China's auto market has great prospects and local brands are rising

　　Many automakers are looking to China as the new center of gravity for the industry. Because China manufactures and sells more light vehicles than any other country; in fact, by 2016, 40% more cars were sold in China than in Europe. Having said that, the entire passenger car market has been growing steadily at a double-digit rate, and most analysts expect it to slow down by 5% to 10% per year by the end of the next decade (Figure 1). Let's take a look at the relevant content with the automotive electronics editor.

Figure 1: The entire market is expected to grow at a compound annual rate of 5% to 10%, and the base is still huge

　　However, some indicators seem to suggest that the market is just taking a breather for another sprint. For example, the per capita vehicle distribution is still low compared to developed countries such as Germany and the United States, while cars are becoming increasingly affordable. While a new car cost three years' wages in 2010, by 2020, it is estimated that this figure will be reduced by half. In addition, if necessary, the government can impose additional tax policies to support future demand. As for concerns that the continued growth of the automobile market may turn China into an open-air parking lot, this can be completely relaxed. China already has the world's longest road network and it is constantly expanding.

　　Local companies seize market share

　　While global automakers have enjoyed expansion in the Chinese auto market and have been unfazed by local competition, that may soon change. Local brands have begun to show real competitiveness in terms of vehicle design and quality, and further strengthening their brand image will likely capture a larger market share. For example, Chinese domestic brands as a group increased their passenger car market share from 32% in 2014 to 38% in 2016, a major achievement that coincided with the market itself growing by double digits each year. Moreover, they have taken this growth from automakers in almost every country in the world, not just from the weaker companies.

　　Perhaps the biggest improvement for local brands is in product quality. In 2010, the initial quality gap between local and international brands was as high as 89 points; by 2016, it had fallen to 14 points. Local cars have also gained a reputation among customers as value leaders, offering features that cost 25-35% more than similar joint venture brands. These improvements in quality and value have increased the strength of local brands, and some have also raised prices to increase their confidence.

　　In addition, competition from local brands is becoming increasingly fierce, which is an urgent warning to Western OEMs that the opportunity to "make quick money" in China may be gone forever. Some foreign OEMs will face greater competitive pressure if they continue to provide uncompetitive products through a network of secondary dealers.

　　Leading the way in electric vehicle momentum

　　China has become the world's largest passenger car market and a leader in electric vehicle (EV) demand and production. China's EV goal is to put 5 million vehicles on the road by 2020, with annual new energy vehicle sales growing by 40%. To achieve the 2020 goal, the country needs to incentivize both supply and demand:

　　1. Supply

　　For example, to stimulate the increase in electric vehicle production, the government could propose a final policy on electric vehicle credits. Doing so would force more automakers to enter the field, as regulations require them to obtain EV credits in order to produce internal combustion engine (ICE) vehicles. The program awards credits for pure electric vehicles, plug-in hybrid vehicles, and fuel cell electric vehicles.

　　China is taking steps to improve its electric vehicle charging infrastructure. For example, by 2020, the proportion of electric vehicle charging ports will be increased. China is also developing more highway charging facilities, from the coastal highways that are currently being focused on to the inland areas.

　　The market will also rely on a strong supply of new and attractive models. To meet this demand, the industry's joint venture operations should begin to launch large-capacity electric vehicles during 2017 and 2018, with approximately 100 EV models expected by 2020. In addition to this list, more than a dozen market entrants have also obtained EV production licenses. From a performance perspective, the market will also be supported by continued advances in battery technology, with battery energy density expected to increase from 220 watts/kWh today to 300 watts/kWh by 2020.

　　2. Demand

　　Finding effective ways to attract consumers to learn about and purchase electric vehicles remains a major challenge. Fortunately, due to improved education levels, increased consumer awareness of environmental issues, and the increasing benefits of electric vehicles on total cost of ownership (TCO), consumer interest in this mobile technology is beginning to grow. In fact, from 2011 to 2016, the percentage of consumers who would potentially purchase an electric vehicle increased from 8% to 23%.

　　For first-time car buyers, a major advantage of electric vehicles is the greatly reduced barriers to electric vehicle authorization, meaning that buyers do not have to wait longer before they can drive on the road. Another increasingly relevant advantage is cost: with or without government subsidies, electric vehicles are becoming increasingly cheaper from a TCO perspective. For example, battery system costs could fall by half by 2020, while innovative electric vehicle sales and mobility models can also reduce total cost of ownership. However, currently in China's first-tier cities, the total cost of ownership advantage over internal combustion engines only exists after reaching a certain travel distance.

　　As China has made great progress in both the supply and demand of electric vehicles, global automakers have begun to customize China-specific electric vehicle strategies to match future technologies.

　　Forming alliances to achieve breakthroughs in shared mobility

　　Experience shows that the best way to develop new mobility solutions is for automakers to collaborate more effectively with selected ecosystem partners. Successful auto companies are likely to develop appropriate strategies based on the needs of different populations in different cities. In this environment, four different types of mobility may emerge, depending on the size of the city and other characteristics. Each requires support and coordination from other mobility players, governments, and infrastructure providers.

　　For example, metropolitan and large urban areas (over 3 million people) with more than 10 million people will integrate smart mobility, with well-developed public transportation systems, car sharing, and other mobility sharing options. These cities are most likely to be the first to achieve autonomous driving due to their focus on smart infrastructure, including Beijing, Guiyang, and Shanghai. Similarly, small cities with strong economies and medium-distance commutes may focus primarily on car sharing, while smaller, but less wealthy cities will also emphasize economic sharing in the form of mass transit buses and bicycles.

　　By 2030, more than 280 Chinese cities will move to shared mobility solutions, involving approximately 800 million people. While many of these people will live in large cities and benefit from comprehensive smart mobility initiatives, a number of smaller cities will rely on economic sharing. The magnitude of this potential mobility migration should concern every automaker in China, reinforcing the need for an effective shared mobility strategy.

　　China’s automotive industry is on a roll, changing the game for nearly every OEM around the world. The world’s largest automotive market is also one of its fastest growing, which makes having a better understanding of how this market is changing and what the outlook is, perhaps the most important skill for any automaker to develop.

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