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Luxury electric cars take the spotlight in China’s condensed auto show

Porsche is working with third-party operators for more than 200,000 charging points in China.

Evelyn Cheng | CNBC

BEIJING – Luxury and electric vehicles emerged as bright spots at this year’s Beijing Auto Show, which kicked off this weekend in the aftermath of the coronavirus pandemic with about 200 fewer vehicles than previous shows.

China is the world’s largest auto market, but car sales have slumped in the last three years amid a nationwide slowdown in growth. The economic shock of Covid-19 earlier this year further hit the auto industry, which in 2018 accounted for about 10% of China’s retail sales and one-sixth of jobs, according to official figures.

Now in a sign of some recovery, global and domestic automakers alike are reporting increased demand – at least in the high-end or electric vehicle segment.

Despite a 60% year-on-year drop in sales in February, German luxury brand Porsche predicts its sales in mainland China and Hong Kong this year can at least match that of 2019, or even set a record, China CEO Jens Puttfarcken told CNBC. Porsche said China sales climbed 8% in 2019 to a record high of over 86,000 vehicles.

Covid-19 has affected consumer psychology, increasing the popularity of private transport while prompting many Chinese to splurge, Puttfarcken said. He added that consumers are now spending more on luxury cars instead of travel.

This market is going to grow fast because in the end, the EV penetration in China is going to rise, (and) the high-end segment is going to be the first to be penetrate.

Jing Yang

Fitch Ratings

He expects demand to remain strong through at least the first half of next year. Orders in the country already hit a monthly record in June of nearly 10,000 and have since held above 9,000, Porsche said. China is the brand’s largest market, accounting for 34% of global sales in the first half of the year.

Rapidly growing EV market

Like many international automakers at the Beijing Auto Show, Porsche is also getting into the Chinese electric vehicle market.

The company’s China offerings in the segment have so far held in the high price range of well over 1.1 million yuan, or about $160,000. By the end of the year, Porsche plans to offer a base version of its electric sportscar Taycan for 888,000 yuan. That’s closer to the price range of Tesla vehicles in China.

“The electrical market in general is, like the whole automotive market, is a highly competitive market,” Puttfarcken said, “especially here in China where we see here a lot of brands that are unknown to the rest of the world, building up very interesting products and very highly sophisticated technologies.”

When the coronavirus outbreak stalled, the Chinese government quickly announced support for electric vehicles, which are strategically key for national innovation.

“This market is going to grow fast because in the end, the EV penetration in China is going to rise, (and) the high-end segment is going to be the first to be penetrated,” said Jing Yang, director of corporate research at Fitch Ratings. She pointed out that battery cost needs to come down further before electric vehicles can really become a mass market product.

New York-listed Chinese start-up Nio claims its battery rental plan, which was launched in August, already makes operating its electric vehicles cheaper than a comparable gasoline-powered one.

Nio founder and chairman William Li told CNBC in an interview Saturday that a very high proportion of users in China’s largest cities have chosen to buy the battery service plan.

“Overall, demand (for our vehicles) is very strong,” Li said, according to a CNBC translation of his Mandarin-language remarks. He said the entrance of more automakers into electric vehicles would help consumers gain confidence in making the switch over from gasoline-fueled cars.

More subdued market outside of luxury

While the uptick in the high-end market is a positive sign for the industry, luxury car sales in the tens of thousands still only account for a fraction of the overall Chinese automobile market.

The Beijing Auto Show was delayed by about five months due to Covid-19, which first emerged late last year in the Chinese city of Wuhan. The outbreak stalled domestically by April, but accelerated worldwide. As a result, the New York auto show was postponed for the first time since World War II and subsequently canceled for the year.

This past weekend in Beijing, Wen Shuang, a Chinese social media influencer in the auto industry since 2012, said in an interview the delayed auto show didn’t have as many cars as she’d expected.

In contrast to the official count of nearly 1,500 vehicles on display at last year’s auto show in Shanghai, the Beijing show featured 785 vehicles, with 82 global debuts, down from 129 in 2019. Just under 100 auto brands participated, versus about 125 at last year’s auto show in Shanghai, according to CNBC calculations.

Several of China’s electric vehicle start-ups did not participate in the Beijing show, including Aiways and Li Auto, which listed this summer on the Nasdaq.

Testing digital tools

The global pandemic also forced many automakers, including high-end brands, to use more digital platforms to reach consumers.

In China, brands such as Volkswagen have joined short-video and livestreaming app Kuaishou. The platform’s users tend to be younger and live in less developed parts of China.

These consumers are still willing to spend money on cars, partly thanks to supportive policies, and there is significantly greater interest from the auto industry in the app, said Liu Limeng, director of content ecosystem for Kuaishou’s automobile unit, according to a CNBC translation of his Mandarin-language remarks. He was speaking on the sidelines of Kuaishou’s booth for streaming executive interviews from the Beijing Auto Show.

Feng Xingya, general manager and executive director of state-owned automaker Guangzhou Automobile Group (GAC), remained cautious on the industry outlook. In comments to reporters at the auto show, he said the company’s production and sales from January to August are still lower than a year ago, despite double-digit growth last month.

Overall, Feng said the automaker aims to achieve 3% growth this year.

Limits to growth

For all the opportunity China presents, it will remain closer to a third, rather than half, of global sales for Sino-Swedish premium electric vehicle brand Polestar, its CEO Thomas Ingenlath told CNBC on Saturday. He said his expectations for the Chinese auto market’s growth have become more “realistic.”

Polestar was founded by Sweden-based Volvo Cars and Chinese automaker Geely. This summer, the start-up said it began deliveries of its first all-electric vehicle, the Polestar 2, to customers in Europe and China, with deliveries to the U.K. and North America to follow.

“I do not believe now that the premium segment of the EV market in China is now that much more advanced than it is in certain regions in Europe or in America,” said Ingenlath, who was formerly senior vice president of design at Volvo. “There I see the world very much going in the same speed ahead.”

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