The Chinese car manufacturers are hungry. So far, they have made use of their giant local market to drive their accelerated growth. With its 25-28 million vehicles per year, China is not only the world’s largest car market, but an important source of volume and growth. Having 1% market share means 250,000 to 280,000 units per year, not bad compared to the figures seen in Europe and USA.
The first phase of their expansion has come to an end. Now it is time for their global expansion, far away from the Chinese borders. As their cars become more appealing, efficient, and meet higher quality and safety standards, they are now ready to conquer the world.
They have many things in their favour. They can rely on the strong support from the Chinese government. At the same time, the big domestic market allows them to maintain sufficient levels of production to decrease costs of production; and they are ahead of their Western rivals when it is about the electrification at all levels and segments.
Europe, the next target
From the 1.1 million cars made in China last year and sold outside China, 355,000 units were sold in Latin America, its biggest market. Europe at second place, represented 22% of its sales abroad, followed by the Middle East, where 156,000 units were sold. The developing economies made up 58% of the Chinese car exports in 2021.
However, China knows that its global dominance can’t take place without a better presence in the developed markets – Europe, USA, Japan, and Korea. The last two countries are quite protected markets. USA is still having geopolitical and trade issues with China. Then Europe becomes the next target for the Chinese cars.
Who’s going to suffer?
The arrival of more Chinese car offers in Europe might please the consumers but is going to become a headache for some local players. The car companies that offer the least products, and that are still lagging in the electrification race, are the most exposed ones to the Chinese arrival.
Fiat for instance is quite vulnerable. It is strongly dependent on Italy (47% of its passenger cars registrations took place there between January and October 2022). It has a very small range of products (only 4 models, excluding the two vans). And it offers only one electric car, the 500e, and one SUV, the 500X.
Ford is another potential victim. It has just announced it is leaving the B segment, which even if it is not as popular as in the past, it is still an important source of volume. The Focus is likely to remain the only car available after the Mondeo retires. The Puma and Kuga are popular SUVs, but none of them are fully electrified.
There are also cases to consider among the Japanese brands. Mitsubishi for instance has currently two models available in Europe and nothing fully electric. The brand sold just 43,000 units during the first 10 months of this year. In the case of Honda, the offer is quite limited too (5 models), and the only electric one, the Honda e, is struggling to survive.
What do they have in common? They all play in the mainstream segment, one of the most competitive and least profitable in Europe. They struggle to keep their market share due to limited offers. As a consequence, they should be one of the first ones to feel the impact of the Chinese invasion.
The author of the article, Felipe Munoz, is an Automotive Industry Specialist at JATO Dynamics.