SHANGHAI – Until last year, foreign automakers commanded more combined market share than their domestic rivals in China.
But that has changed this year. And noticeably.
With demand pivoting more and more to electric vehicles, global brands, most of which are overly dependent on gasoline vehicles, will find the market even tougher to navigate next year.
Sales of internal combustion vehicles in China have kept shrinking for years. A heavy dose of tax incentives this year even failed to shore up demand for an extended period.
On June 1, Beijing halved the purchase tax to 5 percent on gasoline vehicles with engine sizes of up to 2.0 liters and priced at 300,000 yuan ($43,041) or below.
The move was intended to stimulate a market that tumbled from April to May, when Shanghai, China’s largest city and auto production hub, was locked down to curb a raging coronavirus outbreak.
The tax cut offered some relief to foreign automakers, though briefly.
Global brands now account for more than half of gasoline vehicle output in China.
The latest incentives, notably, raised the upper limit on engine displacements eligible for tax incentives to 2 liters. With two previous tax cuts, enacted in 2009 and 2015, the upper limit was 1.6 liters.
Chinese brands mainly market compact and subcompact vehicles, and the market for gasoline vehicles with engine sizes above 1.5 liters is largely the territory of global marques.
Following the tax cut, the market for gasoline cars rebounded from June to September.
But the recovery didn’t last long. Demand for gas-powered light trucks tanked in October and the downturn continued in November.
In the first eleven months, retail sales of gasoline vehicles industrywide slumped 14 percent to 13.3 million, according to the China Automobile Dealers Association.
In stark contrast to the short-lived rebound in internal combustion vehicle sales, demand for EVs forged ahead throughout the year.
As of November, retail sales of full electrified vehicles and plug-in hybrids, of which 70 percent were marketed by Chinese brands, doubled from a year earlier to top 2.5 million.
Backed by strong EV volume, domestic automakers are rapidly grabbing market share from global rivals.
In September, they outsold global brands in the retail market for the first time in history.
And last month, their collective share reached 53.4 percent, a jump of 7.1 percentage points from a year earlier, according to CADA’s tally.
Coronavirus infections are surging across China after Beijing scrapped its zero-Covid policy earlier this month.
While the market may contract in 2023 because of the pandemic, the structural change underway is widely expected to continue.
According to a forecast from the China Passenger Car Association, a Shanghai-based trade group, EV sales will surge 30 percent to 8.4 million next year while gasoline car demand will drop 10 percent to 15.1 million.
The ensuing shakeout is already underway. Stellantis this year stopped producing Jeep models in China. Last week, Automobilwoche, a sister publication of Automotive News China, reported that Skoda may exit China to allow Volkswagen Group’s joint venture with SAIC Motor to focus on producing vehicles for VW brand.
Given the grave challenges they face, more global brands will probably have little choice but to scale back Chinese operations next year.
