Government continues incentives for clean energy vehicles
The car category expanded in value, but more moderately, growing 5 percent compared with 20 percent a year ago, and 38 percent in the prior year. Car sales continued to increase, but at a slower rate. At the same time, Chinese car brands broadened their traditional appeal, launching premium models in China and planning to introduce them overseas.
By introducing higher-end sub-brands Chinese carmakers responded to the premiumization trend that crossed many categories and reflected middle class aspirations, which car buyers expressed in various ways. In the coastal cities where car ownership is high, wealthy consumers often looked for a second car with more luxury. For consumers in lower tier cities, trading up sometimes meant buying a car rather than a two-wheel vehicle.
Even as Chinese carmakers introduced premium models, they depended on the value-for-money vehicles that drove most of their volume. By improving the quality of these cars, Chinese brands compete more effectively with Korean, French, and other international carmakers selling entry-level vehicles. Chinese brands also leveraged their extensive distribution channels and local knowledge to more efficiently market to consumers in lower tier cities, where demand for budget vehicles was greatest.
Passenger car sales increased 1.5 percent to 24.2 million vehicles in 2017, the lowest growth in a decade, according to the China Association of Automobile Manufacturers. Chinese car brands produced over 10 million cars, a threshold that they surpassed last year for the first time. The most valuable Chinese brands—BYD, Geely, and Great Wall—contributed to this momentum and also attempted to differentiate and establish an international presence.
Geely sold over one million vehicles. It launched its new sub-brand, Lynk, which moves Geely up the hierarchy, away from value-for-money cars and more into direct competition with overseas brands such as Ford and Toyota. The Lynk brand, developed with Volvo, which Geely acquired in 2010, emphasizes digital connectivity.
Similarly, Great Wall, which exceeded the one-million-cars-sold threshold a year ago, began selling a new brand. Known for its success with SUVs, Great Wall launched a premium SUV called Wey. Great Wall announced discussions with BMW about producing the Mini brand in China. And Great Wall plans to introduce its Wey SUV to North America in 2021.
BYD accounts for almost one-third of electronic vehicle sales in China, according to the China Passenger Car Association. Having started as a battery manufacturer, BYD is now a major manufacturer of electric vehicles for personal and commercial use. It supplies industry and governments worldwide, and manufactures in Asia, Europe, and South America, with plans to open an electric truck plant in Canada. The brand is especially focused on electric public transportation and is involved in several monorail projects in China and overseas.
The Chinese government’s desire to reduce pollution and traffic congestion continued to shape the car category as incentives attracted customers to electric cars. Car buyers also faced difficulty of obtaining licenses for gas- or diesel-powered vehicles in some cities. In addition, the government organizations were encouraged to buy new-energy vehicles for their fleets. China plans to build over 12,000 charging stations by 2020. And banks introduced favorable rates for car loans. New government regulations are expected to phase out gas and diesel engines.