China revs up auto activities

There might be some areas of Chinese activity that are seen as slipping but in the arena of automobile production and transport by sea the country is growing in strength. Electric vehicles are at the forefront of this new market penetration.

The AlixPartners 2023 Global Automotive Outlook report highlights Chinese car manufacturers as now leading the world in export volume, “as the traditional western car industry is running out of time to defend its historic market share.” The specialised consultancy underlines that: “In the first quarter of 2023, China replaced Japan as the world leader in automotive exports” and labelled it, “an astonishing advancement from sixth place as recently as 2019.”

In particular, China is seen to be very competitive in European markets with electric vehicle sales.

Adding perspective to this, Andrew Bergbaum, Partner & Managing Director in the AlixPartners Automotive practice, said at the time of the release of the report:

“China can now really be regarded as an automotive superpower. UK and European OEMs, on the other hand, are increasingly taking on the role of defenders of market share in their traditional, and shrinking, home markets. At the same time, having enjoyed some pricing power, they are now coming under pressure with tightening margins in the face of a low growth global market and increasing competition. For the UK, the proposed accelerated transition away from pure combustion engines by 2030 is going to position lower-cost Chinese imported BEVs as attractive investment alternatives.”

Another measure of China’s advance, AlixPartners notes, is that in the Chinese domestic market in 2023, for the first time in decades, Chinese brands will surpass foreign products (51 per cent), and they are predicted to account for a market share of 65 per cent by 2030.

Vehicle sales in Europe over the long term are forecast to run at around 15 per cent below pre-Covid levels and in the UK at around 10 per cent below.

In terms of the switch from combustion to battery power, AlixPartners makes the interesting observation that: “It is becoming increasingly apparent that combustion engines and electric vehicles will exist in parallel for longer than originally expected. The lengthening ICE lifetime is helped by the fact that the drawn-out decline in the cost of batteries will significantly dampen the pace of the transition to electric mobility in the medium term. This ’twin-tracking,’2 the consultancy suggests, “prevents the establishment of rapid economies of scale and in turn further increases the acute financial pressure on the industry.” Rising costs, including raw material costs, are identified as likely to be of ongoing concern.

CAR CARRIER BOOM
Prompted to a significant extent by China’s electric vehicle exports, structural changes are also afoot in the car carrier sector. Ton-miles are increasing significantly, rates are strong and as of the end of the first quarter of 2023 the car carrier order book, according to Gersemi Asset Management (GAM), accounted for a volume equivalent to 25 per cent of the fleet on the water. Further, GAM’s view is that freight rates will not cool this year with just 12 vehicle carriers scheduled for delivery in 2023 and three vessels expected to be scrapped.

This looks set to change from 2024 onwards, however, with 46 new vessels scheduled for delivery in 2024 and 52 in 2025, a big uplift. These figures could prove to be even higher with much of the demand for new vessels coming directly from Chinese automotive manufacturers who are busy ordering their own vessels and have options for additional units. Additionally, the sector has seen container liner operators crowd in – Cosco, CMA CGM and HMM have all recently ordered or chartered specialist vehicle carrying ships.

The seeds of change appear well and truly planted in the sector overall.