Introduction

The year 2023 marks a pivotal moment in the evolution of China’s automotive industry. The industry achieved production of 30.16 million units and sales of 30.09 million units, reflecting year-on-year growth rates of 11.6% and 12%, respectively. These figures significantly surpass that of other major markets, with 15.6 million vehicles sold in the United States and 10.5 million in the European Union within the same timeframe. Achieving the 30 million milestone for the first time highlights the industry’s extraordinary expansion, especially considering its rapid ascent from 10 million units in 2009 to 20 million in 2013. Moreover, 2023 saw China ascend to the world’s largest automotive exporter, an especially noteworthy achievement given the overall decline in export volumes across various sectors of the Chinese economy.

Production and Sales Analysis

In 2023, passenger car sales reached 26.06 million units, up by 10.6% from the previous year, while commercial vehicle sales reached 4.03 million units, marking a significant 22.1% increase from the prior year on a globe base. A notable driver of this growth was the surge in new energy vehicles (NEVs), with annual production and sales reaching 9.59 million and 9.50 million units, respectively, marking increases of 35.8% and 37.9% and accounting for 31.6% of total car sales.

Brand Performance

From a domestic brand perspective, Chinese-brand passenger cars demonstrated robust performance, with total sales reaching 14.596 million units, a 24.1% increase from the previous year, capturing a 56% market share. In contrast, Japanese brands held a 14.4% share, German brands declined to 17.8%, and American brands maintained an 8.8% share. Concurrently, French and Korean brands both have very limited market share in today’s Chinese Auto market.

The year 2023 also marked a record in automotive exports, with a total of 4.91 million vehicles exported, an increase of 57.9% compared to the previous year. According to the number of vehicles surpassing Japan the previous champion, after surpassing Germany in 2022. Also from a value perspective, China has also likely surpassed Japan in 2023. We will later deep dive in this trend and analysis the OEMs which have contributed to this trend.

Throughout the year, the automotive market exhibited a trend characterized by a slow start followed by a robust finish, indicative of gradual improvement. Starting in March, the market encountered fluctuations triggered by price wars, resulting in subdued automotive consumption and notable economic strains on the industry. However, commencing in May, propelled by both national and local policies such as car purchase incentives, market demand began to ascend. The conventional peak sales window in September and October resurfaced, witnessing a resurgence in consumer activity. As the year progressed, bolstered by manufacturers’ proactive sales initiatives, the market demonstrated remarkable strength in the fourth quarter, culminating in historically high production and sales figures.

Major Winners and Losers of 2023

Biggest Winners

BYD, Tesla, Chery, SAIC, VW

The first group of winners in the Chinese automotive market has been propelled by the rapid expansion of electric vehicles (EVs). BYD sustained its robust growth trajectory from 2023, concluding the year with 3 million vehicles sold, marking a remarkable 61.8% increase. This surge is particularly noteworthy considering that in 2020, BYD’s sales stood at a mere 432 thousand vehicles. Since pivoting toward EVs, BYD has demonstrated exponential growth, expanding at a lightning pace.

Similarly, Tesla witnessed a significant increase of 37.3%, achieving sales of 700,000 units, thereby reinforcing its position as the second largest player in the Chinese market. Presently, China stands as Tesla’s second largest market, boasting the largest production capacity, with ongoing expansion efforts underway.

Among the new EV brands, Li Auto emerges as the standout winner, experiencing a remarkable 182% surge in sales, with 376K vehicles sold in 2023. In recent years, Chinese frequently mention Li Auto, NIO, and Xpeng as the prominent players. However, of late, Li Auto has significantly outpaced its counterparts in market performance due to its focus on range-extended electric vehicle.

However, the success stories of 2023 extend beyond EVs. Chery and SAIC had a notably prosperous year, largely attributable to substantial export volumes. SAIC, inclusive of joint ventures with VW, achieved total sales of 5 million vehicles in 2023, comprising 1.12 million EVs, and also exported 1.2 million vehicles.

Interestingly, Chery, a brand that often operates under the radar in media discussions, quietly achieved remarkable success in 2023. The company recorded sales of 1.88 million vehicles, including 937,000 units exported, registering an impressive 101% increase. This achievement underscores that nearly half of Chery’s production finds its market outside of China. Despite not focusing on luxury high-end vehicles or electric vehicles, Chery has earned a favorable reputation in numerous developing countries for its dependable technology and cost efficiency.

Our final winner in 2023 is Volkswagen. As one of the pioneering brands in China, Volkswagen, alongside its subsidiary Audi, managed to stabilize its sales following three consecutive years of decline. In 2023, they collectively sold a total of 3.2 million vehicles, inclusive of Audi and Skoda brands. Although a mere 2% growth is very modest in the Chinese market, it is a huge achievement for the German giant to showcase its ability to maintain its market position.

