There are growing media reports warning of a major collapse in sales of petrol and diesel cars in China, which could have massive impacts on some of the world’s biggest car brands.
The issues brewing in the Chinese auto market have been brewing for many months, but it seems the penny is finally dropping on what this all could mean, not only for the future of the legacy auto industry, but for the economy in general. .
The Driven last week led the report with a story on Thursday titled “Legacy auto faces disaster in China with unsalable cars as pollution looms.”
This has been followed by a Bloomberg report: “China is slowly squeezing global automakers out of its massive market” – on Monday, and US-based Electrek on Sunday: “ICE car values are plummet in china and is the canary on the coal.i
”
There are multiple factors that appear to be accelerating this crisis, and many observers and investors in the auto industry are now beginning to consider what it all might mean.
China is the first major market to reach 25% of electric vehicle sales
While countries like Norway already have a new car market with 90% electric vehicles, China is the first major market in the world where electric vehicles have reached a market share of 25%.
In Norway, with a population of only 5.4 million, the sales of gas and diesel cars in second place can easily be absorbed by the European market, which has a population of almost 500 million.
This is not the case for petrol and diesel cars sold in China, which is the world’s largest car market with almost 27 million vehicles sold by 2022, accounting for 34% of global car sales .
The emerging problem in the legacy auto industry that many are now waking up to is that electric vehicles are now taking huge amounts of market share from gasoline and diesel cars.
Even in Australia, sales of full battery electrics have overtaken the hybrids that many Japanese car companies have staked their futures on: see EV sales surpass hybrids in Australia, achieving the 6.8% of the global new car market.
Traditional Japanese, German and American automakers have been slow to develop electric vehicle production with none of the legacy car companies producing electric vehicles at scale.
Electric vehicles make up just 0.2% of Toyota’s total output, meaning the market shift to electric vehicles is also a market shift to Chinese brands such as BYD and Tesla, which dominate global electric vehicle sales .
Of the 27 million vehicles sold in China by 2022, 7 million were electric vehicles. That’s 25% of the world’s largest market effectively disappearing from the perspective of petrol and diesel carmakers.
Legacy car companies forced to cut new car prices by up to 40%
Chinese business and finance news site Jiemian wrote a story on March 17 titled “China’s new car price war spills over into second-hand market.”
“Traditional engine carmakers have decimated prices by up to 40 percent as Mercedes-Benz and Chevrolet look to protect their hard-won market share.” Jiemien reported.
Jiemain says the Chinese government halved sales taxes on new ICE cars to stimulate the market in June last year. That just kicked the can down the road and now we’re seeing new and used ICE vehicle prices drop as dealers frantically try to unload.
China’s used car dealers are starting to feel the shock of a raging price war that threatens to devastate the country’s vast auto market. tells the story of Jiemain.
Moving faster than expected, electric vehicles will reach 35% by the end of 2023
The sheer speed at which the Chinese market is moving will exacerbate the current problems. Electric vehicle market share in 2022 grew by a staggering 93% over 2021.
In 2021, Reuters reported that electric vehicle sales in China were expected to reach 35% by 2025. Fast forward to March 2023, Bloomberg predicts that the Chinese market will reach this milestone this year.
This effectively results in the gas and diesel car market contracting into the millions much sooner than anyone (including legacy auto executives) anticipated.
Car dealerships are the canary in the coal mine for legacy cars
Like a bathtub with a stuck plug, the faucets must be turned off before it’s too late.
As Chinese dealerships have swelled in recent months, they’ve absorbed new cars rolling off the production lines.
But they can only take so much, and with the ever-accelerating shift to electric vehicles and China’s new 6b pollution standards likely to come into effect within the next 12 months, it’s unclear how legacy car companies will be able to keep any something close to its current one. sales
While the decline in ICE vehicle market share doesn’t look too dramatic in the chart above, it’s important to realize that change is happening at an exponential rate. Exponentials may appear to move slowly at first and then begin to accelerate dramatically.
With EV market share in China growing from 5% to 35% in just three years, we are now entering the meaty part of the curve. Every month, the pieces being taken out of the ICE vehicle market get bigger and bigger.
In addition to this, legacy car companies are highly leveraged. A relatively small drop in sales may be all it takes to bring them down.
What will you need?
Like the subprime mortgage crisis of 2008, everything was fine until it wasn’t. The big question is what will it take to leave the legacy at the edge?
Both Toyota and VW are two of the most indebted companies in the world.
Can they withstand a sustained 30% drop in sales in markets like China? What if China’s electric vehicle market share approaches 50% by 2024? Both Toyota and Volkswagen don’t plan to start selling mass-produced electric vehicles until 2027.
How can they stay in business until then?
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.
