World's Largest Car Market To Be Dominated By Electric Vehicles As Legacy Brands Face Crisis

A growing number of media reports over the past few months indicate that there is a significant decrease in sales of petrol and diesel cars in China, and this could cause massive losses for some of the world's best-known car brands.

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Despite the fact that the problems that are now surfacing in the Chinese vehicle market have been developing for many months, it does seem as though a penny is finally falling from the sky regarding the implications for not only the future of the legacy automotive sector, but also the overall economy of the country.

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As pollution crunch looms in China, Legacy auto faces disaster with unsellable cars and the threat of a pollution crackdown - a report which led the reporting last week.

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On Monday, the US-based Electrek published an article in which it claims that China was slowly squeezed out of its massive market by global carmakers. This story was followed up by a Bloomberg report on Monday on "ICE car values plummet in China and it is the canary in the coal mine".

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Many observers and investors in the auto industry are now starting to take a closer look at what might be causing the current financial crisis because there are several factors that appear to be accelerating it.

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With EV sales reaching 25% in China, it is the first major market to achieve this milestone

In Norway, EVs account for 90% of the new car market, but in China, EVs have reached a market share of 25%, which is the first time an EV has achieved such a large share in a major market around the world.

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A country such as Norway, with only 5.4 million people, is a small market in terms of its number of petrol and diesel car sales, but with a population of almost 500 million people in the European Union, this is quite a large market.

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In contrast, this is not the case for excess petrol and diesel cars sold in China, which will be the largest car market in the world in 2022, with a sales volume of almost 27 million units, or 34% of all the cars sold worldwide in 2022.

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Many people are just now realizing that the electric vehicle is taking massive amounts of market share from petrol and diesel cars, something that is becoming a serious problem for the legacy automotive industry in the long term.

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There are currently more full battery electric models being sold in Australia than hybrids, which has grabbed 6.8% of the market overall for new cars; EV sales are now overtaking hybrids in Australia and overtaking their future in hybrids: See EVs overtake hybrids in Australia, grab 6.8% of the market for new cars in Australia.

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It has taken years for Japanese, German and US traditional automakers to develop EV production, since there are no large-scale production facilities for electric cars being offered by any of the traditional automakers.

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Toyota's total EV production is only 0.2%, which means that the shift to EVs is also a shift to Chinese brands like BYD and Tesla, which have dominated the global EV market for a long time, since EVs make up just 0.2% of Toyota's sales.

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In 2022, there will be 27 million vehicles sold in China, of which 7 million will be EVs. This is a staggering 25% of the biggest market in the world that, from the standpoint of petrol/diesel car makers, will disappear completely within two decades.

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A 40% reduction in the price of new cars was forced on legacy auto companies by the new car regulations

An article by the Chinese business and finance website, Jiemian, which was published on March 17 with the heading "China's new car price war spills over into the second-hand car market" was published.

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In an effort to protect their hard-won market shares, Mercedes-Benz and Chevrolet have decimated prices by more than 40% over the last few years. Jiemien stated that the old-style makers of traditionally-powered cars have decimated prices by as much as 40%.

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There has been a dramatic drop in prices for new and used ICE vehicles as dealers frantically try to offload stock as an effort to achieve a sales or profit increase, according to Jiemain. The Chinese government half-diminished sales taxes for new ICE cars in June last year in order to stimulate the market, but that only pushed things along further.

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In a story reported by Jiemain, it is reported that the country's second-hand car dealers " are feeling the shock of a price war that threatens to ravage the vast market for used cars in the country.".

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The use of electric vehicles is expected to reach 35% by the end of 2023, at a faster rate than anticipated

In 2022, EV market share grew at a staggering 93% over 2021, which represents a significant increase over the previous year. The speed at which the Chinese market is moving will compound the current problems.

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According to Reuters, in 2021 they estimated that China's electric vehicle sales would reach 35% by the year 2025, even though Bloomberg is asserting that that could happen by March 2023, even if the Chinese market does not reach that mark until 2028.

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In other words, this means that the petrol and diesel car markets are going to contract by millions sooner than anyone expected (even executives from the legacy auto industry).

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Legacy auto companies have a canary in the coal mine with swollen dealerships

It's important to turn off the taps before it's too late, as if it were a bathtub with a stuck plug. This is how easy it is to stop the leak.

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There have been many new cars being introduced into the Chinese market as dealerships have swollen over the past few months.

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Although they are capable of taking on a lot, EVs are coming on strong and China's new 6B pollution standards under way are quickly approaching, so it's impossible to know how legacy auto companies will be able to maintain any level of sales that could rival their current sales in the next 12 months.

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In spite of the fact that the drop in ICE vehicle market share doesn't seem overly dramatic on the graph above, it's really important for us to remember that the shift is happening at an exponential rate. People tend to think that exponential trends move slowly at first but then start moving at a rapid rate once they achieve their full momentum.

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We are now approaching the meaty part of the curve, where the chunks being taken out of ICE vehicle market each month are getting bigger and bigger, and we are now at the stage where we are starting to see the evolution of the market share for EV's in China.

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A relatively small drop in sales might be all that it takes for a legacy auto company to be thrown over the edge by a drop in sales, but that drop might be all it takes to tip them over.

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In order to achieve this goal, what will it take?

There's no question that the legacy industry was on the cusp of a major boom in 2008, just like the subprime mortgage crisis in 2008. But the key question is how long will it take to tip legacy down the drain?

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Among the world's biggest auto companies, Volkswagen is one of the most indebted companies, along with Toyota.

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There is a question of whether they can sustain the loss of 30% of sales in markets like China or whether they will be affected by the approaching 50% market share of electrified vehicles in China in 2024. Both Toyota as well as Volkswagen have no plans to begin mass production of electric vehicles until 2027.