China, the largest market for automobiles, has created a stir in the global auto industry. European companies like Volkswagen, Mercedes-Benz, Aston Martin, BMW are struggling to sell their petrol and EV cars in China. At the same time, China is increasing the penetration of its cheap EV cars across the world.
The situation is such that European companies are dying in China. The four-decade reign of German company Volkswagen is on the verge of collapse. The company's sales there have declined by more than 10% this year. The company generates 30% of its revenue from China, but profits fell 64% in the July-September quarter. The company is going to close 3 factories in Germany for the first time in 87 years. Production has to be reduced in China also.
The reason for this change in the auto industry is China's aggressive policy. In fact, China's government banks and other government enterprises are giving huge subsidies to local auto companies. Due to this the cost is decreasing. According to AlphaValue analyst Adrian Brassey, Chinese cars cost 30% less due to subsidies. Electric cars are being launched at up to 50% discount.
According to CAAM, an organization of automobile manufacturers in China, more than 3 crore cars were manufactured last year. 52 lakh were exported. However, China's exports are in the same initial position as the Korean company Hyundai was in the 70s.
More than 50% of EVs are being sold in China
China made an aggressive policy of shifting to EVs in 2000. He had realized that he would not be able to beat American, German, Korean and Japanese companies in petrol-diesel cars. Auto engineer-turned-minister Van Gang started giving subsidies to EV companies in 2009. Rs 2.5 lakh crore by 2022. More help was given. Today more than 50% of the world's EVs are sold in China.
Sales of Chinese cars outside China increased 5.5 times, share also increased
According to a Jato Dynamics report, sales of Chinese cars outside the domestic market increased 5.4 times between 2020 and 2023. In 2023, global sales of Chinese light vehicles registered by US companies will reach a total of 1,35,54,305 units. It is seeing an annual growth of 23%. In contrast, sales of American and European brand light vehicles rose 9%, while Japanese brand light vehicle sales rose 6%. However, due to increasing tariffs, there are signs of slowdown in sales of Chinese cars in European and American markets this year.
“The growth of Chinese brands in Europe slowed in the first few months of this year,” says Felipe Munoz, global analyst at Jato. Due to this, Chinese OEMs have focused on developing and emerging economies. Between 2022 and 2023, the share of Chinese cars in the Middle East is expected to rise from 12.9% to 16.8%. In Eurasia it increased from 12.4% to 33.3%. Southeast Asia-Pacific and Africa also increased by 1.9 and 2.3%.
50 brands of cars in Europe, 140 brands in China; EV 19% cheaper than petrol
According to the report of Jato Dynamics, the effect of China's aggressive policy regarding EVs is that the prices of EVs are up to 19% lower than petrol-diesel vehicles. The share of EV in the car market there has reached 20%. It can be understood that there are 50 brands in Europe and 14 brands each in America and Japan. Whereas there are 140 brands in China. Also, their production capacity is 30% faster than western car makers.
How China is ending the reign of European cars
- In the past decades, China's upper middle class was considering luxury cars as a status symbol. In 2023, Mercedes-Benz will sell one-third of the 25 lakh cars in China. This dependence is now costing heavily to European manufacturers.
- China is encouraging its people to buy affordable EVs. Not only this, China's market share in the worldwide automobile market is about 21%.
- China has also changed the sentiments in the European market by launching 'cheap EV'. The situation is such that the share of Chinese EVs there has reached 25%. That is why European countries have imposed tariffs of up to 45% on Chinese vehicles.
- China has appealed to the World Trade Organization to counter the tariffs. He is going to impose 'pollution protection fee' on foreign companies, blaming European and Western countries for pollution.
- America, Canada have imposed 100% tariff on Chinese vehicles. To deal with this, Chinese companies are setting up EV plants around the world.
- BYD has laid foundation in Türkiye-Hungary and is setting up a plant in Mexico. Other Chinese manufacturers are setting up plants in South America. China is doing what Japan did in the 60s and Korea in the 80s.
Graphics Source: VaskarAssets
