Analysis: Do Ford and Volkswagen stand a chance in battle for China’s electric market?
Some of the world’s biggest carmakers have announced big plans to bolster their electric vehicle (EV) segments in China this year.
Japanese carmaker Toyota announced major plans earlier this month to accelerate its EV push in China, on the back of a profit boost caused by an ease in the global chip shortage.
Volkswagen, which has long had a strong presence in the region, recently announced its “in China, for China” strategy, in an attempt to claw back ground in the electric vehicle race.
And last week, Ford said it would reduce costs in China in order to boost its EV business there, and recover competitiveness in the market.
But they will likely face an uphill challenge to boost their Chinese sales as competition with local rivals heats up.
The emergence of successful Chinese EV players such as BYD, Li Auto, Nio and Xpeng, which are producing electric motors at rapid speeds and increasingly cheap prices, won’t make it easy for these international car companies.
Nissan boss Makito Uchida warned earlier this month that Chinese manufacturers were showing “massive strength,” and bringing cars to market “much faster than we expected before”.
Tesla – which until recently comfortably dominated China’s EV market – has been locked in a fierce price war with Chinese car companies since January, when it began slashing the cost of its vehicles in an attempt to boost sales.
Now BYD sits at the top of the EV market in the country, soaring ahead of Tesla over the past few months and announcing a fivefold jump in net income despite Musk’s price war.
Many other international car firms have already reported a drop in sales as a result of this increased local competition.
Victoria Scholar, head of investment at Interactive Investor, said there was now “a race to the bottom environment” in the market.
Volkswagen reported a 14.5 per cent drop in sales in China in its first quarter results last month, with a 25.4 per cent dip in EV sales. A Volkswagen spokesperson said that the first quarter was determined in part by a “market environment with high price discounts given by local competitors”.
But the company remained upbeat about the year ahead. After a challenging start, the Volkswagen spokesperson said “delivery figures in March and April were again well above the previous year” and that it was now “growing faster than the market”.
Other analysts told City A.M. they were sceptical about the prospects of global brands in fending off tough local competition.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Tesla has a fight on its hands to swerve back into the fast lane in China, with the might of home-grown EV giants offering cheaper models dimming the brand’s appeal.”
“The company slashed prices to give sales a boost, but it could prove short lived with rivals like BYD aggressively lowering prices and proving much more of a draw.”
Streeter told City A.M. the market was also proving “tougher going for Volkswagen, a company which had dominated the combustion engine market in China but is falling behind in the EV race”.
“It’s spending big to try and make greater inroads, expanding models for sale and pledging to invest $1bn in an innovation centre to better pinpoint Chinese consumers’ tastes.”
She added: “Ford is taking the opposite tack, by scaling back investments in the country, conscious of the huge scale of the competition, and worried about spending large sums, without guarantees of significant returns.’’
Soumen Mendel, senior research analyst at Hong Kong-based Counterpoint, said Musk’s price war had taken most big EV players in China “by surprise”, with big brands like BYD, GM, SAIC and Volkswagen reducing their prices and “sacrificing profits”.
Mendel said European and North American [manufacturers] were “striving to catch up with Chinese players and Tesla to remain competitive in the market” and that Japanese manufacturers had also made a “slow start in adopting EVs.”
“Tesla is enjoying its position as the EV leader, while Volkswagen is trying to give competition to the US brand. Nissan and Ford are struggling in the Chinese market, but we expect them to make a comeback with a better strategy.”