It may have happened right at the start of 2020 but one of the defining moments for the electric vehicle (EV) sector this year will almost certainly be Elon Musk ‘dad dancing’ his way around a stage in Shanghai.
The Tesla founder was in the city to celebrate the first delivery of a Shanghai-made Model 3 to a Chinese customer. But the launch has wider symbolism in the EV industry because foreign automakers could make significant market share gains during the next 12 months after years of struggling to break out of the low single-digit percentage range in China.
Scaling up their commercial activities and localising production in China should help the international brands bridge a pricing gap with their local competitors, not least in getting similar access to the subsidies and inducements on offer.
Last year was not a good one for China’s EV industry, which recorded its first-ever annual sales drop (down 4% to 1.2 million vehicles). Most analysts believe there will be positive growth again in 2020, although there is a high base effect to contend with during the first half of the year.
One factor driving the optimism is the government’s support for the sector. In December, Beijing released a new development plan, setting targets for EVs to account for 25% of yearly sales of light vehicles by the end of 2025, five times the level the industry recorded in 2019.
To help the car manufacturers get closer to this ambitious target, China’s Minister of Industry and Information Technology (MIIT), Miao Wei, told this month’s EV100 Forum that the government won’t reduce EV subsidies this year, contradicting an earlier plan to do so.
A second official told delegates that the government was considering extending the industry’s vehicle purchase tax exemption through to 2025 as well.
In its initial years, China’s EV sales rankings were dominated by domestic brands, which have been heavily reliant on subsidies. Tesla and its new Shanghai gigafactory is now well-placed to disrupt that dominance. The US group currently sources 30% of the Model 3’s parts locally, but this proportion is expected to rise by about half towards the end of the year. This could allow Tesla to reduce the car’s selling price further from Rmb299,050 (post-subsidies).
In December, the government gave the Model 3 (and by default its battery supplier, LG Chem) a boost when it made the car eligible for domestic sales subsidies. As a result, its price is not that far off the Rmb240,000 ($34,592) that Alibaba-backed local producer Xpeng charges for its competing P7 model.
A second disrupter could be Volkswagen (VW), which has a punchy 400,000 target for new EV sales in China. Reuters also reports that the German group is close to buying a stake in China’s third largest battery manufacturer, Guoxuan, to give it more control over its local EV supply chain.
Shenzhen-listed Guoxuan had about 5% Chinese market share in 2019 and a deal with VW should help it to close some of the gap on its bigger rival CATL, which continues to power ahead (its local market share has risen from 30% in 2017 to 51% last year).
VW’s Audi brand, along with Mercedes and BMW, all broke the downward sales trend for the combustion engine passenger car market in 2019. This showed that the luxury sector remained in better shape than other parts of the market: the three notched up respective sales gains of 4.1%, 4% and 13.1%, compared to an overall 8.2% drop for Chinese car sales in general.
BMW’s China CEO Gao Le told National Business Daily that the “Chinese market is shifting from rapid growth to quality growth”. BMW says it is also one of the forerunners of the localisation trend (its iX3 SUV is set to become the first of the Munich-based firm’s brands to be made locally but sold globally later this year).
By contrast, US automakers had a difficult 2019, with their market share falling in China. General Motors saw its sales drop 15%, while Ford’s were down an even higher 26%. The third of the Detroit trio, Fiat Chrysler, intends to rectify the situation by setting up an electric vehicle JV with Taiwan’s Foxconn.
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