(Yicai) July 11 -- Chinese automakers will gain a one-third share of the world auto market by 2030, according to the latest Global Automotive Outlook released by US consulting firm AlixPartners. That is 3 percentage points more than it forecast for the same period last year.

“Chinese brands are set to keep the throne at home and take over 70 percent of China’s market share by 2030,” said Dr. Stephen Dyer, co-Leader for China and head of the Asia automotive and industrials practice at AlixPartners. The is 5 points higher than predicted in last year’s report. 

In 2012, Chinese brands such as Chery Automobile and BAIC Group had a domestic market share of just 7.8 percent, which rose to over 42 percent in 2018 and more than half in 2022 for the first time. 

In the latest report, AlixPartners maintains the forecast that Chinese brands will sell 9 million cars abroad by 2030. They will have a 12 percent market share in Europe, 3 points lower than last year’s projection, but with stronger performance expectations in Southeast Asia, South Asia, and South America.

“Chinese automakers are at the center of the global automotive industry and have set new benchmarks for an industry that has historically been led by Western countries, Japan, and South Korea,” Dyer said.

“Chinese automakers have plenty of lessons to offer to global peers that are not only relevant in China but also applicable across global markets,” he added.

Advantages

AlixPartners’ analysis looked at the successful operating model of Chinese original equipment manufacturers working in the new energy vehicle sector. Chinese NEV makers have ripped up the playbook for normal vehicle development times, the report said, creating new products in half the time taken by older Chinese brands. 

That is because they are willing to take greater risks, such as conducting only one round of verification tests instead of two, thereby reducing development time from 48 months to as little as 20 months.

China-branded models are also two to three years fresher than those of foreign brands, as Chinese NEVs are on the market for an average of only 1.6 years. This means they are equipped with the latest technology and batteries. 

For the software, the frequency of updates in China is much higher than that of global OEMs. From March last year to this February, the average number of over-the-air updates by Chinese EV startups reached 40, which is 20 times that of traditional OEMs worldwide. The updates mainly focus on functions such as infotainment systems, advanced driver assistance systems, and the Internet of Things.

Dyer also said that Chinese engineers are more hardworking. Based on surveys that include NEV startups, traditional Chinese businesses, and international carmakers, AlixPartners found that some Chinese employees work overtime for 140 hours a month, much higher than the 20 hours logged at multinational firms. This may change as younger staff join the workforce, he said, but they are still likely to be more hardworking than their overseas counterparts. 

Moreover, with lower labor costs and higher vertical integration throughout the value chain, from raw materials and component suppliers to final assembly and sales to other automakers, Chinese brands enjoy a 35 percent cost advantage compared with foreign brands. For example, the dual sourcing model that Chinese car manufacturers tend to adopt can exert competitive pressure on suppliers, thereby reducing costs, although it may also create a need to invest in two sets of molds and can increase management complexity.

Fierce Competition

Chinese brands on the rise, but also face fierce competition, AlixPartners pointed out, with many cutting prices in order to gain market share. 

The average transaction price index for Chinese cars slumped 13.4 percent last year, while in the United States it fell 4.9 percent. But through very strict and active cost controls, the earnings before interest, taxes, depreciation and amortization for China's six listed vehicle makers rose 6.3 percent in 2022 and 7.8 percent last year.

Profitability at NEV makers is generally not so good. Apart from BYD and Li Auto, other listed Chinese NEV firms such as Nio, XPeng Motors, and Leapmotor have not yet turned profitable, while traditional manufacturers’ EV brands such as GAC's Aion, Geely's Zeekr, and Volkswagen's ID have not announced profitability.

By 2030, only 19 Chinese NEV brands out of the 137 operating in 2023 will be able to achieve profitability and financial sustainability, and they will have 70 percent of the Chinese market, according to AlixPartners. The other 118 brands are expected to cease or be acquired, and the speed of industry consolidation in China may be slower than abroad, considering the role local governments play in the process, said Zhang Yichao, a partner in the China automotive practice at AlixPartners.

Foreign brands also face tough competition in the Chinese market. A number of top foreign car brands have withdrawn from China, including Renault, Suzuki, Jeep, and Mitsubishi, with some only retaining the import channel.

But Zhang said that although some brands may shift their strategic focus to other areas, there are also those that attach great importance to the Chinese market, especially in the field of electrification. Zhang pointed to the recent news reports that Lexus, the luxury vehicle arm of Japanese auto giant Toyota Motor, may begin production in China.

The industrial structure of powertrains for cars in China has been undergoing drastic changes, and EVs will take center stage, according to Zhang. So foreign makers should develop in this direction, rather than selling cars in increasingly small market segments. 

He said that cooperation between foreign car companies and Chinese NEV startups, such as Volkswagen and XPeng, is sensible, adding that unless they change their mindset about developing and manufacturing cars and take a more adventurous approach, their position will be increasingly threatened.

As for car companies such as Kia and Dongfeng Peugeot Citroën, who turned their Chinese factories into export bases, they can only solve the short-term problem of excess capacity. In the long run, they still need to return to the conventional business model of producing locally for local sales, the report suggested.

“Mature automakers must find a way to be competitive against their Chinese counterparts, or else they will cede the EV market to the Chinese brands, much like how the US automakers lost the domestic small car market to Japanese automakers in the 80s,” Dyer said.

“Traditional brands who fail to get out of their business-as-usual mindset are in danger of being disrupted by inexpensive ‘good enough’ products,” he said.

Accelerating Overseas Localization 

“The recent EV tariff discussions came as no surprise to Chinese EV makers,” according to Zhang. “Although US or European tariffs will present obstacles to Chinese EV makers, they are set to drive the inevitable localization of assembly operations in key export markets across Southeast Asia, Mexico, and Europe.”

“Many Chinese automakers either have mature expansion plans or have already made significant investments to set up assembly operations in Europe,” Dyer said. These new tariffs may further accelerate those plans which will allow them to thrive in the continent.

“Chinese OEMs may also consider setting up joint ventures or pursuing acquisitions to expand into the European market,” he said. “Against this backdrop, we expect Chinese brands’ market share in Europe to double to 12 percent by 2030, up from an estimated 6 percent in 2024.”

But Dyer also said it would be hard to estimate just how much cost advantage Chinese car companies can retain when expanding into Europe. Considering the different sources of raw materials, higher local labor costs, and higher equipment costs, the cost advantage compared with domestic production will definitely be lower.

Some companies may adopt a light asset model, in which they provide the technology, and clients will be responsible for production, merely paying Chinese suppliers for technology transfer fees and technical consulting fees. Dyer said this model may become more popular.

“Having a robust global production and dealership network is a key characteristic of leading global automakers,” Zhang said. “Eventually, the most successful Chinese EV makers will become truly global brands and manufacture in the same countries where they sell, just as the current giants do.”

Editor: Tom Litting