China Auto Update August 2018

Conquering the conquerors

Special To The Auto Channel
From May Arthapan, Director,
Asia Pacific Forecasting
LMC Automotive

August 30, 2018; Despite all the recent talk of new technologies like electrification and autonomy revolutionizing the auto sector – and they are – the industry is still a hard one to crack, especially for new players. Many view these innovations as door openers for new players to climb the global rankings and for even non-auto-related companies, such as Google and Apple, to enter the entrenched auto business. However, our analysis suggests that this may not be as easy and may not happen as quickly as some might think.

Among the new players, if there are any companies with front-row seats in this area, it is the Chinese, who are currently at the forefront of Electric Vehicle (EV) adoption and commercialisation. One could also argue that while Chinese EV technologies may work in China, they may not yet be acceptable to buyers beyond the mainland, particularly when it comes to safety. While this could very well be more to do with the perception of the quality of Chinese products and not necessarily an indication that their technologies are not on par with international standards, it does put Chinese brands at a disadvantage as perception does matter in this business.

Our projections show that the combined share of Chinese carmakers will reach only 16% of the global Light Vehicle (LV) market by 2030, with most of their sales remaining in China. Indeed, only two of the Chinese players will make it onto the world’s Top 15 list by 2030, namely SAIC and Geely, ranked 11th and 12th, respectively. In fact, we expect 77% of the global LV market to still be controlled by the established OEMs in 2030. VW Group will remain in the lead with just under 11% share, followed by Renault-Nissan-Mitsubishi with 10.5% and Toyota Group with 10% of global LV sales.

While the shift to Autonomous Vehicles (AVs) is inevitable, we do not believe that Level 5 AVs – that is, fully autonomous in all situations – can happen before 2030. Our base scenario forecast assumes around 4 million shared and owned AVs (Level 4-5) by 2030, circa 3% of the 113 million LVs expected to be sold worldwide in the same year, and 68 million global AV sales by 2050. Even then, there is no guarantee that these new players will be successful. Success in the auto business requires much more than just mastering new technologies. It calls for large investments, as well as experience in managing mass production, supplier base, retail sales and aftersales networks/systems – not to mention branding. Meanwhile, the established automakers have also been advancing their AV and EV development, which will hamper any advantage new entrants may have on leveraging new technologies in these areas