Germany’s auto giants remain bullish on the Chinese economy, despite almost a year of falling sales in the world’s largest car market.
Speaking at the opening of the Shanghai Motor Show on Tuesday, the head of the German Automotive Industry Association (VDA), Bernhard Matthes, told WNO that despite concerns of a deep economic slowdown in China, “the big party is not over.”
“We saw a downturn in the first three months of this year, last year too, but German carmakers have gained market share,” he noted.
China’s auto sales fell again in March for the ninth straight month, but the contraction was smaller than in recent months, the China Association of Auto Manufacturers reported last week.
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Chinese consumers are continuing to put off big purchases amid a continuing trade conflict with the US, weaker employment prospects and a shortage of credit following a crackdown on online lending platforms.
In 2017, new car sales in China reached over 28 million, according to car news provider yiche.com. Last year, however, vehicle sales dropped to 23.3 million — their first annual decline in nearly two decades.
March fall lower than previous months
Despite the fall, German automakers upped their production in China again last year, advancing a decadelong strategy that has seen the number of plants quadruple from eight to around 30 factories, according to VDA figures.
Matthes told WNO that demand for new cars in China remained “huge” and Chinese consumers favor German brands because “we offer brilliant cars, wonderful design, and high safety and quality standards.”
VDA noted that German automakers should gain an added advantage from the relaxation of joint-venture rules, which force foreign car manufacturers to partner with Chinese companies. The easing should come into effect in 2022 for passenger vehicle production.
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With the days of the combustion engine numbered, Volkswagen Group, the world’s largest automaker in 2016 and 2017, has recognized that its future will be decided in China. Volkswagen Group CEO Herbert Diess acknowledged that China will be “the automotive powerhouse of the future.”
Betting on electric vehicles
As well as being a huge market, China’s aggressive move towards electromobility — with considerable investments in research and development, battery production, charging infrastructure and incentive schemes for purchasing electric cars — will further boost its position.
“Electric cars, fully connected cars, all the technology enterprises are working very closely together here,” Diess told WNO.
As the company struggles to repair its reputation in the US and Europe from the Dieselgate emissions cheating scandal, Volkswagen Group already has an 18 percent market share in China, with 14 percent for the Volkswagen brand alone.
VW is now betting that China will be the group’s leading market for electromobility. A new VW brand, the Jetta, was designed especially for the Chinese market, targeting first-time car buyers with at an equivalent price of €10,000 ($11,300).
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Last year, sales of all brands of pure-electric and hybrid passenger vehicles in China soared 60% over 2017 to 1.3 million, or half the global total. This year, sales are expected to reach 2.2 million and more than three million in 2020, according to the Center for Automative Research (CAR) at the University of Duisburg-Essen.
Middle class still buying
BMW board member Peter Nota, who was also in Shanghai for the first day of the motor show, was equally bullish about China’s potential despite the sales downturn. He predicted that in the first quarter, the company could deliver 10% sales growth in China, partly thanks to new models like the BMW X3.
“We are confident that we will continue to see growth in the premium segment of the auto market, driven by China’s growing middle class,” he told WNO.
Porsche Chief Executive Oliver Blume noted the luxury automaker achieved more than 12% growth in China last year, a strong performance he expects to continue in 2019.
“China has been our strongest market for a couple of years,” he told WNO, adding that the investments made by the Chinese government in new auto technologies “are very interesting for Porsche.”
VW subsidiary, Skoda, meanwhile is betting on the growth potential of SUVs in China to boost its fortunes in the world’s second-largest economy. From next year, all of its models will be available as electric cars.
Skoda CEO Bernhard Maier told WNO that the brand had seen its first sales decline in China after decades of the growth. He said the company had “an indication that the market will pick up in the second quarter, and that by the end of the year the situation will return to normal.”