McKinsey study gives interesting insights into China’s electric car market

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McKinsey study gives interesting insights into China's electric car market-mckinsey

Many car manufacturers and suppliers in Europe, Japan and the US launch the large-scale introduction of battery electrical cars in their core markets. China, however, was one step ahead. Here, a fast-growing E-car market and a fast growing ecosystem has already emerged. In order to understand the great challenges and opportunities of the Chinese e-auto market, the management consultancy McKinsey has analyzed ten electric cars produced in China based on the McKinsey index for electric vehicles. Both electric cars of established manufacturers as well as emerging start-ups were investigated.

The comparison consisted of a detailed technical analysis and a cost estimate up to the level of each component. McKinsey has summarized the results in a detailed report: “How to Drive Winning Battery-Electric Vehicle Design: Lessons from benchmarking th Chinese Models” (PDF, English).

China – the world’s largest car market – moves quickly in the direction of electromobility

The Chinese automotive market is the world’s largest automotive market and makes a good third (around $ 40 billion) of worldwide total turnover of all automakers. The market has been relocating for years more and more in the direction of electromobility. From 2014 to 2019, sales of electric cars in China increased by 80 percent per year. With more than 900.000 units in 2019 were sold 57 percent of the worldwide electrical cars sold in China. Thus, China is the world’s largest e-car market. A look at the market shares shows that Chinese manufacturers almost completely dominate their home market. International manufacturers generated a market share of only 15 percent in 2019.

McKinsey study gives interesting insights into China's electric car market-mckinsey

The prospects for the market are still promising: the proportion of new registrations of e-cars in China is expected to rise from 3.9 percent in 2019 to 14 to 20 percent in 2025 – which is a sales volume of around 3.8 to 5 million Vehicles corresponds to. For comparison: In 2019, in Germany, 3,6 million cars were released over all the types of drivers.

In view of the Corona crisis with a serious impact on the global car market, the Chinese central government decided in March 2020 to extend the purchase subsidies for two more years to boost the electric car paragraph. The authors of the study therefore assume that the Chinese e-auto market after stagnation in 2020, compared to the two-digit growth before COVID-19 – will be both absolutely and relatively resumed in 2021.

The investigation shows that perception of Chinese electric cars in terms of safety, performance, connectivity and brands is exceptionally good. Consumers are aware of the financial and environmental benefits, and the driving experience is considered one of the biggest benefits of E cars. The analysis of the customer mood of the ten benchmark vehicles has a high average satisfaction rate of 85 percent across all manufacturers.

McKinsey study gives interesting insights into China's electric car market-study

Chinese e-car manufacturers are shortly before profitability

Several e-auto manufacturers in China have the potential to be profitable as their product cost structures benefit from several unique characteristics of the Chinese market. Reuse of existing combustion platforms, for example, shortens the time for research and development up to the market launch, standard components and a high degree of modularization keep the investment expenditure low. This design principles with their positive effects are supported by an ecosystem of local suppliers with many years of experience in the areas of electronics and batteries.

The bottom-up estimate of McKinsey material and production costs, based on more than 250.000 data points shows that nine of ten vehicles can achieve moderate to solid contribution margin of up to 50 percent. However, the authors of the study estimate that a positive operating margin is also possible with a lower proportion, such as collateral from sales, general and administrative expenses, research and development and investments. In particular, new market participants must first deal with structural challenges and a small total vehicle volume.

Significant variety of design and technology

Local automakers have shown a strong position on the Chinese e-auto market, but a closer look at technology shows that there are significant differences between manufacturers, such as the electric powertrain with the battery system, the thermal management and the integration of powertrain modules.

The designs of the electronic control unit differ significantly, in the cars of the ten manufacturers examined, six to 19 decentralized control units are installed. But it would also be possible to combine all functions in a single control unit, as is Tesla. This can increase efficiency and economy, but requires significant R & D investment and a high level of competence in software development.

