Sunday, 02 October 2022

In Industry

Growth of Chinese Car Market Affects Africa

China is the market leaders of the mass electric vehicle manufacturing race, and Africa stands to benefit, if business owners in the industry pay attention to the developments and growth in China. 

Global sales of automobiles are forecast to fall to just under 70 million units in 2021, down from a peak of almost 80 million units in 2017, and the auto industry's most important industry segments include commercial vehicles and passenger cars. 

This global fall, is not the same for China. China is the largest automobile market for new car registrations December 2020 YTD, and the largest automobile market worldwide, both in terms of demand and supply. 

According to Automotive News, China's new-vehicle sales will grow 4 percent to more than 26 million in 2021 as the world's No. 2 economy continues to recover from disruptions caused by the coronavirus, the China Association of Automobile Manufacturers, experts predicted. China is the first country to be hit by the coronavirus and is expected to become the only major economy to grow in 2020. 

It is estimated that in 2021, the delivery of cars and light trucks will increase by 7.5% to 21.7 million, while the demand for new commercial vehicles will drop by 10% to 4.6 million, said Xu Haidong, an official of the Industry and Trade Group. 

It added that sales of new electric vehicles, including plug-in hybrid vehicles and fuel cell vehicles, will increase by 40% to 1.8 million units. Due to the increase in consumer and public spending after the coronavirus outbreak, China's demand for new cars increased for the ninth consecutive month in December, increasing by 6.4% to 2.83 million vehicles. Nonetheless, sales in 2020 declined for the third consecutive year, dropping by 1.9% to 25.3 million.

SAIC, China's biggest automaker, aims to boost sales 14 percent to 6.4 million this year, the most in more than a decade, behind a push into key EV segments. The company is targeting a 140 percent increase in new-energy-vehicle deliveries, to 768,000, Bloomberg reported, citing a person familiar with the matter.

For the first time, a Chinese automaker has beaten Toyota in sales in the U.S. For SAIC, that means it's on pace to beat VW and GM by the end of 2020. The company is hoping to achieve sales of 6.4 million units by 2020, including electric vehicles (EVs). SAIC is boosting EV production at its China car plants as Beijing seeks to cope with air pollution and reduce reliance on oil imports as part of an industry transformation. 

China has 44% of all the EVs in the world (more than 4.5 million), and the nearly 3.2 million in Europe account for about 31%. The fastest growth in EV sales has been in Europe: a compound annual growth rate of 60% from 2016 to 2020, compared with increases of 36% in China and 17% in the U.S.

The New York Times reported that China is rapidly expanding annual production of electric cars, and is on a pace to make more than eight million vehicles by 2028 as its companies race to build new factories.

Global automobile companies are helping China play a leading role. Volkswagen recently started building its third plant in China, which aims to produce electric cars. China already has electric vehicle infrastructure, thanks to the government-supported deployment of more than 800,000 public charging stations nationwide. This is almost twice the rate in other parts of the world. Although drivers in the US are more likely to live in single-family homes, they can more easily charge their cars at home.

Enter Africa. 

In Southern and Eastern Africa, there are demands for various vehicle types including passenger cars (PCs), LCVs, Heavy Trucks, Buses, Vans, Motor Cycles and others.

In most of these economies, the automotive markets are slowly shifting towards a service-oriented model with new players focusing extensively on customer experience and consumer data.

The future value proposition for automotive markets in these economies is dependent on the keenness of Chinese car makers willing to forge partnerships with local motor industry business owners, with the support of government, and financial institutions

Africa stands to benefit from this growth in China, as Chinese Car Makers look to new markets for EVs such as Southern African and East African markets, that have a high demand for passenger vehicles, and have governments with a Look East Policy. There are Vehicle Manufacturers in China that have started scouting in several countries looking for dealerships for distribution of their products. 

In these countries, Governments that sourcing from local producers/assemblers for vehicles, hence partnerships on Assembling locally are an option for Chinese Car Makers. Education and awareness campaigns must be conducted to conscientize the public on benefits of buying locally assembled vehicles. 

These Governments are to mobilise affordable long-term lines of credit, and also come up with packages of export incentives for local assemblers to encourage exports. These Governments and the motor industry players are negotiating with banks for customer funding to stimulate local demand, and to come up with tax incentives on locally produced vehicles. 

For countries like Zimbabwe, Botswana, Zambia, South Africa and Kenya the establishment of Special Economic Zones for local assemblers has begun, with some having been in the game for decades now. Governments like South Africa, Zimbabwe, and Zambia have introduced production incentives tied to local human capital, and resources used, and put in place tariff adjustments on the vehicle specifications as given in the corresponding Statutory Instrument.

With the growth of the Chinese Vehicle Industry, and he availability of human capital, and natural resources in Africa key to making cars of the future, there is need to look into the Chinese-Africa Car Dealership Models, and also locally Assembled cars within the continent.

Sources: Auto News, Pew Research

Cabanga Media Group publishes of thoughtful economic and business commentary magazines and online media, in several African markets, that include South Africa, Botswana, East Africa Community, Ethiopia, Egypt, Nigeria, and Zambia.