At the end of March this year, the eleventh generation of Beijing Hyundai's Sonata was launched with a starting price of 139,800 yuan, setting a new historical low for the guided price of joint venture B-class cars. It was unimaginable a few years ago for joint venture B-class cars to be priced like A-class cars, but this is a microcosm of the current overall predicament faced by joint venture brands.

Data provided by Xu Changming, a senior economist at the National Information Center, at a car industry forum hosted by Star Car Field, shows that from 2011 to 2023, the market share of foreign brands fell from over 70% to 50.2%. Looking at different stages, before 2014, the market share of foreign brands was above 70%; from 2015 to 2021, it was above 60%, showing an overall downward trend; in 2022, the market share of foreign brands fell below 60%, and in 2023 it further declined to 50.2%.

The loss of A-class and B-class sedans can be described as "pulling the rug out from under" for joint venture car manufacturers, especially for B-class sedans. There was a saying in the automotive industry, "He who wins the B-class car market wins the world," because B-class cars not only have a large market capacity but also offer more substantial profits than A-class cars. However, with the shift in market structure and intensified competition, joint venture B-class cars have seen price reductions of 30,000 to 50,000 yuan, or even 70,000 to 80,000 yuan, becoming the norm over the past two years, with mainstream joint venture B-class cars such as German and Japanese models being forced to lower their stance to compete for the market.

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Structural Adjustment

In the Chinese car market, A-class sedans can be considered a "battleground" for all. According to data from the Passenger Car Association, in 2018, the market share of A-class sedans accounted for 61% of the overall market, and even after a continuous decline in the following years, it reached 48% in 2023.

In the past few years, joint venture brands have dominated the main share of the A-class sedan market, with models like Volkswagen Sagitar, Bora, Lavida, Nissan Sylphy, Toyota Corolla, and Levin consistently topping the charts. But now the situation has changed, with the rapid rise in sales of A-class new energy vehicles from BYD, Geely, and Changan, which are among the top sellers and continuously squeezing the market share of joint venture A-class fuel vehicles.

The decline in sales of brands such as Volkswagen, General Motors, Nissan, and Toyota in recent years is also directly related to their product lines being overly reliant on A-class cars. Cui Dongshu, Secretary-General of the National Passenger Car Market Information Joint Conference, believes that the current situation in the passenger car market is the continuous contraction of fuel vehicles and the significant growth of new energy vehicles. Among them, the proportion of traditional fuel vehicles in the A-class car market has dropped from 97% in 2018 to 77% in 2023, while new energy vehicles have grown from 3% to 23%.

The management of Volkswagen has repeatedly emphasized the importance of "oil to electricity" for A-class cars. Volkswagen is working on localized research and development, and through cooperation with Chinese car companies such as XPeng, it is reducing costs. Nissan plans to launch 16 electric vehicles in the next three years, aiming to reduce the cost of the next generation of electric vehicles by 30%, with the hope of making the cost of electric vehicles and internal combustion engine models equal by 2030. Brands like Honda, Toyota, and General Motors are also introducing plug-in hybrid models, moving towards the same price for oil and electricity. In October last year, the 2024 Buick Velite 6 430km version was launched with a limited special price of 99,800 yuan, setting a new low for the price of joint venture brand pure electric compact cars.

At the same time, second-tier joint venture brands are struggling with the balance between sales scale and profitability, and are actively adjusting their product structure to reduce the proportion of A-class cars and gradually achieve brand upgrading. Qi Xiaohui, Deputy General Manager of Beijing Hyundai, said that when Beijing Hyundai's annual sales exceeded 1.1 million vehicles, it sold a lot of small cars priced below 100,000 yuan, which were used to boost sales. This has made the brand image of Beijing Hyundai more about the low price of its products. Now, Beijing Hyundai has "cut" these small cars, such as the Reiz, Yuena, and Yuedong.

"In the past rapid development, the issue of the healthy development of the enterprise was neglected, and in the future, it is still necessary to develop healthily and stably." Qi Xiaohui said that after the decline in sales, Beijing Hyundai has been transforming and adjusting in the past two years, and the sales proportion of models priced above 150,000 yuan has reached more than 36%. In the next three to five years, Beijing Hyundai hopes to stabilize the domestic market sales at the 300,000 level. Official data shows that in 2023, Beijing Hyundai's sales volume was 257,000 vehicles, a year-on-year increase of 2.8%, of which high-end models (the tenth-generation Sonata, the fifth-generation Tucson L, the fourth-generation Santa Fe, and the Custo) accounted for more than 34% of sales, a year-on-year increase of 11%.This move, however, is likely a double-edged sword, as it is not easy for brands to ascend in the market. Actively abandoning low-cost vehicles could lead to a contraction in sales volume and damage to the dealer channels.

Can the situation be broken?

Xu Changming stated that foreign brands have encountered significant difficulties in the Chinese market, but the market demand remains considerable. Foreign brands must make significant changes to continue to make an impact in the Chinese market. The main reason for the current difficulties in the development of joint venture brands is the slow transition to electrification.

In 2023, the penetration rate of new energy vehicles for domestic brands reached 59.4%, while mainstream joint venture brands only reached 5.1%, and the penetration rate for luxury brands (excluding Tesla) was 8.5%. Looking at different price segments, in the new energy vehicle market below 100,000 yuan, the share of foreign brands is only 1%, in the 100,000 to 150,000 yuan market, the share of foreign brands is 4.6%, in the 150,000 to 200,000 yuan segment, the share is 8%, and in the 200,000 to 300,000 yuan range, it is 47%. This means that in the market below 200,000 yuan, the proportion of foreign brand electric vehicles is relatively low, and this is the mainstream market for automobile consumption in China.

However, Xu Changming believes that it is not yet possible to conclude that joint venture brands will definitely fail in China. On one hand, in the fuel vehicle market, joint venture brands have a clear advantage, and the higher the end of the fuel vehicles, the more obvious the advantage of joint venture brands. In the fuel vehicle market of 150,000 to 200,000 yuan, the market share of domestic brands and joint venture brands is 16.5% and 83.5% respectively. In the fuel vehicle market above 200,000 yuan, joint venture brands account for more than 90% of the market share. On the other hand, new energy vehicles and fuel vehicles each have their own customer base, and both have a large market space. In addition, the profit margins of foreign brands are generally above 5%, with Toyota, Volkswagen, and Hyundai's profit margins being 9.1%, 5.5%, and 8% respectively. The profit margins of domestic brands are generally below 5%, with BYD, Geely, and Great Wall's profit margins being 5%, 2.1%, and 4.2% respectively. From the perspective of financial health, foreign brands have a stronger ability to fight a protracted war and a war of attrition.

"In the rapidly developing electric vehicle market, foreign brands still have opportunities in the future. They have the ability to respond to price competition in our country's market, mainly depending on their strategy," Xu Changming said. Foreign brands still have expectations from their base users for joint venture new energy, but foreign brands must be willing to sacrifice profits in the short term to maintain their market share.