The model variants also have clear differences: Chinese manufacturers usually offer two to four equipment packages in addition to the basic model. This reduces the complexity and costs compared to the larger portfolio of options offering western manufacturers. Seven of the ten benchmark models therefore have a price range of less than 50 percent between the basic models and the fully equipped top models. For five out of ten models, there are battery or engine upgrades, regardless of the equipment package, and three offer inexpensive design options such as color and wheels. As a result, an unused sales potential for price strategies or other revenue potential exists off the hardware, such as wireless software updates. The authors of the study therefore advise global car manufacturers to use the findings as a signal to simplify their portfolios or as a differentiation point, especially if they think about an entry into the Chinese market.

How to play successfully on the market

For each of the trends that the authors identified on the Chinese e-auto market, there is a related strategic measure or chance.

Development cycles accelerate. In order to increase profitability and to achieve a competitive advantage, the automakers accelerate the development cycles of their electric cars. For current models (and mainly first generation models), manufacturers have shortened the market launch time by reusing or modifying existing combustion platforms and relying on standard components. However, it is expected that the market launch time for the next generation of electric cars will continue to shorten even thanks to dedicated E-Auto platforms in view of the cost and design advantages at higher quantities.

The market composition will probably change. Meanwhile, there are around 80 e-car brands in China, which are owned by a good 50 companies. Of these, twelve start-ups with a market share of around 7 percent in 2019 are. However, three start-ups will be – especially if they have not started with production – find that market conditions are becoming increasingly unfavorable for them, so the authors. In particular, high fixed costs at low quantities burden these companies, so that every start-up should disappear, which can not scales quickly. In contrast, international manufacturers are expected to gain additional market shares alone, because they need to increase the share of electric cars to comply with state rules such as dual-credit guidelines, which a binding rate of electro car or plug-in hybrids sold prior.

The electric powertrain technology is standardized. The observed technological differences in batteries, power electronics and drives are expected to decrease, suspects McKinsey. The market will focus only on a few standardized constructions, as was the case with electric driving structures of burners. This is an important opportunity for suppliers who can supply integrated platform solutions for the powertrain, especially if they have synergies and economies of scale about a competitive investment base.

Electric car platforms are set up. The benchmark shows that Chinese manufacturers have realized a short market launch time through the use of common or modified combustion platforms. Higher electric car volumes, however, justify the development of dedicated E-car platforms to achieve design and cost advantages. In addition, E-cars are becoming increasingly due to dedicated production lines instead of, as is often common, flexible, shared production lines with combustors commonly used.

Non-Chinese manufacturer If their unique selling points have to use such an exciting brand image, superior engineering know-how and state-of-the-art production facilities in order to stand out from their Chinese competitors, the authors advise. At the same time, you must simplify your portfolios to offer less, but targeted and locally customized options that are supported by additional sources of revenue such as software and other technologies. In contrast, Chinese manufacturers should further increase their profitability by focusing on cost savings and at the same time increasing their revenue through more differentiated offers. Sophisticated price strategies and new sources of revenue are becoming increasingly important.

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6 thoughts on “McKinsey study gives interesting insights into China’s electric car market”

  1. I suspect that my next affordable E-car comes from China. My current E-Smart Wuwurde was built together with the Renault Twingo in Eropa. It is already clear that the next SMART is built exclusively in 2022 in China. Collar manufacturers in Germany will extenuate or for a residual clientel (Oltimer lovers!?) must be fused.

    Reply
  2. We have a Chinese MG ZS eV as 2. Carriage, price, processing and reach (in summer 320km) is top! My 2CT to the German car brands:
    BMW will go down, VW will come with the IDS with a blue eye of it and the rest bought by the Chinese.

    Reply
  3. @ Kemal ezkam
    That’s exactly how it will come.
    So I said it a year ago.
    Germany manages. Note: The foreigners are not guilty. &# 128521;
    Tomorrow I get my Kia e soul. That was nice gas station

    Reply
  4. According to article, sales of all manufacturers amounts to 120 billion. (China a third = 40 billion.). That’s not true rather. The Groupe Renault achieves Z.B. Alone without Nissan over 55 billion. sales volume.

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  5. Kia and Renault are not Chinese. And will never be those. The Chinese remain a home market for the needed need, as it was already in the burns.

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  6. The Chinese had had to wear masks for a long time and are used by the combustion mief in their biggests. Your automotive market is not greater than that in the FRG. Covit 19 have never been caught.

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