Research: China's growing demand for foreign luxury cars - Daxue Consulting

17Jul2013

Research: China’s growing demand for foreign luxury cars

Despite a recent decline in China’s car exports, its domestic automotive market continues to grow, especially in the premium car segment. The country’s total June car exports amounted to only 84,000 cars, one-fifth fewer than the same period last year, but this drop was accompanied by an 11% increase in cars sold in the domestic market (The Wall Street Journal). Currently, China is the world’s largest auto-market in terms of sales, but it still lags behind the United States in premium car ownership. This is soon to change as the Chinese affluent class continues to grow and more luxury car brands penetrate the market.

China is expected to surpass the US as the world’s leading premium car market

Within 7 years, China will top the US as the largest premium car market. The country’s premium car market is forecasted to grow at an annual rate of 12%, 4% faster than its overall car market. Research from a McKinsey report estimates that by 2020, China will be selling about 3 million premium cars compared to only 2.3 million for the US (Forbes). Foreign car manufacturers will primarily fuel this growth, as domestic brands such as Geely and Shanghai Automotive have yet to develop their own lines of luxury cars. Domestic car manufacturers only managed to capture a 38% of the country’s passenger vehicle sales in June compared to the 47% at the end of 2012. As the average income of the Chinese urban population rises, the presence of German luxury car brands such as Audi, Mercedes Benz, and BMW will grow while demand for domestically developed cars declines.

Market volatility and foreign competition may inhibit the growth of China’s car market

Currently, there are over 100 automakers in China, but this number may fall with increased foreign competition and market volatility. Car exports are declining due to the diminishing demand from emerging markets, protests in Turkey and Brazil, and the rising value of the Yuan. (The Wall Street Journal) In addition, foreign competition is growing every year and Chinese manufacturers are struggling to keep up. Changes in urban government policies and consumer preferences are also hurting Chinese car manufacturers. More cities plan to follow Beijing and Shanghai in limiting the number of automobiles on the street (McKinsey). This combined with the urban consumer’s growing emphasis on quality and safety could hurt the sales of domestically developed cars. Unless domestic manufacturers can improve the quality of its cars, foreign luxury auto-manufacturers may increasingly dominate the Chinese car market.

Sources

Picture: Audi Beijing