For years, foreign automakers in China had a bead on customers drawn to luxury brands, like the Cao family in Shanghai. Not anymore.
Ben Cao and his wife, Rachel, both 36, are trading down from two Porsches to one, a gasoline-fueled $290,000 Porsche 911 sports car, and buying their first electric vehicle, a $70,000 sport utility vehicle designed and manufactured in China by a company called Li Auto.
“If you’re sitting in a Li Auto, the first feeling is of luxury,” said Mr. Cao, a business consultant.
The rapid rise of Chinese electric carmakers like Li Auto, BYD, Nio and Xpeng Motors is the main preoccupation of the executives, engineers and designers arriving in Shanghai for the start of the city’s auto show next Tuesday. The country is now the world’s largest car market, and the home teams are routing multinational competitors that had until now mined the riches of China’s giant pool of customers. Buyers like the Caos, and China’s car companies, have embraced electric vehicles much more rapidly than almost anyone anticipated.
The rise of Chinese auto companies, often subsidized by local governments in cities where they have factories, is another illustration of the country’s dominance in electric cars. China now manufactures and sells — at home and abroad — most of the world’s electric cars. Its prowess extends to the entire value chain for electric cars: It makes almost all of the cars’ electric motors and refines most of the chemicals used for lithium batteries. China even leads in developing what could be the next generation of technology, sodium batteries.
More than 80 percent of the electric cars sold in China last year were made by domestic automakers. Last autumn, they overtook multinational companies in the total number of gasoline-powered or electric cars sold each month.
“Multinationals’ market share in China will likely continue to decrease due to the continuous development of Chinese automakers, especially in the electric car segment,” said Stephen W. Dyer, a managing director in the Shanghai office of Alix Partners, a consulting firm.
As foreign automakers encounter problems in China, they are being pushed to shift more quickly to electric cars in Europe and the United States. The European Union and California want automakers to sell only zero-emission vehicles by 2035. And the Biden administration this week proposed emissions rules that would effectively require about two-thirds of new passenger cars sold in the United States to be electric by 2032 — standards that some automakers have complained are too stringent.
With a couple of exceptions like Tesla, which China welcomed in 2018 for its technology, Beijing has compelled foreign companies to operate through joint ventures with Chinese automakers. Over the past four decades, multinational companies have trained an entire generation of Chinese auto engineers — many of whom now work for highly competitive domestic rivals.
The Rise of Electric Vehicles
Today the number of cars sold by the foreign companies’ joint ventures has plummeted as sales of gasoline-powered vehicles have shrunk and E.V.s have soared. Electric cars were almost a quarter of China’s market last year, compared with less than 6 percent in the United States, and are expected to be over a third by the end of this year.
Ford Motor sold one million cars and light trucks in China in 2016 and in 2017 but barely 400,000 last year. Hyundai Motor, the South Korean giant, sold 1.8 million cars in China in 2016 and only 385,000 last year.
General Motors, which once vied with Germany’s Volkswagen for market leadership, has lost nearly half its sales in China. G.M. would be faring even worse if not for Wuling, a joint venture in which G.M. has a 44 percent stake. Wuling sells ultra-cheap pickup trucks and microvans that cost $4,800 to $21,800 and have slender profit margins.
The market share of China’s domestic car companies rose to 52 percent in the last quarter of 2022, from 47 percent the year before, largely on a huge rise in electric vehicle sales. The best-selling brand is BYD, in which Warren E. Buffett was an early investor. It now holds 10.3 percent of the car market, up from 2.1 percent four years ago and supplanting the Volkswagen brand as China’s leader.
Volkswagen has also lost share, although less so than most foreign automakers. It plans to hold the worldwide introduction of its new ID.7 electric sedan in Shanghai on Monday.
A Volkswagen spokesman said the company had already doubled sales of its ID. series of electric cars last year, and was refusing to cut prices like some competitors just to maintain the number of cars sold. G.M. plans to introduce four new electric vehicles this year in China for its Buick, Cadillac and Chevrolet brands, and plans to convert more than half its factory capacity in China to electric cars by 2030.
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Volkswagen is so concerned about the China market that it chartered two flights from Germany to Shanghai to bring board members of the Volkswagen Group and its VW, Audi and Porsche brands to the auto show, said a person familiar with the company’s plans, who spoke on the condition of anonymity because the plans were not public. Volkswagen declined to comment on its auto show travel arrangements.
Electric vehicle sales have grown more slowly this year after national subsidies for purchases expired at the end of December. Sales of gasoline-powered cars have plunged as a purchase tax on them has been restored after a suspension during the pandemic.
Tesla, which sells only electric cars, has had slower growth lately than Chinese electric car manufacturers, prompting the company to cut prices. That has set off a wave of discounting. Many consumers have waited to buy cars while watching whether electric car subsidies or purchase tax reductions will be restored.
“The weakness should be short term, because the weak sales were caused by the price chaos in March,” said Cui Dongshu, the secretary general of the China Passenger Car Association.
Multinational companies including Volkswagen and G.M. had introduced electric cars that looked like their gasoline-powered models, with the hope of achieving a gradual transition. But Chinese consumers have gravitated instead toward the flashiest electric car exteriors and interiors available.
Mr. Cao, the Porsche enthusiast, dismisses most designs of multinational automakers as dull.
“They are far behind, no matter whether it is the U.S. ones and even the German ones,” he said. “They don’t even seem to be in the same age.”
Car fashions change quickly in China. Mr. Cao said that he was active in a 350-member club of Chinese buyers of the Sport Turismo version of the Porsche Panamera sedan, and that he knew of at least 50 others who, like him, were buying the Li Auto L9 sport utility vehicle.
Unlike most large S.U.V.s on the global market, the L9 is electric. It has a small gasoline engine as a backup that can recharge the vehicle’s hefty battery pack. But the engine does not provide power to move the vehicle itself.
Mr. Cao said he doubted he would need the backup engine. He plans to drive the S.U.V. for day trips to large parks on the outskirts of Shanghai, recharging it at home each night. Such outings have become popular in China with the end of “zero Covid” quarantines and municipal lockdowns. For longer travel to other cities, he said, he would fly or take one of China’s many bullet trains.
Even the maneuvering for choice display locations at auto shows like the one in Shanghai has changed. Until the last several years, Chinese automakers vied to put their displays close to multinational brands like Mercedes-Benz, in the expectation that Chinese car buyers would flock to the multinational brands and might see the local brands along the way.
But now, it’s Chinese electric car brands that other companies want to surround on the showroom floor, said Bill Russo, a former chief executive of Chrysler China. “You want to be closer to them — the Chinese companies have the hottest battery electric vehicles,” he said. “Foreign automakers don’t have the same halo now.”
Li You contributed research.