthy positional changes with significant segment share increases from Geely and Chang’an, and declines for BYD, Tesla and GAC. AITO moves onto the leaderboard in the number 7 slot, and NIO fell off the top 10 list.

The top 10 group companies command nearly 80% of the NEV market in China, implying significant overcapacities also exist among the dozens of other weaker NEV players in the market.

Top 10 NEV Corporate Group – January Retail Sales

Foreign brand share of the China passenger vehicle market slipped even further in January, now at an all-time low of 40%.

BYD vs. Tesla

BYD made headlines in the media last year by surpassing Tesla as the global leader in sales of pure Battery Electric vehicles:
  • Chinese EV giant BYD overtakes Tesla, but can it crack the U.S. market? (Please copy and paste the link to your browser: https://coats-share-oiq.craft.me/VsMvAtKSUSJ3hi )

As shown below BYD’s BEV sales surpassed Tesla in China in 2022:

BYD has also dominated the rapidly growing PHEV segment, which we commented on in this May appearance on CNBC:

BYD now faces increased local competition in the PHEV segment, and their recently Qin DMi pricing reduction signals that they are willing to sacrifice margins to keep their volumes high.

While the NEV segment is where the volume growth is in China, it is also clear that it has been very difficult to achieve profitability in a segment where the two global leaders are willing to engage in a price war to sustain volumes.  The rules of engagement in China’s NEV game are such that companies lacking the technology capabilities and supply chain advantages must be prepared to endure significant pain to build such capabilities if they ever hope to gain a beachhead.

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About Bill Russo

Bill Russo is the Founder and CEO of Automobility Limited, and is currently serving as the Chairman of the Automotive Committee at the American Chamber of Commerce in Shanghai. His over 40 years of experience includes 15 years as an automotive executive with Chrysler, including 19 years of experience in China and Asia. He has also worked nearly 12 years in the electronics and information technology industries with IBM and Harman. He has worked as an advisor and consultant for numerous multinational and local Chinese firms in the formulation and implementation of their global market and product strategies.

Bill is a contributing author to the book Selling to China: Stories of Success, Failure, and Constant Change (2023), where he describes how China has become the most commercially innovative place to do business in the world’s auto industry – and why those hoping to compete globally must continue to be in the market.

About Automobility

Automobility Limited is global Strategy & Investment Advisory firm based in Shanghai that is focused on helping its clients to Build and Profit from the Future of Mobility.  We help our clients address and solve their toughest business and management issues that arise in midst of fast changing, complicated and ambiguous operating environment.  We commit to helping our clients to not only “design” the solutions but also raise or deploy capital and assist in implementation, often together with our clients.  

Contact us by email at [email protected]

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