The car industry is in a delirious moment of change. Industry experts say more changes will happened in the next five years than have happened in the last fifty. As self-driving technology and ride-hailing companies circle, change is not only part of the pursuit of profit, but a matter of survival. But knowing when and how to double down on investment into new strategy is a tricky game. Despite the growing numbers of car companies manufacturing electric vehicles, consumers are still not lining up to buy EVs and broad support of self-driving car technology faces regulatory hurdles. But what’s stayed consistent across the industry is the lucrative future in an emerging car market: selling cars in China.
Last week, at the New York International Auto Show, I chatted with Klaus Zellmer, Porsche President and CEO. When I asked him about his company’s plans for China he said, “In terms of volume, if you look at China, there’s so much, he said, and stretched his arms wide. “China is building with no limit.”
For years, carmakers have talked about the growing relevance of China, and while most automakers aren’t writing off the importance of the US customers, China is now the world’s biggest car market. And among the big winners in the Chinese market are global luxury brands. “We’re up over 100 percent calendar year to date,” said Reid Bigland, Maserati Global CEO, in a roundtable at the New York show. “China is our number one Quattroporte market around the world. They’re very committed to next generation of vehicles in China with electrification. There’s a lot of upwardly mobile young people in China who have been attracted to Maserati.”
Speculation runs high about the consistency of luxury sales since the Chinese government has imposed austerity measures, adding a tax on super luxury cars, but still the market continues to boom. In addition to Maserati, Porsche and McLaren had a record-breaking year in China.
“Any automaker that is a global automaker has to be focused on China, the world’s biggest market now and likely into the future,” said Michelle Krebs, a senior analyst for Autotrader. “About 28 million new vehicles were sold in China last year, compared with last year’s record-breaking 17.5 million sold in the U.S. China is too big to ignore.”
Selling well in China means making cars that suit the tastes and needs of customers. Over the past decade, luxury car companies have adapted their product lineup to appeal to Chinese tastes including sedans and SUVs that have larger back seats for owners that prefer to be chauffeured. But the appetite for different kinds of cars is expanding from sports cars to SUVs. In recent times, SUVs have become dominant. But as China faces up against an environmental reckoning, electric cars are gaining traction. Last year the, Chinese government proposed that by 2018 eight percent of the total fleet should be made up of fuel efficient vehicles.
And so it might be China that leads the transition to an EV-driven society. At the Shanghai Auto Show, car companies are doubling down on product plans to produce a suite of electric vehicles, marrying the taste for the electric cars with the appetite for SUVS. Audi show the E-tron Sportback, an electric SUV, and Citroen introduced an SUV C5 Aircros. Chinese companies are also jumping in, including NIO’s tease of an EV and MG, a subsidiary of Shanghai’s SAIC Moto, showed the E-Motion. “Because of its horrendous air quality problem, China has been pushing electric vehicles, which could help automakers with the economies of scale for EVs,” Krebs said. While EVs account for a slim percentage of cars on roads today, a major push by China could shift that tendency.
The changes taking place in the auto industry are dizzying to keep up with and China’s move toward more fuel efficient vehicles is only the latest curb ball in a game where the stakes are high. “The biggest challenge in the car industry is that you can make your plan, but you have to be four to seven years ahead of the curve when you make your decision that’s got big implications,” Zellmer told me. “So the tipping point is something we’re racking our brains about. The whole industry is. It’s when you do you stop building a combustion engine and replace it with an electric engine?”