Global automakers in China are continually being forced to tweak their models in order to entice local consumers away from local brands.
IHS Markit Perspective:
- Significance: International automakers ranging from super-premium players to mainstay brands are continuing to highlight the importance of the Chinese market by bringing out new models, tweaked to attract local buyers at this year's Shanghai Motor Show.
- Implications: China's light-vehicle market is poised to reach 30 million units in 2020, and automakers are continuing to launch new models in an attempt to take a slice of this large pie.
- Outlook: Overall, China is now more responsive to actual market forces than ever before, and with the further removal of state subsidies automakers will use product differentiation, as well as price wars, to gain market share from competitors.
IHS Markit forecasts that in 2020 annual light-vehicle sales in China will hit 30 million units, and despite an overall slowdown in the market's growth rate, international and local brands are continuing to compete for a slice of this pie with models tweaked to entice local consumers.
Lexus, Toyota's premium brand, announced yesterday (29 March) that the new updated Lexus NX crossover would make its global debut at the upcoming 2017 Shanghai Motor Show. The refreshed NX crossover has been further tweaked since the model's launch three years ago. Meanwhile, the all-new LS 500h featuring the Lexus multi-stage hybrid system will make its Asian debut also at the Shanghai show.
Nissan will exhibit three "new" models at the Shanghai Motor Show. The company has announced that these models will be the Nissan Vmotion 2.0 concept and the new-generation Navara pick-up, plus "one additional premiere model". The Navara pick-up represents an attempt by Nissan to penetrate a new growth segment in China, with the automaker claiming that the model will "support the needs of both individuals and small businesses". The third model from Nissan is expected to be the Kicks sport utility vehicle (SUV), which was launched in 2016 in South America. Nissan has not yet publicly confirmed this, but local media in China expect the model to hit dealers soon after the show.
Media site GT Spirit has stated that it has it "on good authority" that the Lamborghini Urus SUV will be launched at Shanghai. Meanwhile, a report by Digital Trends states that 2017 will be a "game changer" for Lamborghini following the launch of the Urus SUV first shown as a concept at the Beijing Motor Show back in 2012. Lamborghini CEO Stefano Domenicali is quoted as confirming the name of the upcoming SUV and the schedule for the start of production. "The name is for sure Urus. Production will start in April, though the plant will initially build pre-series models. As you know, this is an entirely new process so the first few cars will be prototypes. It's a very delicate period, which is why 2017 will be a very important year for us. Don't underestimate the big step we're taking." The company expects annual global sales of the model to reach 3,500 units and it is therefore expanding its only production base in Italy. IHS Markit forecasts indicate that sales of the model will not actually begin until 2018.
The BMW M4 CS or "Club Sport" variant of the M4 is expected to be launched at the Shanghai show, according to various international media. The BMW Blog states that the M4 CS has so far been launched just in Spain but that the model has been tested in other markets, and therefore it is now believed to be going global. UK-based Autocar states that the BMW M4 CS will be offered in China and then other markets following its launch at the Shanghai show.
Daimler's premium Mercedes-Benz brand will launch a sedan variant of the compact A-Class for China at the Shanghai Motor Show. Of particular interest is the heavy competition between the three German premium brands with local production in China. The A-Class sedan follows on from BMW's recent launch of the 1-Series sedan specifically for China, while Audi's A3 "Limousine" was launched in China in 2015. The upcoming A-Class sedan for China is expected to be a long-wheelbase (LWB) variant, in line with other Mercedes LWB models for that market.
In addition, the 2018 S-Class is also expected to be given its global debut at the Shanghai show, further highlighting the importance of the Chinese market to Mercedes. Reports in the media suggest that the latest S-Class will also have advanced autonomous driving capabilities.
Skoda, the Czech brand under Volkswagen (VW), is on a mission to increase its penetration in China and will bring out a host of new models to add to its local line-up. This year the brand will reveal its electric SUV Concept, the Vision E, at the Shanghai show and a production version is expected to be ready as soon as 2020. Skoda will also launch the Kodiaq SUV for the local market at the show, with production of this model slated to begin in April in China. The Kodiaq Coupé variant will then follow with a launch in China in 2018. Meanwhile, by the end of this year another SUV is expected to be launched in China, with local production and sales expected to start in 2018. Skoda already produces and sells the Yeti SUV in China; it will therefore soon have four SUVs on offer in the country, up from just one currently. "An automaker will not make it in China without a proper SUV plan," said Skoda CEO Bernhard Maier in a recent interview. "In fact, China will be the only market where we offer as many as four SUVs."
Outlook and implications
China continues to attract mainstay, premium, and super-car manufacturers. The market remains the biggest in the world, and despite a slowdown in overall growth, its sheer size is enough to lure automakers. Our forecast for 2020 projects sales in China's light-vehicle segment to hit 30 million units, a number that is hugely enticing to automakers, suppliers, and everyone else involved in the industry. It also means that, with the growth rate slowing, competition for a slice of the pie is increasingly cut-throat and automakers are strengthening their product line-ups to include more SUVs, as this is what Chinese consumers desire, as well as announcing electric and plug-in hybrid variants to keep up with the government-initiated trends in the market.
The major trends in China continue to revolve around local consumer tastes; and Chinese consumers love SUVs. There is a move towards larger SUVs and automakers are fast adding seven-seater SUVs to their line-ups. Indeed, IHS Markit forecasts show that as early as 2018, demand for SUVs will outperform demand for sedans in China. For automakers, therefore, 2017 is the time to launch models, showcase new products, and entice local consumers as China is now more reflective of actual market forces than ever before.
At the end of 2016, the 50% reduction in new car purchase tax for small-engine models made locally in China ended; this year the tax discount for these 1.6-litre-and-smaller vehicles is just 25% and thus not as much of an incentive to new car buyers. Moreover, this reduction will cease entirely at the end of this year, and so in 2018 there will be no central government-led market stimulus for regular combustion-engine models. Instead, we are already beginning to see a major price war descending on the market. Local automakers such as Great Wall are significantly investing in offering lucrative discounts to buyers of a variety of their models. The threat now for international automakers is that if local players begin cutting the prices of their models, which are already cheaper than those from international joint-venture players in the market, there will be a rampant price war across the market as automakers compete to attract new car buyers.
In 2020, our forecasts estimate that within the SUV segment, the largest volume segment will continue to be the C-SUV category with around 5 million sales, while the D-SUV segment will command annual sales of around 4.2 million. The small B-SUV segment will witness volume sales of around 700,000 units, while the mini A-SUV segment will record sales of only around 24,000 units.
So how important are the models that start production in China this year going to be for the market? According to IHS Markit production forecasts, the SUV segment will witness the largest volume of new products this year, with production volumes increasing by 827,000 units. These new models will by 2020 account for more than 2 million units. Meanwhile, the sedans that have their start-of-production dates this year in China will add a total of around 480,000 units in production volumes this year, and by 2020 these models will account for local production of around 1.5 million units. Therefore, the models coming onto the market in the SUV segment will shift the balance of power from sedans to SUVs as soon as 2018.
As a result, although the market is expected to grow only marginally this year, following the bumper year of 2016 when artificial policies helped boost sales, the Shanghai Motor Show continues to be of major importance to players in the market. Percentage growth in the Chinese light-vehicle segment is forecast to be in just the lower single digits in 2017, while 2018 is forecast to witness a contraction. By 2019 and 2020, growth is expected to return, albeit in single digits, bringing total volume sales to more than 30 million units by 2020.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.