China Automotive Industry Snapshot

Written By Daniel on October 2, 2007 at 10:55 pm | In industry, environment, automotive, economy, society, technology, consumer, China

A booming car market drives rising imports, exports and potential solutions for pollution control.

Overview

China’s booming car market is becoming increasingly competitive, as automotive giants and domestic manufacturers compete for a share of the world’s second largest car market. Growing at an average rate of 20-25%, this market is expected to surpass the US as the world’s largest by around 2020.

The Chinese landscape is being remodelled by the car. Ten years ago there were almost no privately owned cars in China. By the end of 2005 there were almost 24 million. China now has more car brands than the US, and for better or worse, the desire to move from two wheels to four shows no sign of abating.

In the first five months of 2007 China imported 108,000 vehicles, a 25% increase year-on-year. According to government statistics, the top five best-selling models in China are currently Volkswagen’s Santana and Jetta, Buick’s Excelle, Toyota’s Camry and Chery’s QQ. The top car makers in terms of sales were FAW Volkswagen, Shanghai Volkswagen, Chery, Dongfeng-Nissan and Guangzhou Honda.

Until recently most of the models produced in China came from joint ventures with foreign manufacturers like General Motors and Volkswagen. However, China’s homegrown brands, such as Anhui-based Geely and Zhejiang-based Chery, are now rapidly catching the international pack. Domestic manufacturers accounted for 25% of all cars sold last year.

As with early Japanese and Korean manufacturers, Chinese companies are primarily focusing on the low end of the market to begin with, where profit margins are mantained by cheap labour costs. When brand quality improves, technology and design become more sophisticated, and distribution networks are built up, then moves into the mid and luxury car segments are inevitable.

Domestic manufacturers are not only focusing on the Chinese market, however. This year China’s vehicle exports are expected to surge over 45% year-on-year to 500,000 units. China has designated eight port cities, including Shanghai, Tianjin and Xiamen, to serve as the country’s main automobile and component export centers.

Chery plans to raise its annual production to 1 million vehicles by 2010, according to company sources. The company is expected to boost its production capacity by 200,000 vehicles to 700,000 this year, and has signed a deal with Chrysler to sell cars in North America and Europe. Chery is expecting sales in these areas to reach reach 300,000-500,000 vehicles by 2019.

Luxury Sector

China’s luxury car sector is growing by around 30 percent a year, as the growing ranks of nouveaux riche snap up the latest premium models. Sales of luxury brands totaled 180,000 units last year, accounting for 3.3 percent of China’s passenger car market. Sales are expected to reach 300,000 units by 2010, lifting market share to 10 percent.

Toyota sold 12,000 Lexus cars in China in the first six months of 2007, and is well on track to meet its full-year 2007 target of 22,000. Ford’s Volvo, Jaguar and Land Rover brands posted combined sales of 8,779 units over the same period, up 66% from a year earlier. Meanwhile, Chinese car maker Brilliance Auto, a partner of BMW, said its sales grew 58% in the first half of the year.

BMW partnered with Shenyang-based Brilliance Automotive Holdings back in 2003, and now produces a long-wheelbase version of the BMW 5 Series which is sold exclusively in China. The partnership also recently announced the launch of two new 3 series cars onto the Chinese market. In the first half of 2007, BMW Brilliance sold over 15,000 BMW 3 and 5 Series to Chinese customers, representing a 48% year-on-year increase.

Going Green

China is now facing serious problems of car-related pollution and soaring levels of gas consumption. Vehicles have become the biggest carbon monoxide and nitrous oxide emitters in cities like Beijing, Shanghai and Guangzhou. According to the Chinese government, air pollution in China’s 14 largest cities currently kills 50,000 newborn babies and causes 400,000 cases of respiratory illness every year.

Perhaps the most promising development with regard to cleaning China’s urban atmosphere is the evolution of hybrid technology. Hybrid vehicles burn less fuel by adding one or more electric motors to a standard petrol or diesel engine, and can cut pollution by up to 30%. Batteries help power the vehicle, regaining energy during braking and by stationary plug-in recharging.

Both domestic and overseas car companies are getting in on the hybrid game in China. Geely is already producing a hybrid car, and expects outpiut to reach 100,000 by 2010. Sichuan FAW Toyota Motor Co, a joint-venture between Toyota and FAW, began assembling the popular Prius hybrid in Changchun in December 2005. Chang’an Motor Corp, the Chinese partner of Ford Motor and Suzuki Motor, announced last year that it will begin commercial production of hybrid cars in 2008.

At the ninth Beijing International Automotive Exhibition in November 2006, Chery showcased the first hybrid car to be developed solely by a Chinese carmaker. Chery’s A5 ISG, a compact sedan powered by a 1.3 liter four-cylinder engine and an electric motor, is apparently ready to go into mass production this year. Chery has been selected by the Chinese government to export the first major line of Chinese automobiles to North America.

Volkswagen will also start making hybrid cars in China by 2008 with Shanghai Automotive, and may kick off large-scale production of energy efficient vehicles by 2010. As a first step, the joint venture intends to make 500 Touran cars to be used as people carriers during next year’s Olympics. General Motors (GM) has announced plans to start assembling hybrid cars in China by 2008 at its Shanghai GM plant, a joint venture with Chinese automaker Shanghai Automotive Industry Corp (SAIC). GM’s hybrid system is currently under development with DaimlerChrysler and BMW.

BMW is in negotiations with with the Chinese government over hydrogen-powered vehicles, trying to win Chinese support to promote hydrogen as a mainstream new energy solution. BMW recently unveiled its Hydrogen 7 sedan in China, with an engine which can run on either liquid hydrogen or gasoline. The company is developing a plan for the implementation of a hydrogen infrastructure in China, with information available on the BMW CleanEnergy website. According to recent reports, BMW is now looking to launch a fourth, more environmentally-focused brand alongside the Mini, Rolls-Royce and BMW.

More than 3,000 hydrogen passenger cars and 100 buses will hit Beijing’s streets during the 2008 Beijing Olympics. Shanghai also plans to use 1,000 hydrogen-fueled taxis or buses and build 20 hydrogen refueling stations by 2010, in time for the Shanghai World Expo.

Images: Renewable Energy Access, Business Week, Daniel Allen