[Inside Chodong] How to Approach the Rise of Chinese Automakers

Effectiveness of U.S. Tariff Policies in Doubt
Strategic Shift Needed to Leverage China’s Advantages

Until about 10 years ago, Hyundai Motor and Kia produced over 2 million complete vehicles in China and sold a significant portion to local consumers. Although their entry into the Chinese market was later than European or Japanese companies, they quickly established themselves by leveraging their unique execution capabilities, emotional bonds, and "Guanxi" (personal connections). However, the situation changed abruptly. Diplomatic tensions over the deployment of the Terminal High Altitude Area Defense (THAAD) system, the subsequent ban on Korean cultural content (Hallyu ban), and the COVID-19 pandemic combined to cause a continuous decline over several years. Their local market share now stands at just around 1%.

The sluggish performance of Hyundai Motor and Kia in China was initially seen as a rare case of being hit by unexpected external shocks. However, looking at the recent Chinese automotive market, Hyundai was merely the first to take a hit; most foreign manufacturers are in a similar situation. Volkswagen, which had held the top brand position in China since 2008, lost its lead to BYD last year for the first time in 15 years. The world's largest automakers, Toyota and Honda, saw their sales in China drop by double digits in the first half of this year. Even high-end foreign brands are not immune. Porsche's local sales in the first half of this year fell by 33% compared to the same period last year.

The lost market share has been captured by local manufacturers. Despite a shrinking domestic market, Chinese private automakers such as BYD, Geely, and Chery?which had early on focused on exports?have increased sales by double digits. The domestic market share of Chinese local brands was less than 40% before the COVID-19 outbreak in 2019 but has exceeded 60% this year. A noteworthy point is that this trend is expected to continue for the foreseeable future. With full government support and patriotic consumer tendencies, China is transitioning to electrification faster than any other country. In China, nearly 40% of all new vehicles are new energy vehicles, including electric cars.

While pessimism about the electric vehicle market is gaining traction in Western countries such as the U.S. and Europe, as well as in South Korea, due to a temporary demand slowdown (chasm), China continues to sail smoothly. "Within the next two years, the market share of Chinese brands will reach 80%" (Li Yunfei, BYD Head of External Affairs) is a confidence that has solid grounds.

During a recent visit to Beijing, this sentiment was clearly felt. The roads were lined with green license plates indicating new energy vehicles. It’s not just that the technology for new power sources is advanced. Baidu, China’s largest search engine, has been refining artificial intelligence (AI) technology for over a decade and integrating it into autonomous driving. Currently, hundreds of driverless taxis operate in Beijing and Wuhan, accumulating over 100,000 kilometers of driving data daily.

As protectionist policies strengthen in the West, centered on the U.S., tariffs have been used as a card to suppress China’s automotive rise. Tens of percent tariffs are imposed on Chinese products to prevent them from easily gaining a foothold in domestic markets. While the intention is to buy time for domestic automakers rather than completely rejecting Chinese cars, it is questionable whether this will be effective.

Western automakers also rely heavily on China not only for batteries and other key components but also for finished products. Some Chinese companies like BYD and Geely have already prepared factories in Europe and Latin America. If they are tough competitors, I believe it is better to find ways to appropriately leverage each other’s strengths. Just as Kia, a Korean automaker located in Yancheng, China, has shifted its strategy to use the region as an export hub targeting Southeast Asia and the Middle East.

Choi Dae-yeol, Deputy Head of the Industrial IT Department

This content was produced with the assistance of AI translation services.