We are currently witnessing major disruption in the world’s largest auto market, which will have massive implications for the largest automakers as they seek to manage the shift from fossil fuel to electric vehicles.
Potentially millions of gas and diesel cars could be on the verge of not being sold in China as the country implements new vehicle emissions rules and as demand for electric vehicles increases. With China already experiencing an auto inventory crunch, the next three months could spell disaster for some legacy auto companies.
Automotive news recently reported that the China Automobile Dealers Chamber of Commerce (CADCC) published an article on March 23 on WeChat saying that dealers could keep hundreds of thousands of non-compliant gasoline and diesel vehicles regulations once China’s new emissions standard is implemented in July.
According to its website, the CADCC had over 8000 car dealer members as of 2019.
More details on the now-deleted CADCC article of March 23 were given on the Shanghai Metals Market news site SSM in the post titled Industry Association appeals to delay implementation of China’s upcoming VI B Issue on rules to deal with huge inventory pressure.
The Chinese metal industry publication is justifiably concerned, as the inventory crunch will have massive effects for metal suppliers to the auto industry.
The SSM article says the deleted document said the CADCC had “received reports from many car dealer groups that the upcoming full implementation of China VI B emission standards will put enormous pressure on the survival of car dealers.” “automobiles”.
SSM reports that in the document the CADCC requested three measures on behalf of the majority of car dealers.
- Postpone the implementation of China VI B emission standards to January 1, 2024;
- Automakers should stop producing new cars that don’t meet China VI B emissions standards;
- Automobile OEMs should allocate existing new cars that do not meet China VI B emission standards to dealers as soon as possible and launch sales promotions.
The industry has received many notices of new emission standards
China published its rule for Stage 6 light vehicle emission limits in December 2016, so manufacturers have had 7 years to bring their vehicles into line.
The “China 6 standard” is being implemented in two phases. The first phase, 6a came into effect on July 1, 2020, and the 6b standard will be implemented on July 1, 2023.
The China 6 standard applies to light vehicles up to 3,500 kg powered primarily by gasoline or diesel.
The International Council on Clean Transport (ICCT) says the China 6 standard combines best practice from European and US regulatory requirements, as well as creating its own.
The ICCT says that “China 6b further reduces limits by one-third to one-half the magnitude of NOX,
THC, NMHC, PM and CH4, above the China 6a” standard.
While the inventory crunch is hitting Chinese dealers hard, the biggest impacts will be felt by legacy car companies that have failed to transition to electric vehicles.
The inventory crunch will hit foreign automakers hard
The excess of hundreds of thousands of highly polluting vehicles sitting in Chinese dealerships comes as Chinese consumers are rapidly switching to electric vehicles. More than 25% of all new cars sold in China by 2022 were electric.
According to the China Association of Automobile Manufacturers (CAAM), 27 million vehicles were sold in China by 2022, with nearly 7 million electric vehicles. China accounted for about two-thirds of global electric vehicle sales last year.
Although the inventory crunch is taking place in China, counter-intuitively Chinese automakers may benefit, while sales of foreign auto companies plummet in the aftermarket. ‘world’s largest automobiles.
This is because electric vehicles account for a much higher proportion of the total output of Chinese automakers such as BYD, while foreign companies such as Toyota and Volkswagen mainly manufacture and sell gasoline and diesel cars in China.
Therefore, it will predominantly be Japanese, German and US automakers that will be most affected by the inventory crunch, while Chinese electric vehicle companies and Tesla will continue to see demand grow.
This trend is already happening in 2023.
In the first two months of the year, sales of Japanese brands in China have fallen 40% year-on-year. German and Korean brands are down around 20%, while US brands are down 12.5%.
Meanwhile, Chinese brands have held steady with ICE sales losses offset by rising domestic electric vehicle sales.
And this trend is accelerating rapidly. Electric vehicle production in China reached 7 million units in 2022, an increase of 97% from 2021, while electric vehicle sales increased by 93%.
The imminent implementation of the new pollution standard will further exacerbate this trend.
Meanwhile, the world’s two largest automakers, Volkswagen and Toyota, don’t even plan to release mass-produced electric vehicle models until 2027, which is still 4 years away.
Could China’s Inventory Crisis Lead to a Wider Collapse?
The German and Japanese auto giants are also two of the most indebted companies in the world, both with nearly $200 billion in debt and highly questionable valuations of their internal combustion factory assets.
Excess inventory of vehicles that can’t be sold in the world’s largest auto market is the last thing these companies need, and with sales of ICE vehicles falling, it’s hard to see how they’ll survive.
In Japan, it is estimated that automobile manufacturers and the industries that employ them employ more than 5 million workers. About 8% of Japan’s workforce.
Due to Japan’s disastrous national hydrogen strategy (largely promoted by Toyota), the nation produces a trivial number of EVs, and as a result, its addressable market in China is disappearing before its eyes.
With Chinese automakers largely shielded from the impacts of the new pollution standards due to their first move into electric vehicles, the Chinese government is unlikely to delay implementation.
It looks like the next few months will be crunch time for the legacy auto industry.
Daniel Bleakley is a clean technology researcher and advocate with a background in engineering and business. He has a strong interest in electric vehicles, renewable energy, manufacturing and public policy.
