Easier Access for US Auto Makers
A year ago, April, China’s National Development and Reform Commission announced a lifting of the caps on foreign investment in the nation’s auto industry. The country will remove limits on companies making full electric and plug-in hybrid vehicles in 2018, commercial-vehicle companies in 2020 and the wider passenger vehicle market by 2022, China’s state planner said in a statement. Additionally, Chinese officials have indicated that tariffs on imported vehicles could be significantly reduced from the current 25% this year. The Chinese auto market has emerged the largest in the world, with over 28 million vehicles sold in 2017.
This topic is a bit of a two-edged sword for US Auto manufacturers and the US economy. While China’s auto industry grew 13.7% versus the prior year in 2016, in 2017 growth slowed to just 3% over prior year sales. So, as restricted access to China’s auto-market is noticeably improved, the opportunity is not what it was a short time ago. Additionally, China continues to eye the US auto market with eagerness.
Historically, the US has not been an easy market for China. Product quality issues, failure to meet tough U.S. safety standards, lack of consumer awareness and ill-conceived import partnerships have combined to limit China’s success. This has led Yin Tongyue, President of Chery Automobile Company (another major Chinese auto manufacturer) to have said “Entering the U.S. market is like swimming in water that is too deep. We are scared of drowning,” in an interview with a Reuters reporter. “We need more time to prepare. U.S. technology and U.S. consumer habits are too different.”
The Chinese believe that this is that time. In a recent interview, another Chinese auto industry executive, President Chinei Yu of GAC Motor (one of Chinese leading auto firms) said “We are well prepared to face the challenges in the U.S. market.”
Understanding the Chinese Market Place
A few questions that occur to us as we review this topic.
- Why is China apparently giving more preference to electric vehicle manufacturers?
- If US car companies are to succeed in China, what do the need to know about the Chinese market?
- Since Chinese auto companies are largely unknown to American car buyers, who are the most likely to succeed?
This first issue is perhaps the easiest answered. China’s economy is state controlled. Air pollution is one of the most significant domestic issues that China must overcome. Incentives and mandates issued from Beijing and local governments, including polluted mega-cities such as Shanghai, have boosted electric vehicle growth. China is looking to leaders in the electric vehicle industry for answers and American corporations like Tesla have taken an important lead in this area. The Chinese market is ready and hungry for electric vehicles and companies who take advantage, whether it be from easier entry of US produced products through lower tariffs, or products made in Chinese-American plants will satisfy that demand. In fact, electrified vehicle sales expanded 53% in 2017, to 777,000 vehicles including 652,000 all-electric vehicles and 125,000 plug-in hybrids. (Source: the China Assn. of Automobile Manufacturers)
While competition in China is tough and getting tougher, there is demand for American brands and the perception of American quality. This is borne out in the following table. In all but two instances, Chinese manufacturers are producing American/ Western brands for their domestic market.
Chinese Auto Buyer Product Preferences
Sedans have declined in popularity whereas SUVs and MPV (Multi-Purpose Vehicle) remain in higher demand.
As stated previously, new energy automobiles have become popular.
Rising interest in ‘intelligent’ cars (auto-pilot features etc.). Its predicted that intelligent cars, defined as an integration of environmental perception, programmed decision-making and auxiliary driving functions via a modern sensor, remote control, and artificial intelligence system, will realize the connection of automotive and intelligent mobile phones in 2017. In China, cyber security is viewed as the biggest problem related to these vehicles.
The majority of Chinese car buyers are younger than 35 years old and compose more than up 57% of all car consumers. This segment is focused on brand image/ prestige and is attracted by intangible features like appearance and performance. It is believed that these features increase the owner’s projected status. These factors are driving the growth in the mid-priced and luxury segments.
Emissions Are a Primary Focus
The Chinese car universe is not governed by the whims of buyers, the way Americans’ evolving tastes have pushed car companies to leap into increasingly bulbous crossovers. Facing a crisis of congestion and air pollution—and desiring an industrial advantage in building electric cars—President Xi Jinping and his transportation ministers are enforcing a quota on Chinese automakers that 10 percent of car sales be EVs and plug-in hybrids by 2019. That number is expected to increase to 25 percent by 2025—which means multiples of millions of EVs.
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