Amid the dazzling display of China’s auto expo, a testament to the rapid power shift towards homegrown automakers, the spectacle unveils the modernized model range and competitiveness that has burgeoned over recent years. The Shanghai auto show, canceled in 2021 owing to the government’s stringent zero-covid measures, has now roared back to life, with particular fanfare surrounding Chinese electric vehicle (EV) manufacturers and tech firms such as SenseTime.
Volkswagen, finding itself relegated to the status of a niche player in the electric market, faces stiff competition from China’s nimble startups. The German automaker responded to the challenge during the show by pledging to expedite its operations in China, aiming to reduce car development time by 30%. Oliver Blume, donning an eye-catching pair of snow-white sneakers at a Tuesday meeting, was a visual embodiment of the company’s commitment to speed.
The dethroning of Volkswagen by China’s BYD (Build Your Dreams) as the market leader in China, a title held unchallenged by the former for over three decades, served as a timely reminder of the group’s precarious position. Contrary to Blume’s recent assertion that VW leads the world’s largest car market, discussions in Shanghai focused on the “strong role” German manufacturers must assume to recover ground against local rivals such as BYD, Nio, and Li Auto.
German automakers now find themselves more vulnerable due to their increasing reliance on the Chinese market. China, with 23.5 million new passenger car registrations in 2022, constituted nearly one-third of the global market. The Center of Automotive Management (CAM) reveals a striking shift in the significance of China for German carmakers: Volkswagen Group’s sales in China rose from 31% a decade ago to 40% in 2022, while Mercedes-Benz saw an increase from 18% to 36.8% and BMW from 14% to 33% over the same period.
Despite a 9.7% growth in the Chinese car market in 2022, Volkswagen, BMW, and Mercedes-Benz witnessed a decline in sales by 3.6%, 6.4%, and 0.9%, respectively. In stark contrast, BYD’s sales soared by nearly 150%. The German suppliers, particularly in the EV segment, trail their Chinese counterparts in terms of market share and growth rates, making this high-stakes race all the more compelling.
In 2022, China’s battery-electric vehicle market experienced a remarkable 84% growth, reaching 5 million units and establishing the nation as the largest e-car market globally. The CAM Institute reveals that BYD’s sales skyrocketed by 184%, securing an 18% market share, while Volkswagen’s 68% increase only amounted to a 3.1% market share.
According to Stefan Bratzel, the Chinese car market’s significance for German manufacturers has never been greater, but it has also rendered them more vulnerable. He further observes that Chinese companies are poised to become major competitors in the automotive industry, particularly in areas such as electromobility, connectivity, and autonomous driving.
A recent PWC study highlights the diverging preferences between German and Chinese car buyers, with the latter’s predilections benefiting Chinese manufacturers. While German consumers traditionally prioritize engine performance and road handling at high speeds, Chinese buyers, limited by speed restrictions and frequently ensnared in urban traffic congestion, place greater emphasis on electronic functions, including entertainment features. Additionally, self-driving cars hold greater appeal to the Chinese demographic than their German counterparts.
PWC’s management consultancy asserts that the operation of cars and their electronics has become crucial for automakers. However, Volkswagen’s latest generation has underwhelmed in this area, with software development lagging behind schedule. In response, Volkswagen aims to invest €1 billion in a new development center in Hefei, eastern China, focusing on tailoring its offerings for the Chinese market.
The challenging road ahead is evident in Blume’s rhetoric as he endeavors to reframe the company’s lagging performance in China as a catalyst for improvement: “Strong competition makes our sales better.” It appears that Blume was previously unaware of the magnitude of the issues in China inherited from his predecessor.