McKinsey survey: Chinese car buyers keen on SUV and EV

5/28/2018 9:14:59 AM

China is the world’s largest car market – with 24 million new cars sold in 2017 – about 1.5 the sales in the EU. It is a highly dynamic market where trends as EV, connectivity and shared mobility (and the conversion between them) are playing out fast. The Chinese car buyer hardly knows brand loyalty and is open to try new concepts. McKinsey China found that only 12 percent intends to choose the same brand for their next car purchase – even less than last year’s (19 per cent). 

China has the largest number of car brands on sale in the world. Not only are almost all global brands available, there is a wide range of Chinese and Chinese-international JV brands. Around 60 Chinese brands exist in the market, of which the top-20 contributes about 90% of all local brand sales. Geely, Chang’an and Great Wall are leading the pack (in unit sales)

McKinsey China performed an extensive, annual survey of over 5,800 Chinese car buyers. According to the report, the appetite for SUVs, cars in the premium segment and electric/hybrid vehicles is large – and growing. “Despite increasing volatility in sales growth, we expect the Chinese auto market to remain a primary growth of the global car industry”, says Wouter Baan, Associate Partner in McKinsey China’s Beijing office.  Estimates predict that China could contribute up to 50% of global growth in the coming years.

Low-priced SUVs

SUV sales continue to dominate growth in China. So-called entry-level SUVs, priced below 120 thousand RMB (15 thousand euro) were an almost a non-existent segment, but have accounted for more than half of sales growth in the past two years. Chinese brands are the biggest winners in this segment, where they at first faced limited competition from international players. Wouter Baan: “Foreign brands are still preferred by most customers but are not seen as the only choice anymore. Especially when looking at segments below 150 thousand RMB (roughly 20 thousand euro), Chinese consumers have started to show more appreciation for local brands.

The gap with the international brands has drastically narrowed on multiple fronts. Chinese brands have significantly improved their quality and mechanical performance. At the same time, they offer a lot of ‘value’ (e.g., richer feature sets) at attractive price points. Based on car buyer feedback we see that local brand buyers are typically at least as satisfied with their cars as foreign brand owners. Their motto is: “my car is worth of the money I paid for”.  Question remains how successful these brands will be in more premium segments. Wouter Baan has doubts on their ability to replicate the recent success in the higher-priced SUV mark

‘Chinese Tesla’

A different story could be new brands targeting disruptions such as electric vehicles, connectivity and eventually autonomous driving. “These ‘fresh’, privately owned, Chinese brands are aiming to become the ‘Chinese Tesla’. They are typically well-funded with (global) top talent and think more like a technology company than a traditional, often inefficient, China car company. They could have the best chance of leapfrogging (global) competition, which you see Chinese brands have done in other consumer categories, such as mobile phones.”

These companies will focus first on China.  The McKinsey report shows that China is now the largest market for new energy vehicles (NEVs) in the world. Stimulated by improving model assortment of OEMs, improving economics, expanding charging infrastructure, and a general interest to get hold of the latest technology, consumers seem to be warming up across all segments to buy an EV.

Test drive booking online

As visitors to China will know, mobile is dominant in people’s life.  Hence also in buying a car. Baan: “Especially younger consumers are growing up in a digital first world, and are not interested in the mediocre experience they are getting at car dealers. The research they do around car brands is predominantly online. Leading e-commerce players like Alibaba entering the auto space with online-first offerings. Booking a test drive is done online. Didi Chuxing, that acquired Uber’s operations in China, offers test drives for a wide range of brands on their app, after which that car will come to your location for the test drive.”

Keen on connectivity

The McKinsey survey found that China’s car buyers are keen on ‘connectivity’. Entertainment and navigation features are very important. Current in-car systems are regarded by many as ‘outdated’ and not matching the experience people get on their mobile phone. Interesting: they want in-car services so badly that they two-third of consumers is willing to switch car brands to get what they seek (which is almost 2 times higher than in the USA).  And they are willing to pay, 60% of consumers is open to subscribe for content, again double the USA.

Owning or sharing?

Owning a car remains important in China but it is losing the status symbol prestige of the past. One interesting item in the McKinsey report was ‘shared mobility’. China is already home to the largest ride-sharing market in the world.  Market leader Didi Chuxing operates over 25 million rides per day across 400 cities.  Also, relatively newer concepts for China, like car sharing are showing growth.  Millennials are catalysts of this, showing twice as likely interest to use car-sharing services on a weekly basis compared to older generations (12 percent versus 6 percent) and are more likely to use peer-to-peer (P2P) car rental services (14 percent versus 9 percent).

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