China’s auto industry has shown impressive growth in the last year, surpassing the US as the world’s largest market. As 2010 progresses and other markets recover, this progress continues unimpeded, with yearly sales growth projected to reach 25%. In the first quarter, sales increased by 76% to 3.52 million units. Despite the dip in the global auto market, foreign brands have seen large gains in the past few months. For some, such as the US’s General Motors, Chinese sales have surpassed those at home. In other cases, foreign brands have been bought out by Chinese companies such as Geely. JVs and other partnerships between foreign and domestic brands are also common. The estimated annual growth of the auto industry is estimated at over 10% for the next decade, and sources at McKinsey predict it to grow tenfold by 2030. Some have placed it as the most profitable auto market worldwide.
The increase in sales is due in part to governmental policies, which have injected stimulus funding (in forms such as lower taxes) into the industry in order to boost growth. It is also due, however, to China’s unique auto demand. Most domestic cars produced are sold in China, although there is a large demand for foreign vehicles. Currently, the majority of private car owners in China represent the higher-income groups. However, a new and growing middle class is continually adding to domestic demand. Whereas Chinese buyers previously bought cars primarily for business reasons, they are also now buying increasingly for convenience and status. Nonetheless, brand awareness is still relatively low and buyers are especially concerned about value in what still constitutes a very large investment. Buyers are thus more likely to opt for established, well-branded cars over cheaper and lesser known options.
The auto market is starting to display some new trends this year as well. Notably, a market for alternative energy cars is emerging, with major carmakers producing electric cars for sale in China. Electric cars run best in cities, and thus seem an ideal target for the largely urban Chinese middle class. BYD and Daimler have announced plans to jointly develop an electric vehicle, with investments that may top $134 million. According to the MIIT, the government also aims to significantly increase alternate-energy vehicles on the road by 2012. Most recently, Xinhua News reported commitment to an electric infrastructure in a $3.4 million of investment to build a large-scale recharge station in Shandong, one of the largest car-producing provinces. However, such cars are as yet more expensive than gas-running cars, and thus less appealing to many Chinese buyers. Although China claims it will encourage alternate-energy vehicles to combat its growing pollution, subsidies are as yet insufficient to make up price differences. Nonetheless, the general opinion of many leading automakers reflects a very promising outlook, both for electric vehicles and for the auto market in general.
