DAVID FURLONGER: Today China, tomorrow the world?
The US and Europe are nervous of Chinese carmakers’ global growth plans
Are Chinese carmakers about to take over the world? They may be only starting to make a sustainable dent in the South African market, but globally alarm bells are ringing in traditional motor industry powerhouses, where protective measures are being put in place to guard against Chinese dominance.
The threat comes primarily from electric vehicles (EVs) and the batteries that go into them. A recent Goldman Sachs report says the US and Europe may need to spend more than $160bn by 2030 to reduce their dependence on Chinese-made batteries.
The London Financial Times wrote: “To obtain a self-sufficient supply chain, countries competing with China would need to spend $78.2bn for batteries, $60.4bn in components and $13.5bn in mining of lithium, nickel and cobalt, as well as $12.1bn in refining of those materials, the report calculates.”
It adds that South Korean conglomerates LG and SK are investing heavily in US battery production, in response to “massive” taxpayer-funded subsidies. Goldman Sachs suggests their share of the US battery market — 11% in 2021 — could rise to 55% by 2025.
In August, US President Joe Biden signed the Inflation Reduction Act, whose goals include boosting US production of EVs and batteries. EVs will also have to meet new local sourcing requirements to qualify for tax credits.
This protectionism comes at a time of growing political and trade tension between China and the West. Carlos Tavares, CEO of Stellantis, the world’s third-largest motor company whose brands include Peugeot, Citroën, Fiat, Chrysler, Opel and Jeep, blames Chinese “political influence” for the October 31 bankruptcy of the company’s Jeep manufacturing joint venture (JV) with a Chinese partner.
Stellantis’ small-scale Peugeot and Citroën JVs may also be at risk. According to Reuters, full-year capacity utilisation at the group’s Chinese assembly plants will fall to 13% in 2022, from 43% in 2017. German, US, Korean and Japanese companies with Chinese JVs have also seen capacity utilisation crash in the past five years.
The situation has been exacerbated recently by China’s all-consuming zero-Covid policy. Several foreign carmakers are cutting or suspending production at their JV assembly plants because of a shortage of components caused by government-enforced Covid lockdowns.
The underlying problem, say analysts, is that the allure of foreign brands — even those produced in JVs with local partners — is wearing thin among Chinese car buyers. US publication Automotive News quotes former Chrysler executive Bill Russo, now a Shanghai-based automotive consultant: “Over the past five years, China’s market has changed from foreign companies having a right to win because of their foreign-ness, to where there is a far more level playing field.”
As the consumer market undergoes its large-scale transition from ICE to BEVs, past loyalties to particular brands are being weakenedPwC
The main leveller has been Chinese companies’ rapid adoption of EVs. Full-electric cars — also known as battery-electric vehicles, or BEVs — account for 30% of models sold by Chinese companies in China, as opposed to the 5% of foreign producers, says consultancy LMC Automotive.
The China Passenger Car Association says local brands accounted for nearly 80% of Chinese EV sales in the first seven months of 2022. Globally, says PwC, China alone accounted for 73% of the world’s sales in the third quarter of 2022.
Now, it says Chinese companies are setting their sights on international markets, notably in Europe. In its latest quarterly EV sales review, PwC says: “Having achieved rapid growth in the Chinese domestic BEV market and developed strong expertise in the field, a significant number of Chinese companies are now seeking to enter the European market.
“The timing of their move appears opportune. European companies have been struggling with supply issues, while there is a relative dearth of affordable, entry-level BEVs on the market, a category in which several Chinese companies specialise. Moreover, as the consumer market undergoes its large-scale transition from ICE [internal combustion engines] to BEVs, past loyalties to particular brands are being weakened.”
Berlin-based Schmidt Automotive Research reports that 5.2% of all new West European BEV car registrations during the first seven months of 2022 were Chinese. Over the same period last year, their share was 3.8%. PwC reckons this could go as high as 7.9% by 2030.
There is already discussion in some European countries about imposing duty barriers against this “invasion”. After all, say supporters, national and regional Chinese authorities protect their companies against foreign competitors.
Could we see a similar push by Chinese companies in South Africa? Not long ago, their vehicles sold here were considered a joke. Their cause hasn’t been helped by Beijing Automotive Industrial Co (BAIC), which has spent six years failing to keep its promise of a R11bn investment — then the biggest in the South African motor industry and the first greenfields assembly plant in over 40 years — to build cars and bakkies in the Eastern Cape.
By now, the plant should have annual capacity to build 50,000 vehicles, rising to 100,000 by 2027. Instead, an enormous white shell of a building sits idle in the Coega industrial zone, near Gqeberha. The few BAIC vehicles sold in South Africa are imported.
Other Chinese companies are doing their best to redress the reputational balance. Chery and Haval are among the country’s 10 top-selling car brands. At the moment, they offer only imported ICE models. In future, when South Africa finally joins the EV revolution, who would bet against them joining the charge?
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