Global automakers converge on China for the Shanghai International Automobile Industry Exhibition this week, with the industry bracing for a sharp sales slowdown and potential price war as competition stiffens in the world’s biggest auto market.
Manufacturers have reaped a windfall as the fast-expanding Chinese middle class hits the road, but clouds loom as Volkswagen AG, Toyota Motor Corp, General Motors Co (GM) and other top nameplates pitch their latest models at China’s biggest auto showcase, which starts on Wednesday.
Passenger-vehicle sales have nearly quintupled over the past decade and logged another stellar performance last year, surging 14.9 percent to a record 24.38 million, according to the China Association of Automobile Manufacturers.
Photo: AFP
However, volume was skewed upward last year by a government purchase incentive. As China’s decades-long economic boom loses lift, sales growth will essentially be flat this year and could even shrink next year for the first time in memory, consultancy IHS Markit said last week.
In a boon for consumers, IHS Markit said there is already “a major price war descending on the market” as manufacturers and dealers slash prices to move growing stock.
“The threat now for international automakers is that if local players begin cutting prices ... there will be a rampant price war across the market as automakers compete to attract new car buyers,” it said.
Such troubles must be kept in perspective: China is still El Dorado for automakers.
Last year’s sales set a 26th consecutive annual high-water mark, easily beating the record 17.55 million autos sold in the US, which China zoomed past eight years ago to become the planet’s top market.
However, sales were boosted by the government’s halving of a 10 percent purchase tax on small-engine cars in late 2015. That tax has been raised to 7.5 percent this year and is to be restored to 10 percent next year, with an expected dampening effect on sales.
More broadly, analysts said China’s automotive landscape is rapidly maturing as consumer tastes evolve and success would depend on manufacturers’ capabilities in meeting those tastes.
China now has a crowded field of mostly domestic automakers, many of which will not survive, said Johan Karlberg, a Shanghai-based partner with global consultancy Roland Berger.
“There’s just not room enough for that many players any more. Many of the smaller ones will simply die a slow, suffocating death,” he said.
Major automakers remain bullish, but are scrambling to introduce a slew of new models aimed at Chinese consumers during the Shanghai show, which IHS said has taken on “major importance” as the dynamics evolve.
Manufacturers are rushing in particular to capitalize on still fast-growing demand for sport-utility vehicles (SUV) and “new energy” cars.
Chinese drivers have latched on to both domestic and foreign-made SUVs as leisure interests grow and rising incomes put a second family car in reach. SUV sales are expected to surpass sedans as early as this year.
Electric vehicle sales have been government subsidized partly to help reduce China’s notorious air pollution and the Chinese market is now the world’s biggest and growing quickly.
China market leader Volkswagen, along with giants GM, Ford and a host of electric-car upstarts, all have plans to ramp up their China offerings.
Ford is to try and sell its US-icon pickup trucks, while expanding its electric offerings.
“We think it’s a huge opportunity for us to continue to build the Ford brand here in China and continue to grow our business in China,” Ford CEO Mark Fields told reporters.
Other future drivers lie in China’s seemingly never-ending stock of newly minted middle-class consumers, particularly in populous and fast-growing lower-tier cities, plus the rapid growth in car-hailing and vehicle-sharing services, analysts said.
“We still have a pretty good period of growth ahead in the Chinese market. It is the strategic market for global carmakers,” Accenture Ltd Paris-based automotive analyst Marc Mechai said. “But now, it remains to be seen with which vehicles and how.”
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to