Biggest Losers

FCA (including GAC Jeep), GAC Acura, GAC Mitsubishi, Hainan Mazda, Brilliance, Lifan, Luxgen, Leopaard, Zotye Auto, Borgward

Alongside the development of New Energy Vehicles (NEVs) and aggressive price wars in the Chinese auto market, several Original Equipment Manufacturers (OEMs) have faced challenges or chosen to exit this highly competitive arena. We categorize these OEMs into three distinct types:

1. Traditional Large State-Owned Enterprises (SOEs): FAW and Dongfeng, both significant players in China’s automotive landscape, encountered difficulties primarily due to two key reasons. Firstly, they experienced a slowdown in support from foreign partners. For instance, FAW relied heavily on the VW Group (including Audi) for sales, while Dongfeng had partnerships with brands like Hyundai-Kia, Honda, Peugeot, and Citroen. Secondly, these SOEs lacked strong local brands such as GAC’s Aion. Although FAW boasts Hongqi (“Red Flag”), its revival seems more politically motivated than driven by business objectives.

2. Foreign Brands in Niche Markets: Brands like Ford, Jeep, and Renault, with limited market share historically, faced challenges in the intensely competitive Chinese market. Jeep, under Stellantis, adopted a “light asset strategy” and terminated its joint venture with GAC. Despite Jeep’s relative success within Stellantis in China, future Chinese consumers will only access imported Jeep vehicles as part of Stellantis’ strategic shift. Other automakers like Ford and Renault redirected their operations in China, leveraging the local supply chain to manufacture highly profitable vehicles (e.g., pickups) for export to markets like Southeast Asia.

3. Chinese NEV Start-ups: The emergence of Chinese NEV start-ups, including Weltmeister and Aiways, surged following NIO’s entry into the market. At its peak, there were approximately 170 new NEV brands, fueled by a vibrant capital market and ample funding. However, over time, the industry grappled with overcapacity and intense competition, leading to the exit of several players like Weltmeister and Aiways. In 2023, Weltmeister owners even reported discontinued updates on connected vehicle features. Notably, Evergrande emerged as a significant loser in the 2023 car market.

Looking ahead to 2024, we anticipate continued consolidation in the Chinese auto market. While the market is sizable, it cannot sustain the multitude of existing brands. We foresee potential consolidation between SOEs and new start-ups, facilitating the development of EV capabilities through acquisitions. As the industry evolves, brands must navigate challenges and strive for sustainable operations amidst unprecedented competition and market dynamics.

Given the highly competitive and dynamic nature of the Chinese automotive market, it’s natural for winners and losers to emerge annually, and 2024 is no exception.

Market Trends

1. Price Wars and Dropping Battery Prices

In 2023, despite China’s automotive industry surpassing 30 million sales, the market grappled with significant overcapacity exacerbated by plummeting battery prices, resulting in a pervasive atmosphere of price wars throughout the year.

The onset of the price war can be traced back to January 2023 when Tesla initiated aggressive price reductions for its domestically produced Model 3 and Model Y. Subsequently, a multitude of automakers followed suit, precipitating a wave of price cuts across the industry. By March, as the impending enforcement of stricter China VI-b emission standards loomed for July 1st, Dongfeng Citroën’s substantial price reductions catalyzed the expansion of competition from the electric vehicle sector to internal combustion engine (ICE) vehicles. Traditional fuel vehicle brands like Dongfeng Honda, SAIC General Motors, FAW Audi, and GAC Honda also engaged in promotional activities, igniting a nationwide price war in the automotive sector.

In July, the price competition reached such intensity that 16 OEMs entered into an agreement, which included a commitment “not to disrupt the fair competitive order of the market with abnormal pricing strategies”. However, in just 2 days the regulatory authorities mandated the abandonment of this clause.

2. China Emerging as the Largest Auto Exporter

Amidst price reductions, another survival strategy for OEMs was to tap into export markets. In 2023, China cemented its status as the world’s largest automotive exporter, a pivotal development in the industry.

The top ten destinations for Chinese automobile exports in 2023 included Russia, Mexico, Belgium, Australia, Saudi Arabia, the United Kingdom, the Philippines, Thailand, the United Arab Emirates, and Spain. Notably, exports to Russia surged close to 800,000 units, a fivefold increase attributed largely to Western sanctions. Belgium, Thailand, and the United Kingdom emerged as top markets for Chinese new energy vehicles.

From a brand perspective, SAIC and Chery emerged as clear leaders, contributing 1.2 million and 930K vehicles to exports, respectively. Leveraging the renowned MG brand, SAIC gained significant traction, with the MG4 becoming the first Pure Electric Hatchback tailored for the European market by a Chinese OEM, swiftly gaining popularity across various regions. The export market has assumed paramount importance for Chinese OEMs, prompting initiatives like BYD’s chartering of vehicle vessels to counter escalating shipping costs.

