In the internal combustion engine (ICE) vehicle sector, Asian automakers are expanding their offerings and enjoying some advantages over Tesla, S&P Global Ratings says in a research report.
The market is changing rapidly and S&P Global Ratings expects more intense competition in the coming years, which will change the competitive landscape. “Tesla is a strong competitor for Chinese automakers. The company has been ranked the third-largest EV vendor in China for the past three years, enjoying good brand image and product functionality,” the S&P Global Rating report noted.
Tesla’s entry into the Chinese market has helped accelerate local EV supply chain upgrading and increased competition in the industry. Chinese domestic producers, such as NIO Inc. and Li Auto Inc., are also competing in the premium segment by adopting the asset-lightening model by outsourcing production to other automakers locally.
With a good understanding of local consumer preferences, NIO and Li Auto have increased sales and gained a foothold in the market, according to the report.
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Chinese domestic producers dominate the low-end and mass-market segments. For example, the low-cost Wuling Hongguang mini EV is the best-selling EV model. Guangzhou Automobile Group Co.Ltd. and Xpeng Inc. offer EVs with good technology in a mid-price range.
Producers like BYD offer EV models in different price segments. In fact, BYD overtook Tesla in the first half of 2022. Along with battery-powered EVs, they also offer plug-in hybrid EVs (PHEVs), alleviating consumer concerns about range.
BYD also benefits from a more vertically integrated business model compared to its peers, amid supply chain disruption. In addition, BYD has a car manufacturing plant in India. In their domestic market, Chinese EV producers compete in all price segments. Low-cost mini EVs are well received in the local market as affordability is an important criterion for consumers.
“These models currently account for around 30% of total EV sales in the country. With the increase in the number of new EV models and the growing adoption of EVs, we believe that the percentage of mini EVs will tend to decline,” notes the S&P Global Rating report.
Compared to players in the EV sector, traditional vehicle manufacturers are better positioned at this stage, given their production capacity, established supply chain and distribution network.
They also have an edge in plug-in hybrid EVs (PHEVs), given their engine expertise. Their internal combustion engine (ICE) car business also provides a source of internal funding for the development of the EV business, which requires significant R&D and CAPEX, S&P Global Ratings said.
South Korean automakers Hyundai Motor Company and Kia Corporation are also aggressively expanding their EV lines. The group ranked among the top five global players by sales volume in the first half of 2022.
In India, automakers are also moving into EV manufacturing, with the Tata group already marketing a car model. Maruti Suzuki is betting on the hybrid and commercial vehicle manufacturers are also coming into play.
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