Will Chinese cars control a third of the Central and Eastern European market in five years? Should Slovenian automotive suppliers stick with German partners – or start forging alliances with Chinese companies? How has China managed to shift the balance of power in the global automotive industry in just a few years?
Ahead of the Portorož Business Conference, we discussed these and other questions with conference speaker Gorazd Vrbica, Partner and Managing Director at the global consulting firm AlixPartners. He is a recognised expert in corporate restructuring and performance improvement, with more than 34 years of management and consulting experience, primarily in the automotive and other industrial sectors.
Global car sales are contracting sharply this year, this time largely due to declining domestic car sales in China. China is offsetting this decline through aggressive exports. What is happening?
Thirteen years ago, during a lecture in Slovenia, I was asked when I expected electric vehicles to make a serious breakthrough. I replied: when the Chinese government starts strongly supporting their development. That is exactly what happened.
China wanted to become the first country in which electricity is the primary source of energy, and it has achieved that this year. At the same time, it has brought the cost of electric vehicles in line with that of internal combustion engine vehicles, primarily thanks to LFP batteries, which are 20 to 30 percent cheaper than NMC batteries, which are more widely used in the West. In Europe, we do not expect cost parity for another 10 to 15 years.
How has the Chinese automotive industry managed to achieve all this?
China’s largest manufacturers are mostly privately owned but state-subsidised companies. There are around 140 automotive brands in China, but we estimate that only 10 to 20 will survive in the long term. The aggressive price war will accelerate consolidation even further.
The growth was not solely the result of central planning. It was also driven by decisions made by individual regions, which strongly supported local manufacturers because of the jobs and economic activity they generated.
The situation is now changing. This year, we expect car sales in China to decline by 10 percent, compared with a one-percent decline in Europe and a three-percent decline in North America. The Chinese economy is weaker, consumer spending is being weighed down by higher interest rates and the property crisis, and the government is partially reducing its support for the automotive industry. At the same time, there is excess production capacity, much of which is underutilised. Since last year, the 10-percent tax incentives for electric vehicles have also been discontinued.
Nevertheless, over the coming years, we expect the Chinese automotive market to grow moderately, at an average annual rate of around two percent.
What does this mean for us?
For Europe, this is not good news. Excess capacity needs to be utilised, which is why a fierce price war is taking place in China. As many domestic manufacturers disappear, Western brands are also rapidly losing market share. Within a few years, we estimate that around 75 percent of cars sold in China will be Chinese brands.
Chinese manufacturers are therefore looking abroad for growth. In Germany, their market share is around five percent this year and could reach 10 percent by 2031. Growth is considerably faster in Central and Eastern Europe: their share was around two percent in 2022, has already reached 24 percent this year, and could rise to 31 percent within five years.
It is a classic strategy: first you enter smaller, more peripheral markets, and then move into larger and more protected ones. This year, China will export more cars than Japan, Germany and the United States combined.
Are Chinese manufacturers also going to build factories in Europe?
Yes. In 2020, Chinese brands produced around 200,000 cars outside China. By 2025, that figure had risen to 1.2 million, and by 2030 it is expected to reach 3.4 million. And this is not just about BYD in Hungary. Volkswagen, for example, is also discussing the possibility of Chinese manufacturers taking over some of its excess production facilities. Policymakers may be receptive to this because preserving jobs is important to them. Whether such takeovers will actually happen, I do not know, but discussions are underway.
You can read the full interview, published by Finance and written by Boštjan Usenik, here >>