3. Partnership between European and Chinese EV Manufacturers

In the rapidly evolving landscape of the automotive market, a notable trend has emerged wherein European and Chinese EV manufacturers are forging partnerships, signifying a significant shift in dynamics. This trend is encapsulated by collaborations such as Xpeng VW, Stellantis, SAIC Motor, and Audi, illustrating a paradigmatic change in the industry.

In China, a prevailing sentiment suggests that Chinese OEMs exchange technology for access to the market potential offered by foreign OEMs. However, recent developments have seen a reversal of this trend. Firstly, in 2023, Chinese local brands surpassed and secured more market share than foreign counterparts for the first time in history. Secondly, in the era of electric vehicles, foreign brands are increasingly interested in Chinese technology, while also seeking to expand into overseas markets through strategic alliances.

Three exemplary partnerships highlight this trend: Stellantis’ investment in Leap Motor, VW’s investment in Xiaopeng, and Audi’s collaboration with SAIC IM brand. While each partnership is unique, foreign brands primarily seek electronic and electrical (E/E) capabilities from Chinese OEMs.

For instance, Leap Motor’s E/E platform, known as “LPEE 3.0,” promises to enhance Stellantis’ competitiveness by reducing R&D costs and shortening development cycles. Moreover, this technology offers a high level of customization, enabling a more personalized consumer experience in the form of a “smart cockpit.” Leap Motor refers to this as “thousand people, thousand faces” in Chinese, underscoring its adaptability and consumer-centric approach.

In the era of Software Defined Vehicles (SDVs), the features and experiences facilitated by E/E platforms will significantly influence consumers’ purchasing decisions when selecting vehicles. In essence, the level of intelligence and smart functionality integrated into future vehicles will emerge as pivotal factors in the consumer purchase journey.

Much like the partnership between Stellantis and Leap Motor, Volkswagen (VW) is poised to develop two local car models leveraging Xpeng’s platform. This strategic move was officially confirmed during VW’s recent New Year Press Conference, underscoring the industry’s recognition of the importance of collaboration and technological integration in navigating the evolving automotive landscape.

Forecasts for 2024

Looking ahead to 2024, the China Association of Automobile Manufacturers (CAAM) holds an optimistic outlook for the automotive market, forecasting continued stable and positive growth. National policies aimed at stimulating consumption and promoting high-quality development in the New Energy Vehicle (NEV) industry, including the extension of vehicle purchase tax exemptions and infrastructure development in rural areas, are expected to invigorate market vitality and consumer potential. Anticipated growth is projected to exceed 3%.

However, challenges persist for foreign brands operating within niche markets. As they endeavor to keep pace with the electrification and smart vehicle advancements of local competitors, foreign brands may encounter hurdles. The “willingness-to-pay” among Chinese consumers, particularly amid economic downturns, may limit the premium associated with foreign brands. The younger generation, raised amidst China’s growing strength, may exhibit a different attitude towards foreign brands compared to previous generations, affecting their pricing power.

Continued price wars are expected to further strain profitability levels for foreign OEMs in 2024, prompting strategic deliberations about their presence in China. Xiaomi’s entry into the automotive market with the SU7, although not as inexpensive as speculated, promises to disrupt the industry by offering advanced technologies at a more accessible price point. This move has elicited concerns from local brands regarding Xiaomi’s potential impact.

Another formidable contender is Huawei, despite its initial disavowal of car manufacturing. Huawei’s recent joint venture with Chang’an signals a strong interest in the automotive industry. The invitation extended to various carmakers and brands to invest in the JV underscores the potential for building a robust supply chain and ecosystem. Car manufacturers like Audi are evaluating their involvement in the Huawei/Chang’an JV, recognizing the potential implications for component procurement and partnerships with traditional players like Bosch and Continental.

The strength and influence of the new JV remain to be seen, with foreign brands like Audi carefully considering their participation or withdrawal. The evolving dynamics within the automotive industry suggest a transformative period ahead, characterized by technological disruptions and strategic alliances reshaping the competitive landscape.

Which Brands will be the winners and losers in 2024? Lets wait and see!

About Glopen

Founded in 2023, Glopen is a startup with the vision to “Discover the real China, connecting the world”. Through our videos, short, newsletters and articles, we’re dedicated to bridging the gap between the global and Chinese communities. Together with our partners we provide travel consulting and business consulting services to our customers. Contact us for support and services to learn the Chinese market and enter into this market successfully.

About Shengyun Lu

Shengyun currently serves as the Consulting Director at CATARC. He boasts a robust background in consulting, having worked for premier firms in both Europe and China. During his tenure at Roland Berger, he adeptly facilitated the market entry and business development for numerous foreign enterprises into China. Subsequently, as a Partner at Simon-Kucher, he played a pivotal role in establishing the firm’s Shanghai office. Additionally, he has been actively involved in advisory capacities for startups in the SaaS and AI sectors, further showcasing his versatile skill set and deep industry insights.