Car wars: global brands fight to regain ground lost to their EV rivals in China

International marques from Volkswagen to Honda, grappling with falling market share in China, are mounting a spirited fightback in the world’s largest automotive market, focusing on reliability and safety as they build cars for a new generations of local customers.

Most of them plan to take a balanced approach – focusing on both conventional and battery-powered vehicles – to pursue sales growth in a market where electric vehicles (EVs) are rapidly gaining ground.

That strategy stands in stark contrast to their home-grown rivals, who are betting on the swift adoption of pure-electric and hybrid cars to lure consumers away from petrol-guzzlers.

“We believe that competitiveness originates from the long-time accumulation of strength and experience,” Li Jin, vice-president of GAC Honda, told reporters in a press conference at the Auto China Show in Beijing on Thursday.

“Reliable and high-quality vehicles are supposed to give users a sense of safety.”

He said the venture between Honda and its Chinese state-owned partner Guangzhou Automobile Group viewed petrol and hybrid cars as growth engines just as important as EVs.

Volkswagen, the single largest carmaker in mainland China, announced it would develop 40 new models for Chinese consumers by 2027, half of which will be powered by combustion engines.

“We have a strong position [in China] due to our balanced set-up,” Ralf Brandsatter, VW’s China chief executive, told reporters at a media briefing on Monday.

Foreign carmakers have seen their dominant position in mainland China dwindle. Twenty years ago they held an 80 per cent share of the market, according to the China Association of Automobile Manufacturers, as they reaped the benefits of the rising affluence of local consumers.

Their combined share had fallen to 48 per cent last year, as electric cars built by domestic companies like BYD increasingly came to replace petrol vehicles on the mainland’s roads.

It was the first time that Chinese car brands had surpassed their foreign rivals in their home market.

About one in every three new cars sold on the mainland is battery-powered, with local brands taking an 86 per cent share of the electric segment.

Wang Chuanfu, chairman and president of BYD, the world’s bestselling EV assembler that was narrowly beaten by VW in terms of mainland deliveries last year, recently predicted that the accelerating pace of electrification on the roads would erode the market share of foreign carmakers to just 10 per cent in the next three to five years.

New-energy vehicles – a term that captures fully electric and plug-in hybrid cars – will make up about half of new car sales in mainland China by 2030, as state incentives and an expanding network of charging stations win over more customers, Moody’s Investors Service said in a report released in early April.

“Electrification will be the trend, but it may not turn out to be as fast as some optimistic industry officials predict,” said Eric Han, a senior manager at Suolei, an advisory firm in Shanghai. “Petrol cars will still be an important segment even in the world’s largest EV market.”

Gao Huan, a Beijing-based sales manager for PSA Group that owns the Peugeot and Citroen brands, said conventional carmakers still have loyal customers who understand their history and vision.

“Companies like PSA will still be attractive to those customers and they will build cars for those who understand the brands,” he added.

Swiss bank UBS forecast last year that Chinese carmakers would control a third of the global market by 2030, nearly double the 17 per cent share they enjoyed in 2022, buoyed by the rising popularity of battery-powered vehicles.

“The key to remaining relevant in China will be first to fully embrace electrification, whether it be through partnerships or self-developed models,” said Stephen Dyer, Greater China co-leader and head of the Asia automotive practice at global consultancy AlixPartners.

“It will be critical to be able to keep their product portfolios fresh, by rapidly launching updates and facelifts for their models.”