China's love of domestic EVs endangers foreign carmakers, says consultancy AlixPartners

International carmakers may be forced to retreat from the mainland China market if they fail to catch up with home-grown competitors in developing smart electric vehicles (EVs) that local consumers crave and can afford, according to a global consultancy.

Indigenous EV brands now enjoy overwhelming advantages over foreign rivals in production efficiency and technological innovation, which translates to products that provide value for money and are thus set to take the lion's share of the market, AlixPartners said.

"Fast EV adoption has put international marques in jeopardy," Stephen Dyer, the firm's Greater China co-leader and head of its Asia automotive practice, said in a media briefing on Wednesday. "The EV penetration rate will surge to 75 per cent, tipping the balance in favour of Chinese companies."

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

He did not name any of the international brands that could be forced to exit the world's largest automotive and EV market.

Chinese electric-car makers from BYD - the world's largest EV builder - to start-ups like Nio and Xpeng dominate the mainland China market, where sales of battery-powered cars account for 60 per cent of the global total.

At present, four out of every 10 new vehicles sold in China are powered by electricity.

Foreign carmakers such as Volkswagen and General Motors have witnessed huge declines in their market share due to their lack of high-performance EVs.

Twenty years ago, international carmakers held 80 per cent of the market, according to the China Association of Automobile Manufacturers, as they reaped the benefits of the rising affluence among local consumers.

Their combined share fell to 48 per cent last year, as EVs built by domestic companies increasingly replaced petrol vehicles on the mainland's roads.

Chinese carmakers have a huge cost advantage over overseas competitors in building EVs, buoyed by their complete supply chains and strong manufacturing heft, Dyer said.

A Chinese-made EV costs 35 per cent less to produce than a similar foreign counterpart, he added.

China's EV sector is expected to see sales growth of 20 per cent this year, compared with 37 per cent in 2023, according to a forecast by Fitch Ratings in November.

But the mainland will maintain its status as the key growth driver for the global EV industry, Dyer said.

"Time is against international marques," said Chen Jinzhu, CEO of consultancy Shanghai Mingliang Auto Service. "Even if they mobilise all of their resources to develop and build EVs for Chinese customers, it will take them at least two years to narrow the gap in terms of production efficiency and vehicle performance."

High tariffs slapped on Chinese-made EVs by the US and the European Union will have a minimal impact on mainland players' go-global strategy, because their cars could still be attractive to global customers even after those penalties, Dyer said.

Volkswagen, a perennial market leader in China, announced in April that it would launch 30 new electric cars in the mainland market by 2030 as it vies to keep up with local makers.

The company, which established its first joint venture in mainland China in 1984, sold 3.2 million cars - the vast majority petrol-powered - to Chinese drivers last year, up 1.6 per cent from 2022.

Shenzhen-based BYD, which stopped making petrol-powered cars in 2022, almost matched that total, selling nearly 3 million battery-powered and hybrid EVs to Chinese buyers last year.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.