How China has become a problem for Western carmakers

Its rapid growth has forced carmakers in Europe, the United States and other Asian countries to give it priority.

Photo by: Motor1.com

By: Juan Felipe Munoz

Oct 10, 2024 at 7:00am ET

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We all know that China is the biggest car market in the world. With over 150 brands available and more than 25 million units sold each year, the Asian giant has become a benchmark in the industry.

In less than 20 years, China has gone from being a minor and underdeveloped automotive market to one that is a must for almost all carmakers looking to become global players. Its rapid growth has forced carmakers in Europe, the United States and other Asian countries to make it their priority. But why is China becoming a problem for many of them?

What China means for the industry

Last year, new light vehicle sales in China accounted for 28% of the world total. This is a major source of revenue for most of the world's carmakers. For example, more than a third of the Volkswagen Group's total vehicle sales were made in China. China accounted for 33% of total sales for BMW and Mercedes, 34% for Tesla, 30% for Honda, 17% for Toyota and 21% for Nissan.

Sales in China in 2023

	Sales in China as a % of global unit sales in 2023
Toyota	18.1%
Volkswagen	43.4%
Hyundai	6.1%
Honda	31.5%
Ford	5.1%
Chevrolet	5.3%
Nissan	21.6%
Suzuki	0.1%
Kia	2.6%
Mercedes	32.4%
BMW	36.1%
Audi	38.1%
Tesla	33.9%
Renault	0%
Fiat	0%
Mazda	6.9%
Peugeot	2.6%
Jeep	0.5%
Subaru	0.9%
Skoda	2.5%
Lexus	21.5%
Daihatsu	0%
Mitsubishi	2.3%
Tata	0%
Citroen	4.9%
Buick	73.9%
GMC	0%
Mahindra	0%
RAM	0%

China is also a major production and export centre, not only for domestic brands, but also for many foreign brands. Tesla, for example, exports some of its models from its factory in Shanghai. BMW uses its factories to produce the BMW iX3 and the new electric Mini Cooper for world markets. Other brands, such as Volvo, are gaining ground in the electric vehicle markets with the Volvo EX30 built in China. Polestar, Dacia, Honda, Smart, Citroën, Lotus, Lincoln and Cupra also export their cars from China.

At the same time, China has become a lifeline for many brands. At a time when the European and North American car markets are no longer growing, China has become their only major source of growth. Between 2013 and 2023, the volume of registrations in Europe-28 rose by 4%. In the United States and Canada, it remained unchanged at 17.3 million units, while car sales in China rose by 25% over the same period.

Evolution of car sales

	2013	2023	2013 vs 2023
China	17.93	22.45	+25%
USA-Canada	17.35	17.32	0%
Europe-28	12.31	12.79	+4%

* Volumes in millions of units

The change

The situation is deteriorating for foreign carmakers in China. Immediately after the pandemic, consumer tastes and demand changed, making it difficult for non-Chinese car brands to compete. In 2019, Chinese car brands held a 37% market share of car sales. This share fell to 36% in the year of the pandemic in 2020, but began to rise rapidly in 2021, when it reached 43%.

The change continued in 2022 at a faster pace due to a more dynamic industrial landscape in China. OEMs such as Geely, BYD, NIO, Xpeng, Li Auto, Chery, Changan, have accelerated their production plans due to the new price war launched by Tesla. More and more new cars arrived in showrooms at lower prices. At the same time, fiercer competition forced most of them to improve the specification of their cars: for example, battery performance and software.

All this happened in less than three years and took foreign carmakers by surprise. As a result, the shift from buying non-Chinese cars to buying Chinese cars accelerated. By 2022, local manufacturers had captured 46% of car sales. A year later, by the end of 2023, BYD had dethroned Volkswagen as the best-selling brand, with Chinese companies accounting for 50% of sales. This year, the change is even more dramatic: in August 2024, the Chinese brand's market share reached a new record of 62%.

This change in consumer perception is frightening foreign carmakers and is partly explained by the lack of contact with customers and the ability of Chinese manufacturers to offer competitive cars that appeal to consumers (including Chinese ones thanks to software that speaks their language).

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