Why global car makers are struggling to race ahead in the world's biggest EV market

Tesla is the only foreign brand among the top 10 car makers in China's new energy vehicle segment

People visit a BYD showroom in Beijing. Electric car sales are rising steeply in China. AP

If global car makers think they can extend their dominance in China into the electric era, they may be in for a shock.

Kings of the combustion age such as General Motors and Volkswagen are falling behind local players in the booming electric vehicle market in China, a country that is key to funding and developing their electric and self-driving ambitions.

For Beijing office worker Tianna Cheng, 29, the main dilemma when she was buying a 180,000 yuan ($27,000) Xpeng electric crossover was whether she should go for a BYD car instead, or a Nio; she did not seriously consider overseas marques.

“If I was buying a gasoline car, I may have considered foreign brands,” Ms Cheng said as she drove home from work. “But I wanted an EV, and other than Tesla, I saw few foreign brands applying advanced smart technology properly.”

Buoyed by demand from consumers like Ms Cheng, electric car sales are rising steeply in China's roughly $500 billion car market, the world's biggest.

In the first four months of 2022, the number of new energy passenger cars — pure EVs and plug-in hybrids — more than doubled from a year earlier to 1.49 million cars, according to data from the China Association of Automobile Manufacturers.

The cleaner technology accounted for 23 per cent of China's passenger car market, where overall vehicle sales fell 12 per cent, reflecting a steep decline in demand for petrol cars.

There are no foreign brands among the top 10 car makers in the new energy vehicle (NEV) segment this year, with the notable exception of US electric pioneer Tesla in third place, according to China Passenger Car Association data.

All the rest are Chinese brands, from BYD and Wuling to Chery and Xpeng.

China leader BYD has sold about 390,000 EVs in the country this year, more than three times as many as global leader Tesla sold there. The top-ranked traditional car maker is Volkswagen's venture with the Faw Group, in 15th place for EV sales.

Ms Cheng said that overseas marques, whether the Buick Velite 7 or Volkswagen's ID. series, failed to provide what she was looking for: an EV capable of giving her the “comfort” of having a smartphone-like experience in her vehicle.

“Foreign brands are so far from my life and lifestyle,” said Ms Cheng, whose digital assistant handles connections to apps such as Alipay and Taobao and “does everything for me, from opening the windows to turning on music”, while her car software provides over-the-air updates.

It is quite a reversal. Global brands have dominated in China since the 1990s, typically winning a collective 60 per cent to 70 per cent share of passenger car sales in recent years.

In the first four months of 2022 they captured 52 per cent, with their April monthly share at 43 per cent.

Signalling the scale of the challenge facing traditional car makers, Nissan chief executive Makoto Uchida told Reuters that some brands “could disappear in three to five years” in China.

“Local brands are becoming stronger,” said Mr Uchida, who was formerly Nissan's China chief.

The quality of EVs from Chinese makers has improved rapidly, with advances being made in the space of months, he said.

“There will be a lot of transformation in China and we need to carefully watch the situation.”

Mr Uchida said car makers had to be nimble in the design, development and launch of new models.

“In those aspects, if we were slow, we would be left behind,” he said.

Bill Russo, a former Chrysler executive who now heads Shanghai-based consultancy Automobility, said global brands need to turn the situation around quickly because they control less than 20 per cent of China's only growth car market.

“Chinese brands are winning the race to EV” and the consumer shift to cars that are essentially smartphones on four wheels appears irreversible, with traditional car makers having trouble keeping up, he said.

“I think it is a secular shift towards high-tech,” he said of the consumer demand for a “user-centric digital services experience” with a focus on interface, connectivity and apps.

“Traditional companies are not high-tech natives.”

Volkswagen Group brands, including Volkswagen, Audi, Bentley, Lamborghini, Porsche and Skoda, have led the market for much of the past two decades, alongside General Motors marques such as Buick, Chevrolet and Cadillac.

The two global groups had overall car market shares of about 13 per cent and 12 per cent, respectively, in China last year, according to LMC Automotive.

Detroit-based GM also has a 44 per cent stake in the locally controlled SAIC-GM-Wuling Auto (SGMW) venture, and includes its sales in group numbers, although SGMW does not make American brands, only Wuling and Baojun cars.

GM is now focused on winning over younger buyers in big cities that have, until now, largely snubbed its models, according to two sources.

The group has announced plans to spend more than $35 billion on electrification globally by 2025, including more than 30 new EVs, with more than 20 of them in China, starting this year with the launch of the all-electric Cadillac Lyriq crossover SUV.

The two sources said the Lyriq launch would be followed by an electric Buick SUV and a smaller, sportier electric crossover, both also planned for as early as this year.

Sales of Buicks have declined 32 per cent over the last five years to 828,600 vehicles in 2021, while Chevrolet's sales have shrunk by more than half to 269,000 vehicles, according to LMC Automotive.

GM told Reuters it was aiming to install capacity to produce one million EVs a year by 2025 in China.

Demand for the Buick Velite NEV family and Chevrolet Menlo EV “both grew significantly” in 2021 and the first three months of this year, GM said.

It said it was using smart technology, including hands-free driver assistance on highways, “aviation-grade” cyber security and over-the-air software updates.

Volkswagen, which is spending about $55bn globally on EVs by 2026, launched its new-generation of ID. series in China early last year but missed its goal of selling 80,000 to 100,000 cars in 2021.

It aims to sell 160,000 to 200,000 ID. cars this year, although it has sold only 33,300 through April.

A key concern for foreign brands, according to one source and a Volkswagen insider, is that their new EVs are being designed more for American and European markets in mind, with a heavier focus on performance and durability.

“Autobahn speeds? In most big cities in China traffic is so congested people can't even drive above 60 kilometres per hour on most days,” said the source close to GM.

Volkswagen said NEV demand in China was strongly linked to the “smart car” theme. The car maker is investing in local research and development, especially in software.

“Our strategy will enable us to achieve our ambitious targets in China. By 2030, we also want to be the market leader in e-vehicles and thus ensure that Volkswagen remains the number one in China in the future,” it said.

The challenge for global brands is to find the formula to win over consumers in big cities with disposable incomes.

Li Huayuan, a civil engineer from Shanghai, only half-heartedly considered Japanese and German brands when he bought his BYD electric sedan last year for 290,000 yuan including insurance.

“Seems to me only Tesla stands out when it comes to American brands,” he said from his parked BYD car in the Sichuan provincial city of Mianyang, where he's working on a project.

“The other brands don't even look competitive to me.”