By William Boston
Three decades of blistering growth in China's auto sales came to
a stop last year. But for the big foreign players who dominate the
market, the country still represents the industry's future.
As Beijing steps up to prioritize electric vehicles, the world's
largest auto market by sales is becoming the proving ground in the
battle between Volkswagen AG, General Motors Co., and Toyota Motors
Co. -- plus the new generation of upstarts, many of them Chinese,
following Tesla Inc.'s electric-only lead.
"Technology-wise, in certain areas China is even getting into a
leadership position," said Holger Klein, a board member of German
supplier ZF Friedrichshafen AG. "And in battery electric vehicles,
we see a lot of momentum and market growth in China."
No foreign company with a presence in China can ignore electric
vehicles. Beijing offers tax incentives to consumers that make it
hard to beat electric vehicles on price, and requires manufacturers
to fill an electric-vehicle quota, forcing them to put more EVs on
the market. But most auto makers see China's move as a strategic
challenge.
In addition, foreign companies face competition from local
startups such as Byton, which was founded by former BMW and Nissan
executives. In Silicon Valley it works with American engineers and
other experts to produce technology to use in its factories back
home.
Automotive manufacturing directly employs 3.4 million people in
the European Union, around 11% of the bloc's manufacturing jobs,
according to the European Automobile Manufacturers' Association.
Most of those jobs are linked to the production of internal
combustion engine vehicles and could be at risk as the industry
goes electric. Electric vehicles require different components and
fewer manufacturing workers, auto industry executives have
said.
Many car makers and government policy makers worry that if China
takes the lead in core technology for electric cars, Western auto
makers could lose their innovation advantage and many development
jobs could migrate to China.
As a result, major auto companies are planning to invest more
than $150 billion in China's electric-car market over the next few
years, according to forecasts compiled from company
announcements.
German companies, which account for well over half of that
investment, "were always strong in developing internal combustion
engines, but the Chinese are way ahead in electric vehicles," said
Max Zenglein, an economist at Mercator Institute for China Studies,
in Berlin.
"These structural changes in the automobile market are far more
significant than what is really a mild slowdown of the Chinese
economy," he said.
Volkswagen, China's largest car maker with more than four
million vehicles sold a year, is investing more than any other
traditional auto maker there. Chief Executive Herbert Diess flies
to China at least every two months to oversee progress. In early
January, at the height of investors' concerns about the economy,
Mr. Diess landed in Beijing and told reporters: "China will become
an incubator for innovation and new technologies around mobility.
China is the new automotive powerhouse."
VW believes China's demographics favor continued growth.
Nationally, China lags behind Europe and the U.S. in car ownership
per capita, and its western cities are still underdeveloped. Growth
will come increasingly from electric vehicles -- which is why VW is
building a EUR700 million factory there to make all-electric
cars.
BMW, the German luxury car maker, is investing around $4 billion
to take control of its Chinese joint venture, BMW Brilliance
Automotive; it has announced that BBA will begin production of its
first fully electric SUV, the iX3, which it will export to foreign
markets. BMW also is ramping up plans to build an electric version
of its MINI.
The U.S.-China trade dispute is encouraging companies like BMW
to build more cars in China to avoid China's retaliatory tariffs on
U.S.-built cars, which are now hitting the SUVs that BMW builds in
the U.S. for export.
"The best strategic footprint is if you have good production in
each of the three regions: Europe, China and the U.S.," BMW CEO
Harald Krüger told The Wall Street Journal earlier this year. "Now
we produce the X3 in China, and we are not sensitive to any tariff
discussions."
Other manufacturers that had been holding back are now stepping
up their involvement in China. France's Renault SA sold 216,699
vehicles in China in 2018, a more-than threefold increase from
72,100 vehicles the previous year, because of its joint venture
with Brilliance China Automotive Holdings Ltd. Renault aims to more
than double its sales in China to 550,000 a year by 2022.
Renault in December invested in what it called a "significant"
stake in JMEV, the electric vehicle unit of Jiangling Motors
Corporation Group. Renault Chief Thierry Bolloré said in March that
China was a "key pillar" in the company's global expansion drive.
"We are expanding our product range as part of a coherent approach,
'In China, for China,' " he said.
Despite the general slowdown in new car sales last year, Japan's
Toyota sold 1.5 million vehicles in China last year, a 14%
increase. This year it aims to increase sales again. Next year,
Toyota plans to launch its first electric vehicles for sale in
China -- the C-HR and the IZOA.
U.S. manufacturers are more skeptical about electric cars,
although in 2012 China became General Motors' largest single
market. GM sold 3.6 million vehicles there last year and its
Cadillac XT5 is one of the top luxury SUVs on the market.
"We knew that the years of record after record wouldn't go on
forever in China," said Mr. Klein, who runs ZF's global chassis
business from China. "However, many of us still believe in the
fundamentals. This is today the largest auto market and is still
growing."
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
June 08, 2019 05:44 ET (09:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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