Chinese Auto Industry: A Growing, Complex Battleground

Cars in China are hot! China is the largest automobile market in the world, with sales rising 32% y-o-y to $18.06 million. In China, cars mean status—and the bigger they are, the better.

There are big opportunities in China for international car companies. Since cities like Shanghai and Beijing are already chock-full of smog-spewing vehicles, companies are growing their sales successfully in second and third tier cities, increasingly in the rural markets. Throughout the country, long cars are cool, imported cars are perceived as quality and symbols of wealth, and there is a growing niche among young, internationally exposed Chinese that want stylish, smaller cars. The Electric Vehicle (EV) market is now booming in China, with HSBC anticipating China’s share of the global EV market to rise from 2.7% in 2010 to 35% by 2010. The Chinese government is also heavily supporting this eco-friendly auto sector, encouraging EV production in pilot cities with incentives, and forcing government employees and taxi fleets to use green cars.   

There is a lot of money to be made in the Chinese automobile industry, and global players within the industry like Audi and BMW are positioning themselves to take slices of the pie. However, the car game isn’t always easy…there are always requirements and obstacles to overcome. As a foreign car manufacturer that wants to enter China, you have to partner up (50-50 Joint Venture) with a state-owned car company. This arrangement isn’t always easy, and as the state owned companies usually manage the distribution channels for vehicles, they always expect to get a piece out of foreigners’ money-making. Government restrictions on the amount of cars registered in major cities like Beijing and Hangzhou also put a cap on potential car sales. But China’s market is incredibly vast and segmented, and many car companies are smartly concentrating on traditionally overlooked markets in smaller cities and rural areas.

Internationally, Chinese car companies are also starting to make a big name for themselves: exports are likely to continue rising after increasing by 64% in 2010. Promising companies like Chery and BYD (whose EV division received a $230 million investment by Warren Buffet) are making major sales abroad, especially in developing countries. Last year, Gilee—a Zhejiang-based company with an entrepreneurial history—made the game-changing acquisition of the Swedish car company Volvo. The Chinese auto industry is dynamically changing, growing…and whether as a manufacturer or market for cars, Chinese cars are on the cusp of dominating the globe.

So opportunists welcome! There is plenty of cash to be made in the Chinese car market. But be warned…if you want to get a piece, you will have to deal with hefty government interventions, and the competition (from international players, the state, and private companies) is incredibly fierce.

-Seb