In a rapidly shifting landscape for new energy vehicles (NEVs), Chinese brands have taken the lead, leaving global giants such as Volkswagen, Nissan, and Hyundai struggling to keep pace. According to CNBC’s analysis of public data for the first three quarters of this year, Volkswagen is on track for its smallest year of sales in China since 2012, while Nissan is poised for its worst year since 2009, and Hyundai is heading towards its lowest sales in more than a decade.
This downturn for global car brands is a direct result of China’s swift transition away from internal combustion engines towards NEVs. The Chinese market has embraced battery and hybrid-powered cars, with homegrown brands like BYD and Tesla capturing the lion’s share. In fact, new energy vehicles accounted for over one-third of new passenger cars sold in China so far this year, according to the China Passenger Car Association.
Although Volkswagen remains a dominant force in China’s car market with approximately 3 million vehicles sold annually, the German automaker has failed to gain significant traction in the electric car segment. Recognizing the need to catch up, Volkswagen recently invested $700 million in Chinese electric car start-up Xpeng, aiming to collaborate on the development of two electric car models specifically for the Chinese market.
Meanwhile, BYD, a Shenzhen-based company, has been rapidly gaining ground. In 2022, BYD achieved a significant milestone by selling over 1 million cars. It is projected to reach 2.5 million vehicle sales in China this year. By capturing a substantial share of China’s 8.5 million-strong NEV market, estimated to grow even further, BYD is poised to solidify its position as a key player.
Toyota, another global car manufacturer, has also struggled in China’s market transition to electric vehicles. The company is expected to experience its worst year of overall sales since 2020, with approximately 1.8 million vehicles sold. As the Chinese automotive industry continues to evolve, Alvin Liu, an analyst at Canalys’ Shanghai office, highlights the potential for original equipment manufacturers (OEMs) to compete through joint ventures with Chinese companies.
Chinese consumers’ preferences have shifted, with foreign brands losing popularity as they consider electric cars. License plate restrictions in major cities like Beijing incentivize locals to choose electric vehicles over traditional fuel-powered cars. According to a Bernstein survey conducted in August and September, BYD topped the list as the most preferred brand for Chinese electric vehicle buyers, followed by Tesla and Nio. Foreign brands, excluding Tesla, experienced a decline in brand traction scores compared to the previous year, with Japanese brands being the most affected.
The survey also highlighted declining interest among the younger population in traditional non-German premium brands, as well as a decreasing attraction towards German premium brands. While some brand loyalty remains for German car brands, the transition to new energy vehicles appears to favor Tesla as the top choice for current German and other premium brands’ owners making the switch to EVs.
Although China’s NEV market is experiencing rapid growth, competition within the market is fierce, even for domestic brands such as BYD. To compete with Tesla, BYD launched its most direct competitor yet, the Denza N7, in July. Furthermore, BYD has expanded its product lineup to include ultra-luxury cars, such as the Yangwang brand’s giant U8 SUV, priced at over one million yuan ($138,000).
Looking ahead, industry experts predict that next year will bring even greater competition. An Conghui, head of Geely’s EV brand Zeekr, stated that no other car company would be able to replicate Zeekr’s newly launched luxury electric sports car, the 001 FR, within the next five years. Zeekr, which achieved a monthly delivery record of over 13,000 cars in China in October, has ambitious plans for expansion into Europe and the Middle East within the next two years. Additionally, BYD and other Chinese brands are making inroads into the global market, and China is on track to become the world’s largest exporter of cars, surpassing Japan and Germany, according to Moody’s analysis.
In response to the growing influence of Chinese automakers abroad, the European Union launched an anti-subsidy probe into Chinese electric vehicle companies, signaling the increasing significance of Chinese brands on the global stage. As Chinese brands continue to innovate and capture market share, it’s clear that they are outpacing their global competitors in China’s evolving new energy vehicle market.
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