- Chinese EV-makers have gained hold of China’s car-buying market.
- As EV buying in China wanes, it’s bad news for Tesla and others trying to stay relevant there.
- Now Chinese automakers’ next move is to capitalize on exports, a recent Morgan Stanley note said.
The Chinese auto industry is increasingly one to watch — and it’s threatening a slew of global automakers, now including Tesla.
Last year, Chinese automakers gained ground with buyers over non-domestic auto companies like Ford and GM. One estimate last month suggested that growth has continued: domestic companies in China are on pace to control a majority share of its car market this year for the first time.
Not only are car buyers there buying more and more electric vehicles, they’re buying Chinese EVs— not imports. Data from Chinese advisory firm Automobility Ltd found that, as of the first six months of 2023, purchases of gas-powered cars in China had declined year-over-year, while purchases of “new energy vehicles” (including EVs and plug-in hybrid EVs) grew significantly — and more than 80% of NEVs sold were Chinese brands.
But some of that car-buying demand in China starting to wane, according to an August 17 note from Morgan Stanley.
“Various EV makers have launched limited-time campaigns amid subpar demand visibility and macro uncertainty,” the bank’s analysts said, adding that price competition is expected to intensify this quarter.
That demand crunch is bound to have a three-pronged impact on the industry.
Slowing auto demand in China is actually bad news for the legacy car companies
First, the automakers like Ford and GM that have tried to strategize salvaging their losses in China could be too late, Morgan Stanley analysts said.
“Not only do legacy [automakers] have to face tough EV competition in China from the likes of the vertically integrated and increasingly affordable EVs,” the note said, “they also have to reverse the trend of decreasing sales volume, profit, and share in a decelerating domestic market.”
It’s a multi-pronged storm for traditional firms, and they know they’re up against Chinese affordability, variety, and quality, according to Morgan Stanley.
Ford CEO Jim Farley “has been pretty consistent about the strength we see in the BEV capability of the Chinese OEMs,” the automaker’s CFO John Lawler said at a Deutsche Bank conference in June, per a Sentieo transcript. “I think we’re past the point there that you can say, are they going to, are they not?”
Price cuts aren’t helping Tesla so much anymore
Second, weakening demand means many automakers, both Chinese and otherwise, are dropping their prices. Tesla has repeatedly slashed the cost of its popular vehicles there, as have Chinese companies like giant BYD — so much so that a (temporary) price war truce was initiated. That didn’t last long; Tesla has had to resort to cuts yet again to try to keep up with the Chinese firms.
“We’re still growing our market share in China,” Tesla SVP of automotive Tom Zhu said at the firm’s Investor Day in March. “Especially early this year, we had a price adjustment. After that, we actually generated a huge demand, more than we can produce, really… I’m not too concerned about the market share in China.”
But while early cuts might have sparked demand, Morgan Stanley analysts called “Tesla’s further promotional activity of particular concern.”
The cuts are all but to no avail amid China’s decelerating domestic market, per Morgan Stanley. As good as Tesla’s latest deals might be, they can’t outweigh low interest.
Chinese companies are forging ahead elsewhere while domestic demand eases
Third, this just means that the Chinese companies will continue their push across the globe. The Chinese EV-makers are shrugging off the lessening demand and diving into the next target.
“In our view, China will shift from being an importer to exporter of cars as supply-dynamics invert this decade,” analysts said in the note.
Chinese EV-makers are already foraying into Europe — with the potential for snatching up 15 percent of market share there within two years, according to consultancy KPMG — and they have the industry watching as they eye the US next.
Source : INSIDER
