In 2023, the Chinese automobile market is likely to reach a plateau even as the shift to EVs accelerates.
China’s zero-corona policy, which aims to thoroughly contain the spread of infection even at the expense of the economy, has dealt a blow to the automobile market in 2022. Against the backdrop of recent price hikes and an economic slowdown, industry groups have announced that the passenger car market will drop to zero growth in 2023, raising caution. Even in the field of new energy vehicles, which has a lot of room for growth, about 100 new vehicle models will be launched in 2023, significantly exceeding the number of this year, and the shakeout of manufacturers is likely to proceed.
Passenger car sales down 9.2% in November
In December, the Chinese government decided to ease its zero-corona policy, which had been in place for nearly three years. Since October, the infection has spread in several large cities such as Guangzhou, Chongqing, and Beijing, and in Zhengzhou, the world’s largest iPhone production base, the factory of Hon Hai Precision Industry (Foxconn) has closed against the backdrop of the turmoil of the corona crisis. A large number of seasonal workers who worked in the country left the country, and protests were frequent.
The car market also stalled as a result of the nationwide turmoil. According to the China Passenger Car Market Information Conference (CPCA), passenger car sales in November decreased by 9.2% year-on-year to 1,649,000 units. The biggest reason for the slump was that retailers in big cities were restricted due to the zero-coronavirus policy, making it difficult for consumers to go out.
Even if the zero-coronavirus policy is relaxed, the auto market in 2023 will continue to be tough.
Sales from January to November increased by 1.8% (317,000 units) to 18,367,000 units. In response to the deterioration of the economic environment due to the lockdown in Shanghai, the Chinese government announced in June that it will target passenger cars with a price of 300,000 yuan or less (approximately 6 million yen, converted to 1 yuan = 20 yen) and an engine displacement of 2.0 liters or less. Introduced a policy to halve the automobile acquisition tax. The CPCA revised its 2022 passenger car sales forecast upward from 19 million units to 21 million units in anticipation of the effects of this policy, but the brakes were applied again in November.
Gasoline vehicles are particularly difficult. Gasoline vehicle sales in November decreased by 27% year-on-year to 1.05 million units. It decreased by 14% from January to November. On the other hand, sales of new energy passenger vehicles such as EVs and hybrids in November increased by 58.2% year-on-year to 598,000 units. Considering the 100.1% year-on-year increase from January to November, growth is slowing down, but still strong.
Zero growth if purchase promotion policy is terminated
Looking ahead to 2023, the CPCA issued a grim forecast, stating, “If the policy of halving the automobile acquisition tax (to be terminated in December this year) is not extended, passenger car sales in 2023 will grow to zero.” Specifically, the following factors are mentioned.
1: Global economic slowdown
There is widespread speculation that the US Federal Reserve (Fed) rate hike scenario will slow down and reach 5%. The global economic slowdown is inevitable and will be a headwind for China’s auto exports.
2: Continued inventory pressure
As of the end of October 2022, the manufacturer’s inventory remains high at 3.72 million units. In 2023, production by new entrants will increase, but consumption will not catch up, and inventory pressure will continue throughout 2023.
3: Termination of policy
Automobile acquisition tax halving policy will end at the end of December 2022. The impact of the end of the policy is significant, as it has had a great effect since its introduction in June. If it is canceled by the end of the year, the Lunar New Year sales season in January 2023 will also cool down.
4: Stagnation of demand among young people
Those born in the 2000s, who are expected to purchase their first car, are becoming more highly educated and are entering society at an older age. In addition, the number of young people who are not ready to buy a car is increasing due to economic instability due to the recession and the difficulty of buying a house.
In 2022, the automobile market suffered a devastating blow from March to May due to the impact of the Shanghai lockdown, and in October and November, it stalled due to the nationwide spread of infection. Normally, 2023 would be positive due to a reactionary increase, but the CPCA emphasizes “zero growth” and strongly appeals for the extension of the policy of halving the automobile acquisition tax.
The China Association of Automobile Manufacturers (CAAM) has also announced that it expects automobile sales, including commercial vehicles, to increase by only 3% in 2023, and calls for the continuation of automobile purchase incentive measures.
Gasoline cars will be culled in earnest
If the growth of the passenger car market stops, it is a common view among industry players that manufacturers will be more selective in 2023.
The CPCA predicts that sales of new energy vehicles in 2023 will increase by 30% to 8.4 million units once the 50% reduction in acquisition tax ends, while sales of gasoline-powered vehicles will fall by 10% to 15.1 million units in 2023.
As the spread of the infection subsides (although there are concerns about an explosion of infections due to the relaxation of the zero-corona policy, the CPCA makes calculations on the assumption that the situation has calmed down), growth in demand for a second car by the middle class is expected, but gasoline prices That demand is likely to go to low-priced EVs as prices rise. For EV manufacturers, infrastructure such as charging facilities and after-sales service are the keys to attracting customers.
EV shift is also a smart car. If EVs become more valuable than “mobility tools” due to smart technology, the attractiveness of gasoline vehicles will decrease.
China’s own brand manufacturers, which are called “ethnic groups,” have continued to fall behind overseas manufacturers in terms of brand power. The gradual shift to EVs by Japanese and other overseas manufacturers is also motivating Chinese manufacturers to focus on EVs. At present, one-third of the new cars sold in the Chinese market are new energy vehicles, but in 2023, the survival space for gasoline vehicles may be further squeezed.
Hon Hai, Baidu EV also launched, accelerated selection
In 2023, 100 new energy vehicle models are scheduled to be launched in China.
Existing automakers are stepping up their shift to EVs, and new energy vehicle makers are entering the market intensifying competition.
The three emerging EVs of NIO, Riso Auto, and Xpeng, which made rapid progress in 2020 and 2021, are already in a position to be chased, and 2022 is the beginning of the year for all of them. Achieving goals is difficult.
In November, 11,011 units of Zeekr, a high-end EV brand owned by Geely Automobile, increased by 447.3% year-on-year. The state-owned major Guangzhou Automobile’s own brand “AION” sold 28,765 units, up 91% year-on-year. I lined up at the level I added. Xpeng delivered 5,811 units in November, down 62.8% year-on-year.
Emerging companies following the EV big three are also emerging, and the number of vehicles delivered by Naru Automobile (NETA) in November increased 51% year-on-year to 15,072 units, surpassing 10,000 units for the seventh consecutive month. Huawei’s in-vehicle OS is installed in Celes’ EV “Qiankai”, which is also attracting attention as the eye of the typhoon.
China Evergrande New Energy Automobile, an EV subsidiary of China Evergrande Group, which is in financial crisis, began delivering its first mass-produced SUV, the Hengqi 5, in October, but it has many rivals, so it has a strong presence. without
In 2023, Baidu and Hon Hai, which announced their EV entry in 2021, are about to launch new vehicles, and in the new energy vehicle field, 100 models are expected to be introduced, far exceeding the approximately 70 in 2022. Tesla and BYD, which form two major players in the Chinese market, are also planning to expand into new segments in order to expand their market share, and some leading companies will likely be pushed out.
Sanae Urakami: Economic journalist, Hosei University MBA practitioner lecturer, English/Chinese translator. He graduated from the School of Political Science and Economics at Waseda University. After working for Nishinippon Shimbun for 12 and a half years, he stayed in Dalian, China for a government-sponsored doctoral study (business administration) and as a lecturer at a minority university for 6 years. Latest publication “New Corona VS China 1.4 billion peopleUnmarried mother for 13 years, 42 years old and married for the first time with a child.
Source: BusinessInsider
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