The Chinese Passenger Vehicle (PV) market has been on a steady growth trajectory in 2024, despite intensifying internal competition. After a brief dip in February due to the Chinese New Year holiday, which resulted in fewer selling days, sales rebounded in March and April, returning to a consistent growth pattern.
Domestic Sales and Production Growth
Domestic PV sales, excluding exports, saw a 5.4% year-on-year (YoY) increase in March and a 4.2% YoY growth in April. Cumulatively, from January to April 2024, PV sales reached 6.3 million units, reflecting a 5.5% YoY increase. The production side has shown even more robust growth, with a commendable 9.0% YoY increase, amassing 7.6 million units over the same period. This suggests that the production growth is outpacing sales volume, indicating potential market saturation or a buildup of inventory.
Export Contribution
Exports have played a significant role in the growth of production, with shipments in April 2024 reaching 424 thousand units, marking a substantial YoY increase of 36.9%. This represents 21% of total PV production, significantly higher than the 16% average share for the year 2023. The expanding share of exports in total production underscores the significant contribution of international sales to the industry’s growth. The burgeoning potential of overseas markets has encouraged several Chinese automotive manufacturers to contemplate establishing overseas to further reduce production costs.
The penetration rate of NEVs (battery electric vehicles, plug-in hybrids and range-extended electric vehicles combined) has been on an upward trajectory, reaching a new historical high in April of 43%. The average penetration rate for the first four months of the year stood at 38%, an increase of 3 percentage points from the 35% rate of the previous year. This robust performance underscores domestic manufacturers’ notable shift in market dynamics and strategic realignment. Since NEVs are superior to traditional fuel vehicles in terms of ownership cost and driving experience, the decline of traditional fuel (ICE) vehicles in the Chinese market is faster than expected. In addition, in the price war that has been going on last year and this year, ICE vehicles are also at a disadvantage due to the lack of opportunity for price reductions.
Challenges for Joint Venture (JV) Brands
The excessively low penetration rate of NEVs within the JV brands helps to explain the current predicament of those brands in China. In the first four months of 2024, the penetration rate of NEV sales within Chinese local brands was close to 60%, an increase of seven percentage points over the same period last year. In contrast, the NEV penetration rate for joint venture brands was only 12%, an increase of just one percentage point over the same period last year. This disparity suggests that JV brands may be at a competitive disadvantage as the market shifts towards NEVs, and it highlights the need for these brands to accelerate their transition to new energy solutions.
Technological Innovation and Market Disruption
The accelerated transformation of the Chinese market is not only reflected in the transition to new energy and exports but also in the huge changes taking place in technological innovation.
In March, Xiaomi made a significant entry into the automotive market with the launch of its first vehicle, the SU7. This move garnered considerable market attention, bolstered by Xiaomi’s strong consumer electronics background. In 2023, the company sold approximately 146 million smartphones, and by year-end, its AIoT platform connected an impressive 740 million devices (excluding smartphones, tablets, and laptops), reflecting a 25.5% YoY growth. Xiaomi’s ecosystem, which includes over 13 million users with five or more IoT devices, creates a competitive advantage that extends to its automotive venture. This interconnected ecosystem, linking “people, cars, and homes,” positions Xiaomi Auto as a formidable contender in China’s intelligent automotive market, poised to reshape industry competition.
Following Xiaomi’s foray, BYD introduced the Qin L at the end of May, featuring its fifth-generation DM hybrid technology. This innovation challenges traditional market perceptions and offers a compelling alternative to conventional ICE vehicles. The Qin L’s impressive range of 2,100 kilometres with a full fuel tank and fully charged battery, along with its competitive pricing between CNY99,800 and CNY139,800 (approximately US$13.8k to US$19.3k), targets both joint venture C/D-segment cars like the Honda Accord and Toyota Camry, and popular ICE models such as the Sagitar and Lavida from Volkswagen. BYD’s Qin L meets the demand for low-cost, high-quality transportation, showcasing its strong market competitiveness and accelerating the reshuffle of the automotive industry.
