China’s love affair with domestic electric vehicles is putting foreign automakers at risk, according to consultancy AlixPartners

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International automakers could be forced to withdraw from the Chinese market if they fail to keep up with domestic competitors in developing smart cars. Electric vehicles (EVs) what local consumers want and can afford, according to a global consultancy.

Indigenous EV brands are now enjoying overwhelming advantages over foreign rivals in terms of production efficiency and technological innovation, resulting in value-for-money products that will capture the lion’s share of the market, according to AlixPartners.

“Rapid EV adoption has put international brands at risk,” Stephen Dyer, the firm’s Greater China co-leader and head of its Asia automotive practice, said in a press conference Wednesday. “EV penetration will rise to 75 percent, tipping the balance in favor of Chinese companies.”

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He did not name any international brands that might be forced to withdraw from the world’s largest car and electric vehicle market.

Chinese electric car manufacturers from by D – the world’s largest EV builder – to startups like Nio And Xpeng dominate the Chinese market, where battery-powered car sales account for 60 percent of global sales.

Currently, four out of ten new vehicles sold in China run on electricity.

Foreign automakers such as Volkswagen and General Motors have experienced tremendous growth declines in their market share due to the lack of powerful electric vehicles.

Twenty years ago, international carmakers still controlled 80 percent of the market, according to the China Association of Automobile Manufacturers, benefiting from the growing prosperity of local consumers.

Their combined share fell to 48 percent last year as electric cars from domestic manufacturers increasingly replaced gasoline-powered vehicles on mainland roads.

According to Dyer, Chinese automakers have a huge cost advantage over foreign competitors in producing electric cars, supported by their comprehensive supply chains and strong production capacity.

He added that it is 35 percent cheaper to produce an electric car made in China than a comparable foreign car.

China’s EV sector is expected to post sales growth of 20 percent this year, compared to 37 percent in 2023, according to a November forecast from Fitch Ratings.

But the mainland will retain its position as the main growth engine for the global EV industry, Dyer said.

“Time is running out for international brands,” said Chen Jinzhu, CEO of consultancy Shanghai Mingliang Auto Service. “Even if they put all their resources into developing and building electric vehicles for Chinese customers, it will take at least two years to close the gap in terms of production efficiency and vehicle performance.”

According to Dyer, the high tariffs imposed by the US and the European Union on electric cars produced in China will have little impact on the globalization strategy of Chinese players, as their cars can still be attractive to customers around the world even after these sanctions.

Volkswagen, the market leader in China for many years, announced in April that it launches 30 new electric cars on the Chinese market in 2030, as the company aims to compete with local producers.

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

Shenzhen-based BYD, which stopped producing gasoline-powered cars in 2022, achieved nearly the same figure by selling nearly 3 million battery electric cars and hybrids to Chinese buyers last year.

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

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