Chinese Auto Industry Revolution: Homegrown Brands Overtake

2024-06-10 151 Comments

Over the past 75 years since the founding of the People's Republic of China, the Chinese automotive industry has grown from nothing to a significant force. From initially exchanging markets for technology to now exporting Chinese automotive technology abroad, the Chinese automotive industry has undergone a leapfrog development while reshaping the competitive landscape.

The automotive market is unpredictable and subject to the law of the jungle. During the industry's evolution, joint venture brands and domestic brands have swapped offensive and defensive positions. Today, China has become a global powerhouse in new energy vehicles (NEVs), leading the world for several consecutive years and becoming a crucial force in the transformation and upgrading of the global automotive industry. Domestic brands have risen rapidly and are on the path of "changing lanes to overtake," while the market share of joint ventures is being continuously eroded.

Leapfrog Development

At the beginning of the founding of the People's Republic of China, our country's automotive industry could be described as destitute. In 1953, with the help of the Soviet Union, China established the First Automobile Works. On July 13, 1956, the first domestically produced Jiefang brand truck rolled off the assembly line at the First Automobile Works in Changchun, marking a new chapter in China's automotive industry and ending the history of China's inability to manufacture automobiles.

Advertisement

Subsequently, the Dongfeng brand sedan and the Hongqi luxury sedan were successively launched. However, due to the weak foundation and supporting industrial chain of the automotive industry at that time, coupled with issues such as single product models, unstable quality, and difficulties in large-scale production, it was not until the reform and opening up that China's automotive development迎来了 opportunities.

In 1978, the state placed the introduction of a passenger car assembly line in Shanghai, attempting passenger car production through a combination of technology and trade. In the same year, the then-chairman of General Motors, Murphy, led a delegation to China and proposed the concept of "joint venture operations." In January 1984, after more than four years of marathon negotiations, Beijing Jeep, a joint venture between Beijing Automotive Works and the American Motors Corporation (AMC), officially opened for business, becoming the first Sino-foreign joint venture in the automotive industry. It was also at the opening of Beijing Jeep that Rao Bin, then deputy minister of the First Ministry of Machinery, clearly put forward the idea of "exchanging markets for technology." He stated that through joint ventures, new technologies would be introduced, new products developed, and the development of the second generation of light off-road vehicles would be pursued. Subsequently, in 1985, Shanghai Auto Works officially signed a joint venture agreement with Volkswagen of Germany, and Shanghai Volkswagen was formally established.

In 1994, China promulgated its first automotive industry policy, the "Automotive Industry Policy," which clearly defined the development direction of the automotive industry with a focus on passenger cars. It was the first to propose encouraging automobile consumption, allowing private car purchases, and setting clear domestic content requirements for joint venture products. Since then, the basic pattern of China's automotive industry exchanging markets for technology has been established, and a large number of joint venture automakers have emerged one after another. With the tide of joint ventures, foreign enterprises have introduced many internationally renowned component suppliers to China, gradually helping to establish a complete supplier system, which has laid the foundation for the subsequent development of China's automotive industry.

While joint venture automakers developed rapidly, independent private enterprises represented by Geely, Chery, and Great Wall Motors also emerged around the beginning of the 21st century, making outstanding contributions to the independent research and development of the "three major components." With China's accession to the WTO, Chinese automotive brands lost tariff protection and were pushed into a real competitive phase. Independent automakers have also gradually found their own development models on a winding path.

Entering the 21st century, automobiles have gradually shifted from a luxury item to a daily necessity, and the automotive market has ushered in a golden period of development, with explosive growth in sales. From 2001 to 2008, China's automobile production and sales averaged an annual increase of over one million units. In 2009, with production and sales of 13.791 million and 13.645 million units, respectively, China surpassed the United States to become the world's largest new car market. According to the China Association of Automobile Manufacturers, by 2023, China's automobile production and sales have been the world's number one for 15 consecutive years, breaking through the "threshold" of 30 million units for the first time, with production and sales reaching 30.161 million and 30.094 million units, respectively.

Reshaping the Competitive LandscapeIn the early stages of the automotive industry's development, the market was almost entirely dominated by joint venture brands. With the rise of domestic automakers, their market share has been continuously increasing, but for many years it has been difficult to break through the 40% red line. At the same time, the car market began to decline in 2018, and domestic automakers experienced severe differentiation. Some of the self-owned brands that rose rapidly during the golden period of the automobile industry have been marginalized in the fierce market competition, including FAW Xiali, Zotye, and Haima Automobile, among others.

However, the transformation of the automotive industry has changed the competitive landscape of the industry. In the era of new energy vehicles, the market share of self-owned brands has soared, surpassing the overall share of joint venture brands last year. Today, the market share of self-owned brands has exceeded 60%. Data from the Passenger Car Association shows that the market share of self-owned passenger cars in the first eight months of this year was 63.2%.

Driven by the new energy vehicle industry, domestic automakers have achieved a real overtaking. In 2011, the sales volume of new energy vehicles in China was less than 10,000 units (8,159 units). In 2018, the sales volume of new energy vehicles exceeded 1 million units for the first time, and in 2021, it soared directly to 3.52 million units. In 2023, the sales volume of new energy vehicles in China approached 10 million units (9.495 million units), and the Chinese market has been the world's largest new energy vehicle market for many years in a row.

During the development of new energy, the number of domestic automakers has also shown explosive growth, with the number of new car forces once reaching hundreds. Around 2014, new car forces began to rise, and then with the support of capital, the number of car manufacturing companies gradually increased, and the production capacity of new energy vehicles continued to increase. However, the threshold for car manufacturing is relatively high, and due to strategic and funding issues, a large number of new car forces have fallen one after another, and the capital market has also begun to become rational. Nevertheless, new car forces such as NIO, XPeng, and Li Auto continue to grow, and now they are among the leaders in the domestic new energy market.

At present, almost all car companies are deploying in the new energy field. BYD has become a giant in the new energy vehicle industry, and the sales volume of new energy vehicles from Changan, GAC, Chery, and Geely is also continuously increasing. Although joint venture companies have some deployments, the process of electrification is slow, and they still rely on fuel vehicles, which has also led to the continuous shrinking of their market share. The automotive market is changing rapidly. From Suzuki and Opel's exit from the Chinese market a few years ago, to Mazda's merger of business in the Chinese market, and then to Beijing Hyundai, Changan Ford, Dongfeng Peugeot Citroën Automobile, and other companies selling factories to slim down, joint venture brands are accelerating their decline, and the phenomenon of closing and merging is continuously being staged.

Technical progress is one of the main reasons for the rapid development of China's new energy vehicles. In the most core battery field, the technical level of China's power battery has been rapidly improving. In the battery field, domestic companies such as CATL have been sitting at the top of the global power battery market since 2017, and BYD's market share is also continuously increasing. China has already had a leading advantage in the new energy industry chain, and it has become an indispensable part for foreign companies. Once powerful foreign brands have started to purchase Chinese solutions, Toyota and BYD, Volkswagen and XPeng, Audi and SAIC, and others have launched cooperation, with Chinese car companies providing technical solutions in the cooperation model. This means that the "market for technology" policy has become a thing of the past, and under the wave of electrification and intelligent electrification, Chinese car companies have also entered a new stage of exporting technology.

Leave A Comment