Fitch expects sales of passenger NEVs in China to grow by more than 30 percent in 2023, while ICE vehicles will decline by the low teens.
(Image credit: CnEVPost)
Credit rating firm Fitch Ratings expects China's new energy vehicle (NEV) sales to continue to grow strongly this year, while the traditional internal combustion engine vehicle market will decline significantly, putting the top automakers at risk of an electric vehicle transition.
Sales of internal-combustion-engine vehicles in China will fall by more than a dozen percentage points in 2023, while sales of passenger NEVs will continue to grow strongly by more than 30 percent, Fitch said in a February 10 research note.
That will drive continued market share losses for mass-market joint venture brands, which have limited presence in the NEV market, Fitch said.
The major joint ventures of China's largest state-owned automakers could see their market share decline further in 2023 due to slower progress in electrification, according to the report.
Global joint venture brands are under increasing pressure to accelerate their pursuit of electrification in China, but weak electric vehicle (EV) profitability and large upfront ecosystem investments are deterrents, Fitch said.
The two central state-owned auto groups rated by Fitch - China First Automobile Group Co. and Dongfeng Motor Group Co. - see their overall market share shrink by 1.4 to 1.6 percentage points in 2022. Their joint ventures account for 82 percent and 75 percent of their 2022 sales, respectively.
Dongfeng faces more challenges given its mass-market brand positioning and the slow NEV transition of its Japanese joint venture partners Honda and Nissan, Fitch said.
Sino-Japanese joint ventures whose NEVs once enjoyed good profitability may find it difficult to increase NEV sales without eroding margins amid recent increased price competition sparked by Tesla and some local Chinese electric vehicle brands, according to Fitch.
The FAW-Volkswagen joint venture has more exposure to the luxury car segment, is less affected by accelerating EV penetration and has a more aggressive EV strategy than other joint ventures, so FAW may be more resilient, the note said.
Volkswagen was one of the first foreign automakers to commit to investing in EV platforms and ecosystems, selling nearly 150,000 NEVs in China through its two joint ventures in 2022, Fitch said.
Despite declining market share, FAW and Dongfeng will maintain their top three positions in the market over the next year or two, supported by a large sales base, Fitch said.
However, the risk of them being left behind by faster NEV adopters such as GAC Group is rising.
Continued market share losses could affect business conditions and, in turn, independent credit ratings (SCP) and issuer default ratings, according to Fitch.
Meanwhile, auto dealers with high exposure to traditional ICE vehicles could face increased demand risk as NEV penetration rises, Fitch said, adding that if there is a price war for both NEV and ICE vehicles, this would add pressure on new vehicle margins.
China's retail sales of new energy passenger vehicles were down 6.3 percent in January to 332,000 units, down 48.3 percent from 640,000 units in December, according to data released by the China Passenger Car Association (CPCA) on February 8.
Retail sales of all passenger vehicles in China were 1.293 million units in January, down 37.9 percent year-on-year and down 40.4 percent compared to 2.17 million units in December.
In terms of retail sales, China's NEVs had a penetration rate of 25.7 percent in January, up 8.7 percentage points from 17 percent in January 2022, but down from 29.5 percent in December.
The penetration rate of NEVs among local Chinese brands was 43.8 percent, 21.4 percent for luxury brands, and only 2.7 percent for mainstream joint venture brands, according to the CPCA.
More From CnEVPost
