Life returns to normal, but auto market hasn’t

SHANGHAI – Coronavirus infections, which raged across China after Beijing abruptly ditched a zero-COVID policy in early December, have eased. 

Nearly all pandemic controls are gone, and face masks are only mandatory on public transport.

While life in China is normalizing, automakers face a host of challenges as the market remains a world apart from what they faced in the pre-COVID era.

The marketplace is transitioning to electrified vehicles from gasoline products at a speed few could imagine three years ago. 

In 2019, the annual volume of full electric vehicles and plug-in hybrids stood at 1.2 million, accounting for 4.7 percent of overall new-vehicle sales.

Roughly 6.9 million or 26 percent of the vehicles sold in China last year were EVs and plug-in hybrids, according to the China Association of Automobile Manufacturers.

The trend is accelerating at a breathtaking pace. In December, some 814,000 or 32 percent of new vehicles sold in China were EVs and plug-in hybrids. 

The rapid penetration of electrified vehicles is being driven mainly by Chinese brands.

In December, 51 percent of traditional Chinese light-vehicle makers’ shipments were EVs and plug-in hybrids, according to a tally by the China Automobile Dealers Association. 

By contrast, the rate was 27 percent for luxury marques and 5 percent for global mass-market brands. 

The explosive sales of electrified vehicles in China has also unleashed a revolution in vehicle distribution. 

By 2019, a few Chinese EV startups such as Nio, Xpeng and Li Auto had followed Tesla in selling vehicles via directly controlled outlets. Traditional auto manufacturers continued to distribute products through franchised dealerships. 

Direct sales have increasingly become a common practice for traditional carmakers operating in China.

In the past two years, most traditional Chinese auto manufacturers have adopted direct sales when launching premium subbrands.

Geely Holding Group now markets the smart EV brand Zeekr via directly controlled stores. Another major Chinese automaker, Great Wall Motor Co., has done the same with the off-road-vehicle brand Tank.

A slew of global brands are now following suit to sell a new generation of EV products. 

Volkswagen’s ID-series EVs, Cadillac’s Cadillac Lyriq and Ford’s Mustang Mach-E are sold in China through direct channels.

Other global brands have also started using direct sales to sell imported products.

In 2021, Genesis began to distribute the G70 sport sedan as well as the sedan and crossover versions of the G80 in China via directly controlled outlets. 

On Thursday, Stellantis, which stopped Jeep output in China last year, disclosed it signed an agreement with China’s largest imported vehicle dealer, China Automobile Trading Co., to launch direct sales of imported models for Jeep, Alfa Romeo and Citroen DS.

Chinese brands, aided by new EVs, boosted their share of the domestic light-vehicle market by 5.4 percentage points to 50 percent in 2022.

To win back share, global players are gearing up efforts to roll out new gasoline models and expand EV product lines.

General Motors alone plans to introduce 20 new and refreshed models in China, of which more than one third will be electrified vehicles including Ultium-empowered models under Buick, Cadillac and Chevrolet brands.

However, global automakers now face a major hurdle in ramping up sales – a lack of government incentives.

Beijing in 2010 started subsidizing private purchases of EVs and plug-in hybrids. 

In June 2022, the government also halved the purchase tax on gasoline cars in a bid to reverse the decline of the gasoline vehicle market.

Both programs expired at the end of December.

Trade groups including the China Association of Automobile Manufacturers and the China Automobile Dealers Association have urged the government to extend the policy incentives, but to no avail.

The government is now grappling with a tight budget after rampant spending
on pandemic control measures such as lockdowns and mass nucleic acid testing over the past three years. 

That means 2023 will become the first year in more than a decade that automakers have to rely solely on product and marketing to improve sales.