China is on its way to becoming an automotive superpower. The Middle Kingdom has now overtaken Japan as world export champion for the first time. On the Chinese domestic market, too, Chinese brands are outperforming foreign carmakers for the first time.
The Global Automotive Outlook 2023 published by the consulting firm AlixPartners predicts increasingly tough times for the European automotive industry. For example, European OEMs are coming under increasing pressure from Chinese manufacturers in their home markets as well. According to the study, the Western automotive industry has only a few years left to defend its market shares in domestic markets. Losses in value creation for local carmakers are imminent. The IAA Mobility 2023 made also clear that China is in the fast lane. The number of Chinese exhibitors has more than doubled compared to 2021.
European Carmakers: Achieving Efficiency Gains Without Mergers
So is the next wave of consolidation coming with the Chinese competition? If you believe the current Allianz Trade Automotive study, the answer is rather no. "We think a new wave of consolidation through mergers and acquisitions in the European market is unlikely - if only for antitrust reasons, because the market shares of the major European automakers are already very high," says Aurélien Duthoit, industry expert at Allianz Trade. In addition, the takeover of smaller market players would not significantly advance European carmakers: The Chinese competition could score with good prices due to the mass.
But manufacturers should not rest on their laurels. To be able to keep up in the long term, the Europeans would have to achieve significant efficiency gains without mergers. This can be achieved through three strategies: firstly, squeezing smaller suppliers out of the European market; secondly, developing new industry partnerships; and thirdly, further consolidating production on a smaller number of platforms and factories for greater standardization.
Chinese OEMs Replace Japan as World Export Champion for the First Time
But time is pressing. Chinese automakers recently became world export champions for the first time. The Middle Kingdom is increasingly pushing into the European markets with electric vehicles. According to the AlixPartners study, China has overtaken Japan as the world champion in automotive exports in the first quarter of 2023 - in 2020, China was still in 6th place in this ranking. The Asian country is on the rise as a sales market, exporter and production location in equal measure. This is also reflected in the Chinese domestic market: in 2023, for the first time in decades, Chinese brands will outsell foreign brands (51 %) and reach a market share of 65 % by 2030.
When it comes to electromobility, China is the absolute leading market: With just under 6 million e-cars sold (up 82 % compared to 2021), the country is well ahead of Europe with 2.6 million vehicles sold and the USA with just under 1 million e-cars, according to the McKinsey Electric Vehicle Index (EVI), which regularly measures the development of e-mobility in the 15 most important countries. Growth in Europe is at the same level as five years ago, with just 14% growth, it said. The consultants at Berylls forecast further growth for China: "We assume that in 2030, around three out of four cars sold in China will be BEVs," says Alexander Timmer, partner at Berylls Strategy Advisors.
Dominance Along the Value Chain
What makes China so strong in terms of electromobility is that the Middle Kingdom is dominant along the entire value chain: "China is not only ahead in terms of sales and production, but also has a strong position along the entire value chain, right through to battery production and raw materials," says Patrick Schaufuss, a partner in McKinsey's Munich office.
China also takes the top position again in the ranking of the "EV Charging Index" by consulting firm Roland Berger, which is based on industry interviews and a survey of 16,000 participants from Europe, Asia, North and South America, and the Middle East. The survey results show a growing global trend in public DC charging stations, as well as in DC charging station density in general. China is dominant in adoption, with its share of DC charging stations on public networks exceeding 42 % in the second half of 2022, for example. However, although the expansion of public charging infrastructure in China is above average, it has not been able to keep pace with the rapid increase in electric vehicle sales. Europe and America have been able to improve their rates, albeit at a level that is still well behind China.
Growth Slows
European manufacturers are therefore coming under increasing pressure. To remain competitive, they need to control their costs and supply chains. "China is well on its way to becoming an automotive superpower. European OEMs, on the other hand, are increasingly in the role of market share defenders in their traditional home markets," says AlixPartners automotive expert Fabian Piontek. In addition, the global market for automobiles is growing again - but significantly more slowly than many experts had assumed. As a consequence, sales figures in Europe are expected to be more than 15 % below pre-Covid values in the long term. This puts pressure on OEMs' margins, as high prices and price increases are becoming increasingly difficult to realize. While the industry has focused on Tesla, Piontek said, it is now time to prepare for future competition from Chinese imports as well as to learn from the Chinese automotive industry.