Price Wars Intensify
The price competition in the Chinese PV market has reached unprecedented levels in 2024, with major players engaging in aggressive pricing strategies to capture market share. Tesla initiated the price war at the start of the year, setting off a chain reaction among competitors.
In February, BYD introduced the new versions of Qin PLUS and Destroyer 05, breaking into the price-sensitive segment dominated by JV ICE vehicles with a starting price of CNY79,800 (approximately US$11K). This move prompted a swift response from other NEV manufacturers. Changan OX, SAIC-GM-Wuling, Geely, Neta, Deepal, and Leapmotor all followed suit, cutting prices to stay competitive. For example, Changan’s OX A05 saw a price reduction to CNY78,900 (about US$10.9k), while Neta implemented across-the-board price cuts, with the highest reduction reaching CNY22,000 (around US$3k).
JV brands, primarily focusing on ICE vehicles, felt the squeeze in market share and were compelled to retaliate. Beijing Hyundai and GM Buick were quick to respond; Hyundai reduced the starting price of the new Elantra from CNY99,800 (US$13.8k) to CNY75,800 (US$10.5k), and Buick offered discounts of up to CNY65,000 (US$9k) per vehicle. Even brands that were initially slow to react eventually joined the pricing war. Nissan lowered the Sylphy’s price to CNY69,800 (US$9.6k), and Volkswagen’s Bora model, a competitor in the same segment, also saw a price drop to CNY68,000 (US$9.4k), with a special emphasis on its “NEV value retention rate,” indicating a highly competitive market.
The premium segment was not spared from the price reductions, with Cadillac’s CT5 officially announcing a price cut of CNY70,000 (US$9.7k). German luxury brands like Mercedes-Benz and BMW also joined the trend, with BMW’s iX1 seeing the highest reduction of nearly CNY150,000 (US$20.7k). The entry price for BMW’s i3 and iX3 was set at CNY200,000 (US$27.6k), while the Mercedes-Benz EQA and EQB models went below the CNY200,000 (US$27.6k) mark.
These price reductions have accelerated the industry’s consolidation, with JV brands facing the dual challenge of shrinking market share and increased competition from new car-making forces. The impact of the price war is pushing the automotive industry into a phase of intense competition and potential market realignment.
Government Policies and Market Stimulus
To stimulate automobile sales, the government has implemented several policy adjustments in 2024. The “old-for-new” program has been officially launched, and the auto loan policy has been revised to encourage financial institutions to independently determine the loan ratio, with the potential to increase it to 100%, allowing for “zero down payment” car purchases. This flexibility applies to both traditional ICE vehicles and NEVs, which previously had loan limits of 80% and 85% respectively.
Recently, the Ministry of Finance of China issued the “Notice of the Ministry of Finance on Issuing the Central Government’s Pre-Allocated Fund Budget for the 2024 Auto Trade-in Subsidy”. It clarified that the total annual funding for the auto trade-in subsidy is CNY11.2 billion (around US$1.5 billion). Within the total, central government funds are CNY6.44 billion (around US$0.88 billion) and the local funds are CNY4.76 billion (around US$0.65 billion). In terms of performance indicators, the annual scrapped car recycling volume is 3.78 million vehicles. The issuance of this fund provides strong financial support for promoting the growth of the automobile market in 2024.
Outlook and Considerations for Sustainable Growth
With the support of national subsidy policies, the overall market is forecasted to grow steadily in 2024. However, internal competition will become more intense. Traditional ICE vehicles, with limited room for further price reductions, are facing a continuous challenge from the rise of new energy vehicles, contributing to a sustained downturn in market consumption. This factor is also a significant obstacle to the overall recovery of the automotive market.
Conclusion
The Chinese PV market in 2024 is at a crossroads, with growth, competition, and transformation shaping its trajectory. As the market adapts to new energy, technological innovation, and government policies, stakeholders must adopt strategies that promote sustainable growth and innovation, ensuring the market’s continued evolution and success. The next few years will be pivotal in determining how the Chinese PV market positions itself in the global automotive industry landscape.
(GlobalData blog on June 17, 2024)
